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product innovation management

Hannes Oberschmid
Andreas Stugger

Institute of Industrial Management and Innovation Research, Graz University of Technology


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Schedule

morning session:
9:00 – 12:00

afternoon session:
13 00 – 16:00
13:00 16 00

Institute of Industrial Management and Innovation Research, Graz University of Technology


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Terms and Definitions
J
Joseph
hAA. S
Schumpeter
h t (1883
(1883-1950)
1950)
• “... innovation, that is the process of finding economic
application
li i ffor the
h iinventions
i ...”
• “... invention is the obvious first step towards any new product or
process ...”
p
• “... imitation, that is the process by which innovation is diffused
throughout the industry or economy ...”

Thomas Alva Edison (1847-1931)


• “innovation, that is one percent inspiration and ninety-nine
percent perspiration.”

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Classification of terms
Invention
„converting intellectual thoughts into a tangible new artefact“
(TROTT, p.15)

Modification
A change,
change addition,
addition or deletion that alters but does not change the
basic subject matter.

Imitation
(usually) inferior copy of market-tested innovations
„innovative imitation“

"... imitation, that is the process by which innovation is diffused


throughout the industry or economy ......“ (Schumpeter)

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Innovation, Imitation and Modification

• innovation

• imitation

• modification

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Innovation Management

• Opinion- and decision-making towards the openness


to Change Processes

• G
Goal-oriented
l i t d and
d systematic
t ti acting
ti iin IInnovation
ti
Processes

• Implementation of innovations in the Corporate


Strategy

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Types of Innovation 1/2
• P
Product
d t Innovation
I ti
e.g. the development of a new or improved product

• Process Innovation
e g the development of a new manufacturing process
e.g.

• Organisational Innovation
e.g. a new venture division; a new internal communication
system; introduction of a new accounting structure

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Types of Innovation 2/2
• Management Innovation
e.g. TQM (total quality management) systems; BPR (Business
process re-engineering); introduction of SAP

• Production Innovation
e.g. quality circles; just-in-time (JIT) manufacturing system; new
production planning software,
f new inspection system

• C
Commercial/Marketing
/ g Innovation/Business
/ Modell Innovation
new financing arrangements; new sales approach e.g. direct
marketing

• Service Innovation
e.g. internet-based financial service

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Example Product Innovation

• The process of bringing to life a new product/service


to solve the customer‘s problen benefits

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Example Process / Organisational Innovation

• P
Process innovations
i ti iincrease b
bottom-line
tt li profitability,
fit bilit
reduce costs, raise productivity anincrease employee
job satisfaction
• The customers also benefits from this type of
i
innovation
ti b by virtue
i t off stronger,
t more consistent
i t t
product or service value delivery

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Example Business Modell Innovation
• IIn some cases the
th innovation
i ti restst nott in
i the
th
technology or product or service, but int the business
model itself.
itself
• Business model is a broad-stroke picture of how an
innovative concept will create economic value for the
ultimate user, for the firm and ist shareholders and
partners.

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Attributes and characteristics of Innovations

+ Uncertainty +
Risk

degree of novelty complexity

+ Potential for
+
conflict

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Importance of Innovations

• globalised markets

• dynamic development of new technologies

• Gary Hamel:
“Out there in some garage is an entrepreneur who´s forging a bullet
with
i h your company's
' name on iit. Y
You´ve
´ got to out-innovate
i the
h
innovators!”
[The Art of Innovation, Tom Kelley]

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Innovation Acceleration

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Technology Adoption is Acceleration

How log did it take to get 50 million users?
Phone 74 years
Radio 38 years
PC 16
16 years
TV 13 years
Internet 2 years
2 years
Blogs 1 year

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` Customers
ENVIRONMENT
` Competitors
Society Politics Ecology Economy Technology
` Suppliers
` Research
` Fairs…
CORPORATE STRATEGY

Idea
dea Idea
dea Idea
dea
Trigger Generation Acceptance Realisation

TASK:
`S S
`Stratgey Development `TASK:
S evaluation
Idea `TASK:
Detailed Concept
C
development
Idea Generation `Idea Acceptance
Feasibility Analysis Idea Realisation
`Definition of a `Product Development
subject area ` Concept Selection
TOOLS: TOOLS:
` Decision
D i i aboutb t the
th
TOOLS:
`Prototyping
(S hf ldb ti
(Suchfeldbestimmung)
)
SWOT Valuation
plan to be realised `Project
Marketing and Sales
` idea generation Methods Management
` and Sales

