MBIE1903-8273

Enterprise Innovation
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WEEK 2&3: Why Innovation is Important?
Rules of Innovation
2 INVENTION vs. INNOVATION
Invention: the first occurrence of an idea
for a new product or process; the
discovery itself.

Innovation: the first attempt to carry it out

into practice. Innovation means
invention implemented and taken to
market.

INNOVATION = INVENTION + COMMERCIAL EXPLOITATION

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Sustained
Competitive - Inventions become innovations
Advantage when they are refined in a
manner that brings them
Innovation succesfully to market.

- Innnovations create sustained

competitive advantage when
innovations are implemented in
Invention a manner that creates and
sustains significant added value
for customers above that
created by competitors.
4 WHY INNOVATION IS IMPORTANT?
 The ability to innovate is a vital core competency.
 According to Maital & Seshadri (2012) there are three key
reasons to innovate:

1- Energize your people

2- Build growth and profit

3- Survive
5 1- Innovation to Energize
 Innovate to energize your existing people and to attract
great new people.
 Great people love to think up, develop and implement
new ideas.
 Organizations that do not innovate quickly lose their
innovative people.
 Successful innovations are often a portfolio of new
ideas.
 FUSION - Example
Fusion: visually links a product to a message in a creative way to
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communicate values inherent in the product.

NYC Spaghetti

Tea Hangers

Note headphones
7 2- Innovate for growth and profit
 Innovate to achieve sustainably high growth and profitability.

 Maital & Seshadri (2012) states that “it is an empirical fact

that companies that excel at innovation are also far more
profitable than companies that do not”.

 It is also a self-evident truth that successful innovation

demands high-level innovation management.
8 3- Innovate to Survive

 There is no better way to describe this than in terms of Darwin’s

theory of evolution driven by survival of the fittest.

 Today, innovation is an adaptive competence that is necessary for

survival in global markets.

 The organisations that lack innovation will simply not last in the long
run.
 INNOVATION – POWER TO REDEFINE
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INDUSTRY
 Opportunity to grow, survive and significantly influence direction of industry. E.g.
Apple’s iTunes, iPOD and iPAD and put its mark on the PC industry.
 Toyota, Dell, Google – changes to key parts of dominant business models and
technology redirected the competitive vectors of their industries.
 Attaining a leadership position is difficult – maintenance even more challenging.
Blockbuster innovations do not guarantee success – they are simply opportunities.
 Innovation may not necessarily guarantee success for the innovator e.g. Boeing
and the launch of its 777 aircraft and Airbus surpassing it in sales in 2004.
 Nokia – real business…phones or innovation…? Has it been an easy path…? Has it
lost its innovation edge…?
 INNOVATION IMPERATIVE – LONG TERM
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GROWTH IN TOP AND BOTTOM LINES
 Innovation is an agent for change and is fundamentally important to competitive
survival.
 Build brand value by innovating to deliver consumer value and customer
leadership faster, better and more completely than competitors.
 Encourage risk taking – the opposite of success is not failure – it is inertia.
 Without innovation, organizations stall, competitors take over and organizations
die.
 Innovation is a key element in providing aggressive top-line growth and
increasing bottom line results.
 Cost reduction and reengineering alone do not enable companies to grow.
 MAKING INNOVATION WORK – How you
11 innovate determines what you innovate

 Each company has a unique combination of innovation strategy,

processes, culture, metrics and rewards.
 Consequently each company’s innovation products are different but basic
ingredients are the same.
 Less innovative firms have let inertia set them up for failure.
 Innovation requires proactive management and support from the
leadership team.
 Results of innovation are not a ‘matter of luck’ nor is innovation a
commodity system that you plug into to get what you need.
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RULES OF INNOVATION
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The 7 Rules of Innovation

1- Strong leadership on innovation direction and decisions.

2- Integrate innovation into the business mentality.
3- Match innovation to company strategy.
4- Manage the natural tension between creativity and value capture.
5- Neutralize organizational antibodies.
6- Cultivate an innovation network beyond the organization.
7- Create right metrics and rewards for innovation.
 Rule 1 – Strong leadership on innovation direction
14 and decisions

