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Management of Innovations and Entrepreneurship
Malin Brännback Fall 2004

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Course outline

Course Outline
 W. 38; Sept. 13, Introduction, Innovations,
Innovations Management, Entrepreneurship
 Questions to complete for week 39 (Drucker Ch. 1,2, 10,11..you may want to look through ch. 3-9 as well)  Analyze Business Week “great innovators”, cold call 15 min. max on week 39  Guest Lecture: Alan Carsrud Entrepreneurship, what it is and what it isn’t

 W. 39;

Sept. 20, Entrepreneurship, Entrepreneurial Business – The New Venture
 Questions to complete for week 40. Drucker Ch. 1215) Article 1, 12, 4, and 9

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Course outline

Course Outline
 W.40; Sept. 27, Diffusion of Innovations,
 Questions to complete for week 44 (Moore Ch. 1-5)  Article 3, 5, 7 and 8  Guest Lecture: CEO Markku Jalkanen, Faron pharmaceuticals, former CEO, still owner and founder of Biotie Therapies  Hand-out of GR-1 assignment to be prepared in pairs and to be handed in on October 25

 W. 44; Oct. 25 The Idea, Defining the Concept and
Markets – it’s more than just potential
 Guest Lecture 25.10, Kei Heikkilä-Stenvik, Commercialising high technology  Articles 2, 6, 11

• Contact Lenses for Chickens

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Course outline

Course Outline
 W. 45; Nov. 1, Business Plan Development  W. 46; Nov. 8, The Dynamics of Innovation/Open Innovation  W. 47; Nov. 15, Four Business Plans
 Questions from Utterback and Chesbrough to be handed in on Feb. 3  You will read 2 business plans  GR-2 assignment. Prepare in pairs an evaluation of one Business plan, to be handed in and prepare to discuss.  Guest lecture, VP Business Development Kai Lähdesmäki and CTO Timo Veromaa, Biotie Therapies  Questions from article #13 to be handed in on Nov. 8;  Contact Lenses for Chickens prepare to discuss  Hand-out of 2 Business plans

 Individual assignment to be handed in W.48 Friday at 15.00

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Course outline Assignments

Large Individual Assignment
You will write a case on an innovation Describe an innovation – Describe how it came about and its
evolution over time. Describe the market, competition, Describe the management team Where is it right now? Problems ahead I want a good story; I want facts and I want your own analysis of the case

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Course outline Assignments

Assignments, and Grading
 A: 2 Group assignments, max. 45p
 Contact Lenses for Chickens 15p  Business Plans 30p
• 15 p for full analysis • 5p x 3 for minor analysis of the other 3

 B: 10 Individual assignments max 90p
• • • • • • • w. 38 10+10+5 = 25p w. 39 10 = 10p w. 40 10+5 = 15p w. 44 10+5 = 15p w.45 10p w. 46 10p w. 47 5p

 C: 1 Large Individual assignment 65 points  Total 200 p. 100 points required for pass, min. 50% of each
assignment. NO EXAM

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Course outline Assignments Introduction

IN 1874…. SAMUEL CLEMENS WROTE…
TRYING TO GET THE HANG OF THIS NEW FANGLED MACHINE.. ..[IT] COSTS 125 DOLLARS. THE MACHINE HAS SEVERAL VIRTUES. I BELIEVE IT WILL PRINT. FASTER THAN I CAN TYPE…IT PILES AN AWFUL STACK OF WORDS ON A PAGE

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Course outline Assignments Introduction

“There are more things in heaven and earth than are dreamt of in your philosophy.” “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven , we were all going direct in the other way.”

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Course outline Assignments Introduction Tech change

Let’s look at the history of technological change..
The past informs the present and the present illuminates the past

 You will need to look

into a firm’s or an industry’s historical development in order to spot discontinuities or other major breaks  Find out about their past leaders  Look into developments in society at large  Get the big picture!

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Course outline Assignments Introduction Tech change

Times of Change
The emergence of the Internet is said to be the
greatest change ever. Scientific advances in biotechnology is said to have the most profound change on man now and in the future.