Creativity ` Sales Control


((e.g.
g in PDP))
Techniques
` idea
id selection
l ti

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Idea Generation

internal sources external sources

• research an engineering • customers


t andd prospects
t
• contract research organisations
• sales, marketing and planning
• and consultants
• production • technical
t h i l publications
bli ti
• other company executives • competitors
• universities
• inventors
• unsolicited sources

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Where do ideas come from?
CUSTOMERS
30%

CONGRESSES SUPPLIERS
TRADE FAIRS 12%

EXHIBITIONS
COMPANY RESEARCH
21% 11% ORGANISATIONS
8%

COMPETITORS
18%

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SWOT Analysis
INTERNAL

Strengths
g

Weaknesses
EXTERNAL

Opportunities
Threads
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Elements of external Analysis
Economy
y Technology
gy Politics Society
y Ecology
gy

Economic growth Growth in output Monetary policy Values Raw materials

Economic cycle Miniaturisation Political partys Work time Pollution

Customers New processes Tax policy Needs Energy

Purchasing Power New features Energy policy Ergonomic Recycling

Environment
Market Volume New materials Education …
protection

C
Competitors Automatisation S
Subsidiaries S
Security

development of
… … …
costs

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Strategical potential for the company

We
S
Streng

eakne
esses
gths
Opportunities

Threads

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Warm-up-exercise: SteelMan

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Idea
Acceptance

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Idea Screening

• minimize risk by focusing on ideas with the highest


probability
p y of success

• must meet criterias:


− strategic alignment
− project feasibility
− magnitude
it d off opportunity
t it and
d market
k t attractiveness
tt ti
− product advantage
− ability
bili lleverage the
h resources off the
h company
− fit with company attractiveness

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Idea Screening

Can be seen as a filter in the product development


process, which eliminates ideas that are
inconsistent with the organization‘s new-product
strategy or are inappropriate for some other reason.

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The Screening Process
Strategy Attractivity/Risk Feasibility Project Success Acceptance
Screening Screening Screening Screening Screening

Idea Product Concept Product Market Market


Formulation Development Development Introduction Penetration

Number of
Ideas Design Feasibility Project- Market Acceptance
Brief Report Controlling Tests Check

100
Ideas
35 Ideas

12 Ideas 8 Ideas 5 Ideas 2 successful


products
time

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Main Reasons to abandon Ideas

• Market Potential not existing

• Technology not (yet) mature enough

• Technical Risks (technical feasibility)

• Business Risks (sales forecast, rate of return…)

• needed
d d Competence
C not available
il bl

• too high Investments necessary

• idea does not fit to the Corporate Strategy

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Development
p of Costs during
g the
Costs (%) Innovation Process

100

80 Fixed Costs

60

40
Emerging
Costs
20

0 10 20 30 40 50 60 70 80 90 100
Innovation Phase (%)

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Methods of Evaluation
Methods of Quantitative Evaluation Methods of Qualitative Evaluation
(Methods of Investment) Evaluation concerning internal and
Static Methods external business evaluation criterias
– Cost comparison method
– P fit comparison
Profit i method
th d
No need for detailed values or common
– Payback period role
dimensions
– Cost-effectiveness – Point evaluation
– Scoring Modell Analysis
Dynamic
y Methods – Visualisation of Benchmark
– Present value method – Cost-benefit analysis
– Internal rate of return method
– Annuity method
– Dynamic payback periode role

Methods recognizing insecurity and risks


Method of critical values
Sensitivity analysis
Risiks analysis
Decision tree

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Break

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Scoring Model Analysis
(SMA)
example:
l buying
b i a car

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SMA: Overview on Procedure
1
1. Definition of evaluation
e al ation criterias

2. Weighting of criterias
- M t i off priorities
Matrix i iti ((comparison
i iin pairs)
i )
- Point evaluation

3
3. Evaluation of alternatives
- Evaluation ordinal (ranking due to their importance)
- Evaluation cardinal (point evaluation)

4. Determination of benefit-value
- Sensitivity analysis (variation of the parameter weighting and controll of
effect to the value of benefit)

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Important aims

Criteria Aim

Engine output 50 - 80 kW

Engine displacement 1.200 - 2.000 cm³

Capacity 5 Persons

Features 5-gear
5 gear

hatchback

Max. additional investment 6.000,- €

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Comparison in pairs
Priorit
Priority Weighting
Criterias 1 2 3 4 5 accurance in %