 Strong leadership from senior management is essential to achieving

success in innovation. The team at the top must want it to happen and
trust its people to make it happen.
 CEO and senior management team must make decisions on the
innovation strategy, level of risk, amount of investment and balance of the
innovation portfolio.
 Decisions must then be communicated throughout the organization to
enable managers and members of the innovation network to execute.
 Managers set the innovation pace. Innovation must be a theory in action.
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Rule 2 – Integrate innovation into the
business mentality
 Innovation must be a part of the business mentality. Essential to the
constitution of the organization.
 3M – innovation part of the company’s culture – innovation = survival.
 Merger of Gillette and P&G – an interesting marriage.
 Business model and technology change must be integrated into a
seamless process.
 Innovation requires resources, competencies and experience that reside in
different parts of the organization or even outside.
 Solid internal and external collaboration is vital. E.g. Microsoft.
 Rule 3 – Match innovation to company
16 strategy
 Importance of innovation rises and falls – depending on several factors
(timing of the last innovation, nature of competition and overall business
strategy).
 Innovation must match company strategy - Deciding on a strategy is the
responsibility of the senior management team and ultimately the CEO.
 Clarity and alignment are important - Fit and clear throughout the
organization. E.g. BP Exploration and Production did not quite get it right in
the late 90s.
 More innovation is not necessarily better – an organization does not need
constant blockbuster innovations (huge costs of development, huge
tensions and destabilizations).
 Rule 4 – Manage the natural tension
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between Creativity and Value Capture
 Innovation involves managing large amounts of creativity and needs
resources, structure and processes during execution.
 Importance of innovation rises and falls – depending on several factors (timing
of the last innovation, nature of competition and overall business strategy). E.g.
Apple 2000-2012 vs. 1980s.
 Too much emphasis on delivering value through execution can stifle creativity.
 High emphasis on creativity will result in a factory of great ideas but insufficient
successes. Managers need to be aware of factors that stimulate creativity.
 Commercialization also needs to produce high quality results fast, to turn the
best creative concepts into marketable products and services.
 If either dominate, the company is stuck with poor innovation.

Discussion: Case study: Xerox PARC

 Rule 5 – Neutralize organizational
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antibodies
 Antibodies attack and defeat innovations.
 The more radical the innovation is and the more it challenges the status
quo, the higher the number of antibodies and the stronger they are.
 The greater the past successes of a company, the greater the antibodies.
People tend to become satisfied and resist change.
 Senior management must create a culture that has the capability and
courage to change, explore and innovate plus remain stable enough to
deliver on its innovation.
 Internal and external communication (customers, suppliers, other
companies) is vital and fosters good culture.
 Rule 6 – Cultivate an innovation network
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beyond the organization

 The innovation network includes internals and externals. Develop and

maintain this network as an open, collaborative force.
 Innovation platforms (customer insight, supply chain knowledge, technical
expertise) provide the required framework for the network.
 Innovation platforms cut through the normal organizational boundaries.
 Some companies isolate innovation efforts from the organization to avoid
its antibodies through stand alone departments or incubators – these could
fail because of severance of critical links with key resources and ideas.
 Rule 7 – Create the right metrics and
20 rewards for innovation
 Often rewards focus on meeting budgets, achieving targets and avoiding
risk.
 Managers in some organizations are burning economic value to meet
earning goals. The metric is not innovation related.
 Organizational structures are often a barrier to innovation. Tension
between R&D and business units (no access to funding).
 Organizations need systems that provide the proper metrics and reward
mechanisms and create an environment where taking risks on
breakthrough innovations is regarded as valuable to the company.
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THE INNOVATION COMPANY

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THE INNOVATION COMPANY

 In today’s economies, core competencies have short life cycles.

 Organizations cannot survive without innovation (pursuing profit or investing
in non profit objectives).
 By embracing innovation, companies can redefine their industries, create
new ones and achieve a leadership position that shifts the rules of the
game in their favor.
 Innovation is not reserved for a few chosen companies. It stems from good
management.
 How a company innovates determines what it will innovate.
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STRATEGIC INNOVATION – A New Model
 Innovation – not just about changing technologies and R&D Departments. It is all about
leveraging on new business models and improved technologies. Both go together.

 DELL and WALMART – business model innovation – APPLE, E-Bay – business model and
technology innovation.

 Innovation – creation of new value at the intersection of business and technology – IBM
(new insights, new ways of doing things).

 The Auto Industry in the first half of the 20th Century is a classic example of business model
driven innovation (labour intensive, each unit a piece of artisan work).
 Ford came along and moved towards standardization – production line to the car industry –
whole concept of the industry turned upside down in several ways).


 BUSINESS MODEL CHANGE
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 Business Models describe how a company creates, sells and delivers

value to its customers.
 Can drive innovation in three areas :

VALUE PROPOSITION – WHAT IS SOLD AND DELIVERED TO THE MARKET.

SUPPLY CHAIN – HOW IT IS CREATED AND DELIVERED TO THE MARKET
TARGET CUSTOMERS – TO WHOM IT IS DELVIERED

 These are fundamental elements of every business strategy and the

logical focal points for innovation.