It depends on your reference point! Major technological breakthroughs tend to
change industries, business, society, etc – but change is incremental (mostly)

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Course outline Assignments Introduction Tech change

Eras of Change
Knowledge Age Technology Age Industrial Age Agricultural Age Biotech Age

Value Creation

Stone Age

Iron Age

Time
Reference: R Boulton & al. Cracking the Value Code an Arthur Andersen publication

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Course outline Assignments Introduction Tech change

Technological change
However, the market is almost
never where the inventor thinks it will be. Although the feelings about hype appears to create the same kinds of feelings regardless of time

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Course outline Assignments Introduction Tech change

150 years ago!
The Industrial revolution – nothing much
happened before the railroads came although the steame engine was the invention enabling the REAL change: The communications and transportation revolution
 telegraph and railroads  City of Chicago population soared; 1850 29,963; 1870 298,977; 1890 1,099,850; 1910 2,185,283 • 104 trains came and left Chicago per day in 1856

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Course outline Assignments Introduction Tech change

Technological change
 The Internet would not have been without the
invention of the computer or even the coming of the PC back in the 1970’s
 Paul Freiberger and Michael Swaine: Fire in the Valley

 and ultimately the World Wide Web 1989, which
needed an interface – the Mosaic in 1992

 So, the major invention was the computer, needing
the combination of a whole array of prior innovations assembled together for creating a commodity – and now all hell’s loose.

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Course outline Assignments Introduction Tech change

Views of technology business
 A Technologists view
If a man makes a better mousetrap than his neighbor, though he builds his house in the woods, the world will make a beaten path to his door.

 A Market-Oriented view
The manufacturer who waits for the world to beat a path to his door is a great optimist. But the manufacturer who shows this “mousetrap” (and its value) to the world, keeps the smoke coming out his chimney. O.B. Winters

Ralph Waldo Emerson

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Idea, Invention, Innovation – 3 different words

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Definitions

A Technological innovation is the successful implementation of a technical idea new to the institution creating it. The essence of technology-based innovation is the systematic and successful use of science to create new forms of economic activity. Technology-based innovation thus represents a subset of all innovation. The distinction between technology-based innovation and incremental product enhancement is based on the extent of novelty in the science or technology A commercial innovation is the result of the application of technical, market, or business-model ingenuity to create a new or improved product, process, or service that is successfully introduced into the market.

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Definitions

An invention is distinguished from an innovation by its character as pure knowledge. An invention becomes an innovation with the first commercial transaction. An innovation is thus a commercialised invention The direct products of a technological invention are not goods or services, but the recipes used to create them. This may result in patents, or more broadly in new firms or business units within existing firms. A patent refers more to an invention than an innovation. Inventions are the necessary seed for technological change, but it is innovation that generates the economic benefit.

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Innovation
Innovation is a highly complex process
affected by many factors within the business environment. Innovation goes beyond R&D and should not be understood as simple transfer of know-how and technology, in which knowledge, production, application and exploitation can be separated Support of R&D is still based on the linear model of innovation

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Innovations
Innovations are closely related to product
development
 levers by which companies can reinvent themselves  Innovations streams are patterns of innovation that are required for sustained competitive advantage  First, we will look at the purpose of the business and  Then, on diffusion of innovations – to innovation streams we will return on week 45

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Innovations
Innovations studied within industrial economics
as technological paradigms and trajectories Innovations management as management of technology and R&D Product innovations Process innovations Business concpet innovation Incremental, radical or disruptive innovations Architectural innovations

Value innovations

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

 Schumpeter (1934); innovations is an idea or an
invention that can actually be sold on the market, mere commercial potential is not enough!  The most productive innovations is a different product or service rather than just an improvement (avoid me toos!)
 innovation is not invention  it’s a term of economics rather than of technology  non-technological innovations are as important

 Innovation is the task of endowing human and
material resources with new and greater wealthproducing capacity.

Innovations – according to Drucker Å A
Course outline Assignments Introduction Tech change Idea, Invention Innovation

Technology

Is much more a term of economics than it is about technology

?

!!

What do you know about markets??

!!

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Innovations
Along intensified competition and
globalisation of business a wider view of innovations is evolving
 Knowledge management, and
• Complex search, learning and problemsolving process

 Organisations learning  Competence-based competition

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Course outline Assignments Introduction Tech change Idea, Invention Innovation

Innovations management
Used to be integrated – today based
on networking Spatial proximity becomes essential for sharing and creating knowledge Management of knowledge-based processes bewteen
 university and business  business and business

Create profitable business

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It’s not just about ideas

Here’s a great idea, it’s from me

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

Entrepreneurship
 Often:
 One who starts his own, new and small business  Is entrepreneurship only for small business???

