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Innovation Center: Strategy
Strategy Management Process
Harvard Business School Publishing 2008
Participant Guide Innovation Center: Strategy Agenda (5 minutes) (60 minutes) Quick Exercise: How Good Are We at Innovation Strategy? Why Innovation Strategy Is Important (10 minutes) Tool: Assessing Your Innovation Environment (10 minutes) Looking for Innovation Opportunities (5 minutes) Selecting Your Playing Field (5 minutes) Tool: Disrupt-o-Meter (10 minutes) Determining Your Success Criteria (3 minutes) Tool: What Are Your Success Criteria? (2 minutes) Assessing New Ideas’ Potential (5 minutes) Choosing the Right Team to Lead the Innovation (5 minutes) Tips for Innovating New Ways of Doing Business (handout) Harvard Business School Publishing 2008 Page 3 .
personally. to manage innovation strategically in your unit or department? In what respects would you like to strengthen your effectiveness in innovation strategy? Harvard Business School Publishing 2008 Page 4 . think about your business unit or department: In what ways has your unit or department demonstrated strength in innovation? How does your unit or department identify ideas for developing innovative products. services. or ways of doing business? Do your unit’s or department’s innovation efforts usually generate the expected outcomes? Now.Participant Guide Innovation Center: Strategy Quick Exercise: How Good Are We at Innovation Strategy? (5 minutes) First. think about your own effectiveness at innovation strategy: How do you define “innovation”? What practices do you use.
There’s a lot of talk about innovation in business today. Matt Eyring. . Innovation is an invention that changes the rules of the game—by making things simpler. more convenient. These are crucial benefits. Example Why is innovation so important to companies? Companies that innovate successfully: • • • • Bring in more revenue. Create better returns for shareholders. exactly? It’s not the same as simply inventing a new gadget.” “Can You Disrupt and Sustain at the Same Time?” by Scott D. But what does “innovating” mean. but innovation isn’t easy. Anthony. or more accessible for companies and their customers. Turn the page to find out why. Christensen. and Lib Gibson. Anthony. An innovation can take several forms. Stay ahead of the competition. . Think about possible examples: Innovation can be .Participant Guide Innovation Center: Strategy Why Innovation Strategy Is Important (10 minutes) Adapted from “Interview with Scott D. and “Mapping Your Innovation Strategy” by Scott D. Anthony and Clayton M. cheaper. Attract talented managers and employees. Harvard Business School Publishing 2008 Page 5 .
services. 5. companies must formulate a sound innovation strategy. companies need to develop an innovation strategy—a game plan for how they’re going to create transformative products. 4.Participant Guide Innovation Center: Strategy Why Innovation Strategy Is Important Innovation isn’t easy. Harvard Business School Publishing 2008 Page 6 . Look around you for opportunities to innovate—inside and outside your company. To craft an effective innovation strategy. But in unfamiliar markets. you take these five steps: 1. for several reasons: • (cont’d) There are many ways to go about it. In trying to innovate. Select your playing field—the markets where you’ll innovate. The bottom line: Innovation is essential to companies’ survival. Evaluate your ideas’ potential—the risks involved and the chances of success or failure. these strategies may backfire. Select the right kind of team to drive the innovation. For example. To reap the benefits of innovating. many companies default to growth strategies that worked in the past (such as designing particular features into a new product). 2. but it’s difficult to do successfully. Companies often merely take a product or service that’s already good and make it better—which doesn’t change the rules of any game. Determine your success criteria—the characteristics that have made previous innovations in your playing field successful. or ways of doing business. 3. companies must decide whether to make small changes in their offerings or giant leaps. We’ll look at each of these steps in detail in the following sections. • • To overcome these problems.
Participant Guide Innovation Center: Strategy Tool: Assessing Your Innovation Environment (10 minutes) Adapted from The Innovator’s Guide to Growth by Scott D. pharmaceutical) Market beginning to show signs of maturity Moderately changing industry (e. Anthony. consumer goods) Low. Sinfield. media) Harvard Business School Publishing 2008 Page 7 .. More demanding innovation environment (+5 points) Less demanding innovation environment (-5 points) Environment Neutral (0 points) External environment 1.. Mark W. Add five points for each choice you make in the left-hand column.g. Subtract five points for each choice you make in the right-hand column. When you have completed your scoring. Harvard Business Press. automobiles) Nascent market with unclear business models Slow-moving industry where change rarely occurs (e.. innovation possible with little to no investment (e. and Elizabeth J. Asset intensity Moderate. steel) 3. see the scoring ranges that follow the tool. Competitive dynamics Fast-moving industry and/or industry with short product life cycles (e. Johnson.g. Industry Highly mature maturity market showing signs of commoditization 2.g. biotech) Very high.. Altman.g. with innovation requiring major capital equipment (e.g. innovation possible with less capital equipment (e.. For each of the six items below. Joseph V..g. 2008. select the box that most closely represents your situation.