1 1 1 1 1
1 Costs 1 2 3 4 5

2 2 2 2
2 Convenience 2 3 4 5

3 3 3
3 Equipment 3 4 5

Driving
4 4
4 performance
p 4 5

Overall 5
5 impression 5

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Comparison in pairs
Weighting
Priority
Criterias 1 2 3 4 5 accurance
in %
∑ = 100%

1 1 1 1 1
1 Costs
1 2 3 4 5
5 33,3

2 2 2 2
2 Convenience
2 3 4 5 3 20

3 3 3
3 Equipment
3 4 5
2 13,33

Driving 4 4
4 performance 4 5 4 26,67

Overall 5
5 impression 5 1 6,67

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Weighting tree (abstract)

Buying a car [100%]

Driving Overall
Costs Convenience Equipment
performance impression
[30%] [20%] [15%]
[25%] [10%]

Electric window lift Central locking Tachometer Filing area


[30% rel.] [30% rel.] [20% rel.] [20% rel]
[4,5% abs.] [4,5% abs.] [3% abs.] [3% abs.]

• from relative to absolut weighting


• control of connection (sum = 100%)
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Comparison of Alternatives

Target value Alternative A Alternative B Alternative C

Needed capital [EUR] 1900 4900 3200

Value-loss within 3 years [EUR] 3900 4500 4200

Total costs/year [EUR] 1600 2100 1400

Service/Oil change [km] 20000 / 10000 15000 / 5000 15000 / 7500

Cruising range [km] 685 570 660

Driving noise quiet sportiv loud

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Evaluation: Matrix of Target Values
Target Value
Criterias 0 1 2 3 4 5

4.301 - 3.601 - 2.901 - 2.201 -


Needed Capital [EUR] > 5.000 ≤ 2.200
5.000 4.300 3.600 2.900
4.701 - 4.401 - 4.101 - 3.801 -
Value-loss within 3 years [EUR] > 5.000 e. g. alternative ≤ 3.800
A: needed
5.000 4.700 4.400 4.100
1.951 - 1.701 - 1.451capital
- = € 1.900,-
1.201 1- 900
Total costs/year [EUR] > 2.200 ≤ 1.200
2.200 1.950 1.700 1.450
10.000 / 20.000 /
Service-/Oil change [km] 15.000 / 5.000 15.000 / 7.500
5.000 10.000

Coverage [km] ≤ 400 401 - 500 501 - 600 601 - 700 701 - 800 > 800

Loud at high speed/


Driving noise noisy
Rotational speed
quiet

Driving comfort bad good excellent

Useability Complex handling good handling excellent handling

Number of doors 3 5

1.001 - 1.101 -
Volume of the boot (max.) [l] ≤ 800 801 - 900 901 - 1.000 > 1.200
1.100 1.200

Electric window lift no yes

Central locking no yes

Tachometer no yes

Filing area poor adequate broad

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Target Value Matrix
Target Value Matrix
Aim of Aim of absolut Alternative A Alternative B Alternative n
Criterias
weighting weight Weighting aim W. Value of benefit W. Value of benefit
Cost-Aimss 30
Needed Capital 45 13,5 5 67,5 1 13,5
Value-loss 10 3 4 12,0 2 6,0
Total costs/year 25 75
7,5 3 22 5
22,5 1 75
7,5
Sevice-/Oil change intervall 20 6 5 30,0 2 12,0
100 132,0 39,0
Convenience-Aims 20
Coverage 15 3 3 9,0 2 6,0
Driving noise 40 8 5 40 0
40,0 3 24 0
24,0
Shape of the chair 15 3 4 12,0 5 15,0
Useability 10 2 3 6,0 4 8,0
Number of doors 10 2 2 4,0 2 4,0
Volume of the boot (max.) 10 2 3 6,0 2 4,0
100 77,0 61,0
Equipment-Aimst 15
Electric window lift 30 4,5 0 0,0 0 0,0
Central locking 30 4,5 5 22,5 0 0,0
Tachometer 20 3 0 0,0 5 15,0
Filing
g area 20 3 5 15,0 1 3,0
100 37,5 18,0
Driving quality-Aims 25
Max. velocity 10 2,5 4 10,0 4 10,0
Acceleration 40 10 3 30,0 3 30,0
Efficiencyy weight
g 30 7,5
, 4 30,0
, 5 37,5
,
Cornering ability 20 5 4 20,0 5 25,0
100 90,0 102,5
Overall impression 10
Brand image 40 4 5 20,0 3 12,0
Optical
p impression
p 60 6 4 24,0 5 30,0
100 100 44,0 42,0
Total value of benefit 380,5 262,5
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Procedure for the Scoring Model