 Better:
 one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them

 Or:
 J. B. Say: changing the yield of resources  Changing the value and satisfaction obtained from the resources by the consumer

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

A process definition of Entrepreneurship
It is the process of recognizing, seizing,
pursuing and exploiting opportunities without regard to the resources you currently control.

An attitude towards management and

technology that focuses on opportunities, needs fulfillment and controlling resources. It is not focused on risk management, owning resources, or science for technology sake.

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

Entrepreneurship
But not every new small
business is entrepreneurial or represents enrtrepreneurship

Even large companies can
be entrepreneurial

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship Opportunities

OPPORTUNITIES
 Good scientific outcomes are not always good
opportunities nor viable business concepts.  Concepts are built using science & entrepreneurial creativity - in real time and take time.  Opportunities are attractive, durable, timely, and anchored in a product or service which creates or adds real value for its buyers and end users.  Viable business concepts provide Need Satisfaction, Pain and/or Suffering Relief.  Opportunities yield measurable net benefits to the entrepreneurial team and to society.

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship Opportunities Commercialization

Science, Commercialization and customers
 Science&Commercialization:
 Avoid spending too much time and money on “Trombone oil or Space Shuttle docking ideas”  You may turn out the best product in the world, but the entire world needs only about a pint a year or five in a generation. These are great ideas, but poor business opportunities or concepts.

Customers:
 “I cannot give you the formula for success, but I can give you the formula for failure...which is: try to please everyone.” Herbert Bayard Swope

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

VENTURE CONCEPTS and Financial resources
Venture Concepts: Financial
 "Vision is the art of seeing things invisible.” Jonathan Swift

Resources
 "Happiness is a positive cash flow.” Fred Adler

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

ENTREPRENEURIAL ASSESSMENT and Reality Check

"The true
entrepreneur acknowledges that he or she cannot succeed alone."
 Dr. An Wang

"Never tell me the
odds."
 Han Solo in "Star Wars"

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

VENTURE EVALUATION and Success
"Confidence is
what you feel before you comprehend the situation."
 Old Proverb

"Success, as I
see it, is a result, not a goal."
 Gustavae Flaubert

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

COMPELLING INTEREST
“Choose a job you love, and you will
never have to work a day in your life.”
 Confucius

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

IN FINLAND In 2000 there were 222817 companies which employed 1,301419 persons, with a turnover of €262 million

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship

The corporate structure of Finalnd in 2000 (Pki-Ytkkk/Tukkk)
Yritykset

Henkilöstö

Liikevaihto

0%

20 %

40 %

60 %

80 %

100 %

0-9

10-49

50-249

yli 250

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

What is the purpose of a business?
Drucker, P. F. (1974), (2001), (2002) Porter M. E. (1980), (2001) Moore, G. A. (1991), (1995) Moore, J. F. (1996)

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

The purpose of a business
To create a customer

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

Business Model
A business model is not just an idea
of what could be a business A business model require the definition of the business and its purpose and mission have to be translated into objectives
otherwise, they remain insights, good intentions, and brilliant epigrams that never become achievements

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

Business Model
 Business people have to create markets with
effective demand  There has to be a customer who is willing to pay converting resources into wealth.  What the customer considers value is never just a product, it is always a utility, i.e. what a product or service does for him  A business model in order to be viable requires a sound revenue model, with one objective
 Profit is the test of the validity of the business model  Profit is a condition of survival. It is the cost of the future, the cost of staying in business

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

The purpose of a business
create a customer a business enterprise therefore has
only two basic functions:
 marketing and innovations

There is only one starting point
 The customer

The customer defines the business!

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

The business will start out with the
needs, realities and values of the customer.
 What does the customer want to buy? Not what do we want to sell!  A business can exist only in an expanding economy or in one that considers change both natural and acceptable  It is not necessary to grow bigger but to grow better

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

There is only one starting point It is the customer The customer defines the business
 not the name or statutes  not the technology

Who is our customer?
 there is never the customer – but a customer – there is usually at least two sometimes even more

Where is the customer? What does the customer buy?