25 1- Value Proposition

 Can involve an entirely new product or service or an expanded

proposition for an existing offering (e.g. Toothpaste – whitening,
cavity protection, breath improvement).
 Automotive industry....new features to products or provide
enhanced after purchase services.
 IBM moved away from product driven value proposition to
bundling a wide range of services with its products (48% of its
revenues came from providing services generating 41% of its
profits).
 What about AMAZON….?
 2- Supply Chain
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 Usually ‘behind the scene changes that customers cannot see’.
 The way an entity organizes partners and operates to produce and
deliver its products and services.
 Sun Microsystems (1980s) worked with outside organizations as
strategic partners to provide value creating activities, a new
approach to outsourcing and a big competitive advantage.
 Supply chain changes can also result when combining parts of the
supply chain that different companies provide e.g. General Electric
service contracts with manufactured turbines.
 Innovation can also come from carefully managing relationships with
complementary assets E.g. Microsoft’s entry with XBOX.
27 3- Target Customer

 Involves identifying groups of customers to whom the organization

currently does not sell, market or distribute but who could consider its
products and services valuable. E.g. Producers of Nutrition bars.
 DOCKERS targeted ‘lower maintenance’ customer group with its stain
fighting, no-iron khakis and experienced renewed growth.
 This type of innovation is not very common but should not be
overlooked when seeking opportunities to innovate.
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TECHNOLOGY CHANGE
 New technologies a major part of innovation.
 They could also be hidden from sight and be seen only by the technical
people servicing them. Can drive innovation in three areas:

PRODUCT AND SERVICE OFFERINGS

PROCES TECHNOLOGIES

ENABLING TECHNOLOGIES
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1- Product and Service Offerings
 A change in technology can result in better, faster and less expensive
products and services.
 The change can be a change to a product or service the company offers
or introducing an entirely new product or service.
 Consumers have come to expect significant and recurring technological
innovation in products and services and do time their purchases e.g.
Waiting for the new model of an MP3 player.
 Other examples could be new features released on mobile phones,
blockbuster prescription drugs and McDonalds introduction of low-fat oil
enabled it to capture a new market of health conscious consumers with
the same product and service offering.
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2- Process Technologies
 These process technology changes are usually invisible to the consumer
but vital to product’s competitive position e.g. food processing
technologies, automobile manufacturing, electricity generation etc.
 Process technologies also include materials used in manufacturing.
 For services, process technologies include elements that allow the service
to be delivered – e.g. airplanes and airports that provide air transport
services, package sorting stations and delivery trucks that allow packages
to be delivered by express package companies.
 Companies make changes to process technologies that reduce cost and
improve the quality of existing products and services.
 3- Enabling Technologies
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 Instead of changing the functionality of the product or the process,

enabling technology allows a company to execute strategy much faster
and leverage time as a source of competitive advantage. E.g. Information
Technology facilitates exchange of information among various
participants in the value chain.

 Closer communication speeds up product development, supply chain

management etc.

 Least visible to consumers but important because these help ensure better
decision making and financial management. E.g. WALMART.
32 INTEGRATING THE INNOVATION MODEL

CEO considerations
 Understand your company’s unique opportunities in both business model
innovation and technology.
 Technology – changes to products, processes and infrastructure that
support these products and processes.
 Business Model – changes in value proposition, way products are
delivered and target customers.
 Leverage your investments in technology and business models.
33 TYPES OF INNOVATION AND THE
INNOVATION FRAMEWORK –a mix of old
and new

 Incremental
 Semi-radical
 Radical
 Incremental Innovation
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 Around 80% of the innovation in most companies. Small changes to the six
levers in the business model or technology.
 Aim to wring out as much value as possible from existing products/services
without making major changes or investments. E.g. Car manufacturers.
 Can provide protection from competition eat away your market share and
profits e.g. Gillette.
 Having too little incremental innovation can be dangerous to a company’s
health. Too much is also not good.
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Semi-radical Innovation
 Better than incremental innovation. Involves substantial change to
business processes or technology but not to both.
 However the change is not very dramatic or disruptive.
 Examples include WALMART, NOVARTIS.
 CRM System - SALESFORCE.COM
 Any semi-radical change in the business model or technology always
requires some degree of change in the other.
 Innovations in one area create new opportunities in the other.
 Radical Innovation
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 A significant change that simultaneously affects the business model and

technology.
 Investing too much could be counterproductive – waste of valuable resources
that could be better employed in semi-radical or incremental innovations.
 Usually bring fundamental changes to the competitive environment in an industry.
These are ‘game changers’ and rewrite the rules of the game in industry. E.g.
Metromile, a US car insurance company, The Amazon Dash Button.
 Hard to implement breakthrough ideas and perceived competition with existing
businesses are barriers to radical innovation.
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Questions?