1. Step: Definition of Evaluation criterias


Target analysis
2. Step: Weighting of the targets
Priority-Matrix
3. Step: Evaluation of the alternatives in combination
with the target matrix
4. Step: Determination of benefit-values
- partial value of benefit
- total value of benefit

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Practice SMA
You have developed a new mobile phone
phone…
Task:
U th
Use the SMA ini order
d tto fi
find
d th
the b
bestt alternative
lt ti off
your revolutionary mobile!

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Id R
Idea Realisation
li i

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Methods for Idea Realation
- Q lit F
Quality Function
ti D Deployment
l t (QFD)

- Business Plan

- Market introduction

- IPR (intellectual property rights)

- Exercise for the process idea generation

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Why you need a Business Plan?
The company is looking
You have to create an
for money
internal document
(t gett the
(to th new product
d t
of the new product
on the market)

Y must be
You b able
bl to present a clear
l portrait
i
of what your company does

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Content of a Business Plan
Your business
Y b i plan
l iis your corporate
t vision,
i i and
d
includes:

• who you are,

• what you will offer,

• what market needs you will address,

• and why your business idea is viable.


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Tips
• Your company's
p y focus often depends
p on yyour market.

• Ask yyourself what business are yyou really


y in?

• What true benefits do you provide?

• When discussingg the company's


p y p principals,
p yyou don't need
to run a complete resume.

"Founder
Founder and President Jean Smith
Smith,
"Ajax Financial Services
former Chief Financial Officer of Acme Industries,
is being founded
brings 25 years of experience
y Jean Smith."
by in financial services to Ajax Financial Services
Services."

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An overview of your industry
• A brief overview of the industry

• Demonstrate that you are in a "hot"


hot industry

• Showing where you fit in the marketplace

• Discuss the present situation in the industry

• Discuss the future possibilities

• Provide information about the various market segments


within the industry,
(focus on their potential impact on your business)
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Tips
• Feel free to be dramatic.

• Answering "why" makes any description stronger.

• This is not a discussion of your competition.

• Back up your observations with facts. Be sure to note all sources.

• Look for lists of publications, or use a database to find references on


specific subjects.

• Don't be afraid to include negative information about your industry.

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Products or Services
• Describe
D ib each h off your products
d t or services
i with
ith a particular
ti l ffocus on
how it will be used.
• Go into as much detail as necessary for the reader
• What are the applications and the end uses?
• Underscore the specific features or variations that your products have.
• Stress Your Unique Selling Proposition (USP)

Example:
- For a food product,
product it could be a proprietary recipe (like Kentucky Fried
Chicken's secret recipe)

- or a special way the food is served (like Boston Market's


Market s hand
hand-carved
carved turkey)
turkey).

- OXO Good Grips, a maker of kitchen gadgets, set itself apart by using
ergonomically
g y designed
g g
grips and handles on all its products.

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Tips
• Focus
F on your success factors.
f t

• Why will your products or services be successful in


the marketplace?

• If available, include a quality photograph as well.

• Keep the "unique" in your USP.

• Be specific in describing your competitive edge.

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Positioning and Pricing Strategy
• Your
Y id tit iin th
identity the marketplace.
k t l

• How yyou want the market and yyour competitors


p to
perceive your product or service.

• What is unique about your product or service?

• What customer needs does yyour p


product fulfill?

• How do you want people to view your products or


services?

• How do your competitors position themselves?

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Tips
• R
Research
h your competitors
tit by
b shopping
h i their
th i stores
t

• Calling them to see what they offer and what they charge for it.

• Look at areas such as distribution, pricing, value, service, timeliness.

• If appropriate
appropriate, research your competitors in trade magazines to unearth
their strengths and weaknesses.

• You will need to understand standard industry practices


practices, such as pricing
pricing,
billing, distribution. This information is usually available from trade
organizations.
organizations

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Example for the Structure of a Business Plan
1.
1 Executive Summary
2. Company
3
3. Product or Service
4. Branch of trade and Market
5
5. Marketing
6. Management and Key Personality
7
7. I l
Implementation
t ti Planning
Pl i
8. Chances and Risks
9
9. 5
5-year-Planning
Pl i
10. Monetary Requirements

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