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

Fundamental questions
What is our business?
 can only be answered by looking at the business from the outside  should not be asked when the company is in trouble although then it must be asked!  it is never popular to argue with success, but success always makes obsolete the very behavior that achieved it. It always creates new realities.

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

Fundamental questions
What will it be? What should our business be?
 the most important trend which few businesses pay much attention too is changes in population structure and population dynamics. Population shifts are the only events regarding the future for which true prediction is possible

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

What is our business?
A systematic analysis of all existing
products, services, processes, markets, end users, and distributions channels.
     Are they viable? Will they remain viable? Do they still give value to the customer? Will they do so tomorrow too? Do they still fit the realities of the population and markets of technology and economy?

Defining the purpose of the business and
mission have to be translated into objectives.

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

QUESTIONS TO ASK
Is this really an adequate business
opportunity? Is this one we want to pursue? What resources are required to exploit it? How do we acquire them? How do we manage the operation? How and when do we harvest?

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business

Five Requirements of Obectives
Must be derived from what our business is, will
be and should be
 represent the fundamental strategy of a business

Operational
 converted into specific targets and assignments

Enable concentration of resources and efforts –
must be selective

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives

Five Requirements of Obectives
Multiple objectives Are needed in all areas on which the survival of
the business depend

Objectives are not fate; they are directions,
commitments, and means making the future of the business

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The objectives need to be formalised into what is normally known as a business plan!

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives

8 Objectives
 Marketing objective – create a customer  Innovation objective – or become obsolete  Human resources – do we have the right skills  Capital resources – do we have the material  Physical resources – do we have adequate
facilities
 These need to be employed productively;

 Productivity objectives  Social responsibility, and  Profit requirement

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives

Innovation as an objective

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives Diffusion of Innovations

Diffusion Stages

Diffusion of Innovations

Adoption

Trial

Interest Awareness

Time

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives Diffusion of Innovations

Diffusion Stages

Adoption

Trial

Interest Awareness

Time

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Rate of adoption
Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives Diffusion of Innovations

Product Adoption
34% 34%

13.5% 16% 2.5% Early Early Late Laggard adopter majority majorit s s y

Innovators

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives Diffusion of Innovations

Moore’s Tornado

The mainstream market The early market The Chasm

Technology enthusiasts

Visionaries

Pragmatists

Conservatives

Skeptics

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Objectives Diffusion of Innovations

Technology adoption
The Chasm; a time of great despair, when earlymarket’s interest wanes, and the mainstream market is still not comfortable. The Bowling Alley; a period of niche-based adoption in advance of the general marketplace The Tornado; mass-market adoption - when the general market switches over to a new infrastructure MainStreet; aftermarket development, flesh out the full potential of the infrastructure End of life; can come too soon in High-tech due to disruptive technologies

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Course outline Assignments Introduction Tech change Idea, Invention Innovation E-ship The Purpose of Business Technology Objectives Product Diffusion of Innovations Value Proposition

The Value Proposition

Benefit s

Value Proposition Problem

Market

Management

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Assessing High Technology

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Technology Assessment

Technology

Functional Capabilities

Benefits

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

The new technology will provide increased capabilities to the user. Technology should yield significant
benefits in:
     Performance Functionality Capabilities Cost reduction Two or more of the above

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Product Technology
This technology is not a radically
new, disruptive technology that will replace current technology
 Examples: 8” to 5 1/4” to 3 1/2” disk drives  Might be more expensive initially, lower cost after majority adoption

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Product Technology
There are no technology standards
issues.
 Technology based on stable standards  Not in a current technology standards conflict  (or will this replace an existing standard that is outmoded)

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Example: Portable Personal Computers
Functional
Capabilities
 Weight  Size/Volume  Processor speed Mhz  Battery life

Benefits
 Portablity  Effective compute power  Maximum time without power connection

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Example: Fiberoptic Cable
Functional
Capabilities
 Low weight/size/cable  Less signal attenuation  High message volume capacity  Fast transmission  Immune to cross talk, RFI and EMI

Benefits
 Easier to install; lower cost  Fewer retransmission amplifiers  More clear signals  Easier to trouble shoot & maintain

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Example: Email
 Functional Capabilities  Benefits
 Multiple addressees  Instantaneous, electronic transmission  One click reply & forward  Stored addresses  Electronic message storage  Real time communication  Easy mass mailing  No delay  Quick & easy response  Minimal  No paper, no postage, no envelopes, no storage cabinets  BUT THERE ARE NEGATIVE BENEFITS AS WELL

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Example: Cellular Short Message Service (SMS)
 Functional Capabilities Benefits
 160 characters/message  Faster to transmit than voice ;minimum transmission time  Message immediately transmitted  Email on a cell phone

 Less costly to transmit  Cellular services price lower than voice calls  Silent, doesn’t ring, discreet messaging  Instantaneous transmission

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Market Hypotheses
Competitive environment acceptable
 1 or 2 major competitors maximum

Segment addressable
 Segment is unique, identifiable, reachable

Segment critical problem
 Target customers can verbalize their problem  Serious problems exist

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

More Hypotheses
Small segments better for startups Segment knowledge critically
important

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Product Hypotheses
H: Product is unique “breakthrough”
 Advanced over current state of technology

H: Product concept is proven
 Developed and beta tested  Solid technical foundation  No standards issues

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

The Value Triad Basic Elements of a Value Proposition

Customer

Product

Value Proposition Application

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

The Value Triad
An analysis tool Has three inter-related elements :
 Product  Customer  Application: A set of functional capabilities or features

All three interact to create a “value” This “value” is what customers buy

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

The Value Proposition
The combination of product &
application creates value for a particular customer segment Is something to sell Forms the basis of:
 Marketing  Advertising and public relations  Promotional programs

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Change any element of the triad and
it creates an entirely new value proposition

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Value Triad Example
Customer:
Consumer in their own kitchen Product: A $3.00 manual eggbeater Application: Bake a family birthday cake Value Proposition:
 “A manual eggbeater can save you time and energy over using a spoon to bake a single cake”

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Another version
Customer:
Owner of Bed & Breakfast Inn Product: A $350 Hobart table top mixer Application: Making pancakes for 10 guests every day Value Proposition:
 “The Hobart mixer is a faster, more efficient mixer that is sturdier, reliable, and suitable for significant daily use”.

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

And a third version
Customer/Buyer: Finnish Army User : Military cook/baker Application: Baking 500 cakes/day Product: $3,500 Large capacity,
heavy duty, floor mounted industrial mixer Value proposition:
 “This industrial mixer provides high capacity, high performance and very long term reliability”.

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Value Matrix
Frequently the product is already defined Then 2 variables: Customer & Application Can use a spreadsheet analysis:
 Rows:  Columns: Applications/ Features Customer target market segments

Rank each application and customer type
 1 to 5: 5 = “must have”, 4 = “should have”, 3 = “nice to have”, 2 = “useable, but not important”

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

A “Must Have” Compelling Reason To Buy
Critical to product launch success Without it you’ll probably never get to
see the chasm, let alone cross it Absolutely required to cross the chasm and to sell early majority pragmatists

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Early majority/Pragmatists don’t buy
“4s - Should Have” value propositions
 The strength of the value proposition must exceed the pragmatists’ fear and risks of buying a high tech discontinuous product

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

A “Must Have” Value Proposition is a Compelling Reason to Buy:

Three sources of a “Must Have”:
 #1 - Provides a dramatic competitive advantage  #2 - Radically improves productivity  #3 - Significantly reduces costs

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“Must Have” #1: Provides a Dramatic Competitive Advantage

Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Advantage not previously available Dramatic, significant, not minor In a major operational area Examples? ATM, CT scanner, Polaroid camera,
Xerox 914 copier, Birth control pill

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

“Must Have” #2: Radically Improves Productivity
Improves productivity of a wellunderstood critical success factor Superior price-performance Examples? CAD software, e-mail, Internet search engines, word processing & spreadsheet software, Viagra

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

“Must Have” #3 Significantly Reduces Operating Costs
Must be visible, verifiable, significant,
quantifiable, easy to prove “Free” offers get attention Examples? ATM, laparascopic surgery, spreadsheet & word processing software, online software distribution

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

CROSSING MOORE’S CHASM

Difficult to cross the chasm if only
have 1 of the 3 sources of “must have” Better to have 2 of 3 sources Best to have all 3 sources
 ATMs  Laparascopic surgery

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Laparascopic Surgery
Why has this method of surgery
become so popular? Can you determine the sources of the Compelling Reason To Buy?

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Laparascopic Surgery
Dramatic competitive advantage
 Faster patient recovery, reduced pain, safer  Patients go to doctors & hospitals who do it

Radically improves productivity
 Doctors spend less time per surgery & post op

Significantly reduces costs
 Less time in hospital = less cost  Insurance companies benefit, lower premiums

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm.

Value Matrix Exercise for Any Technology
Develop a value matrix Vertical axis = applications/features Horizontal axis = Target customers Rank each cell 1 through 5
 1 = “not usable”, 2 = “minor benefit”  3 = “nice to have” 4 = “should have”  5 = “must have”

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Back to Moore
The Bowling Pin model

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin

Bowling Pin Model
Approach niche market expansion in
as leveraged a way as possible towards the tornado A niche requires its own whole product to be fully complete before it can adopt the new paradigm

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin

The Bowling Pin Model
Niche market (risk of being stuck in
the middle (Porter, 1980) Knowledge spill-over Knowledge leverage and stretching One shot and several hits - as many as possible!

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin

Bowling Alley Market Development
Seg 3 App 1 Seg 2 App 2 Seg 1 App 3

Seg 2 App 1

Seg 1 App 2

Whole Product

Seg 1 App 1

Customer References

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin

Principles of the Bowling Alley Strategy
“Pick on someone your own size”
 The primary objective to establish yourself as the market leading standard
• Merita Solo/Wells Fargo

 The segment has a very good reason to buy  The segment is not well served by any competitor

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin

Principles of the Bowling Alley Strategy
Focus on the end-user community
not on the technical community
 Not on the doctor but the patient  Not on the operator but on US

Customer-orientation versus productorientation
 monipuolinen vs. monimutkainen

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin

Rejecting the Bowling Alley
 They require time to implement; time which is a
shortage in fast moving industries -therefore thought not to work  Companies tend to be happy with their first achievement - “we’re aiming for 1% market share”; satisficing  Serving a niche may require to hefty product and too much service, which paralyses the organisation  The structure of the consumer market does not support bowling alley strategy (functional food)

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin The tornado

Tornadoes
The focus shifts from the economic buyer
to the technical buyer Ignore the customer; people are lining up anyway
    they do not want to be courted they want to be supplied they want the commodity Internet is said to be the greatest commoditiser!

The tornado requires distribution channels
and logistics - can you afford it? (Bowling Alley)

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin The tornado Main Street

On Main Street
From niche market to commodity
market Focus on the end-user mass customisation you already have the customers just continue feeding them get closer to customers - markets are conversations!

The Main Street of the Information Å A Age
Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin The tornado Main Street

The Tornado
 sell to infra buyers  drive price points ever lower to maximise market share  attack the competitor to gain market share  position yourself horizontally as standard global infrastructure

The Main Street
 sell to end-users  +1 value propositions to gain margins  compete against yourself to gain margin share  position yourself in niche markets based on individual preferences

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin The tornado Main Street

Segmentation
In the early market - beware of
segmenting - you must not! In the bowling alley - you must! Once inside the tornado - don’t! When on Main Street - segment you must! But not in the same way as in the bowling alley - the basis is now your +1; the value proposition

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin The tornado Main Street

Other barriers
Apart from technology cultural psychological The barrier is not objective but
subjective

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin The tornado Main Street

Predicting Tornadoes
Bowling alley successes help start tornadoes as
they validate product architectures - one niche market success in place Price point is a good indicator of when you’re in reach, i.e. when the tornado comes - mobile phones became the commodity killer apps. (do tornados cause killer apps or vice versa?) When a gorilla comes around - you are in a tornado

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Course outline Assignments Introduction Idea, Invention Innovation E-ship Value Proposition Tech Assessm. Bowling Pin The tornado Main Street Gorillas

The Gorilla Advantage
Competitive advantage
 getting more customers - market leader effect • business partners actively bring in new customers  keeping more customers • barriers to entry and switching costs  driving costs down  keep profits up