Harvard Business School Publishing 2008 Page 8 . but not something that is everyone’s responsibility 10–30 percent of key managers capable of developing legitimately disruptive ideas 6. Breadth of talent <10 percent of key managers capable of developing legitimately disruptive ideas >30 percent of key managers capable of developing legitimately disruptive ideas Turn the page to assess the implications of your score. and regions Innovating able to be isolated within a single business unit with coordination across functions Innovating possible in separate pockets of the organization with minimal coordination Entrepreneurial culture. where innovation is a core part of the company DNA 5.Participant Guide Innovation Center: Strategy Tool: Assessing Your Innovation Environment (cont’d) More demanding innovation environment (+5 points) Less demanding innovation environment (-5 points) Environment Neutral (0 points) Internal environment 4. functions. Scope of Innovating innovation possible only activities with close coordination across business units. with innovation viewed largely as a distraction Innovation understood to be important. Innovation culture Company in “operational” mode.
see the scoring ranges below: 20 to 30 Very demanding innovation environment: In these settings. Anthony. 10 to 15 Moderately demanding innovation environment: In these contexts. © Copyright 2008 Innosight. Harvard Business School Publishing 2008 Page 9 . Altman. All Rights Reserved. 2008. Sinfield. Market conditions and the personnel in the organization likely enable a more flexible and slower paced approach to innovation. Harvard Business Press. focused innovation efforts can be carried out with limited need for direction from senior leaders and minimal investment. In these environments. it is important not to overdirect or stifle innovation through excessive structure. –15 to 5 Less demanding innovation environment: Here. more structured approaches to innovation. Significant hands-on management may be required to overcome internal challenges. Joseph V.innosight. more significant senior management guidance.com/ Adapted from The Innovator’s Guide to Growth by Scott D. –30 to –20 Naturally innovative environment: Innovation in these settings tends to be inherent in the core culture. Johnson. and/or well-defined structure and process may be needed to foster rapid innovation while effectively managing potential risks. Innovation efforts can thus be well integrated with the main lines of business and can occur as a natural part of doing business. Mark W. and Elizabeth J. and overall organizational autonomy for selected innovation units.Participant Guide Innovation Center: Strategy Tool: Assessing Your Innovation Environment (cont’d) To assess the implications of your score. there is a likely need for greater resource allocation. circumstances suggest focusing on one or two key aspects of a company’s environment. http://www. LLC.
The first step in formulating your innovation strategy is to look around for opportunities. and “Open-Market Innovation” by Darrell Rigby and Chris Zook. Think of examples of places to look for innovation opportunities: Where to Look Examples The bottom line: Innovation opportunities can crop up anywhere.Participant Guide Innovation Center: Strategy Looking for Innovation Opportunities (5 minutes) Adapted from “The Discipline of Innovation” by Peter F. Harvard Business School Publishing 2008 Page 10 . That means examining what’s happening within and outside your organization. “Connect and Develop: Inside Procter & Gamble’s New Model for Innovation” by Larry Huston and Nabil Sakkab. Drucker.
Harvard Business School Publishing 2008 Page 11 . Virgin Atlantic cut first-class airline service and channeled cost savings into greater value for business-class passengers: more comfortable seats and free transportation to and from airports. Anthony. Rather. For example. The following tactics can help: • Look for customers who are using existing products in unusual ways or using products for things they weren’t designed to do. or more convenient or accessible for customers. more convenient. Identify market spaces where competitors haven’t ventured—and where your company can play to its strengths to create better forms of value for customers.” and “Value Innovation: The Strategic Logic of High Growth” by W. software provider Intuit noticed that small business owners were using its personal financial software package because they liked its simplicity. To narrow your choice. aim for markets lying somewhat out of—but not too far from—your core business. Chan Kim and Renée Mauborgne. Nintendo’s wildly successful Wii gaming console doesn’t sport extra-fancy graphics. “Interview with Scott D. cheaper. Matt Eyring. cheaper. or more accessible for consumers. it has a feature that makes it simple to interact with the game. • • Key point: The most promising playing fields for innovation are markets where your company can leverage its existing strengths to create disruption—to make things easier. branded it QuickBooks—and quickly dominated the product category. and Lib Gibson. Aim for markets where you can disrupt the playing field by making things easier. It attracted not only business-class customers but also full-economyfare and first-class passengers of other airlines. For instance.Participant Guide Innovation Center: Strategy Selecting Your Playing Field (5 minutes) Adapted from “Mapping Your Innovation Strategy” by Scott D. Even people who have never played video games before can pick it up and immediately play. Anthony. Your company faces a bewildering array of possible markets for innovation. Intuit optimized the program for these customers.
45 30 60 0 Less Disruptive 90 More Disruptive Least disruptive Strategic Area 1. See where the total score places the potential innovation on the “Disrupt-o-Meter” arc. Mark W. Harvard Business Press. The customer thinks the target job needs to … 3. Sinfield. and 10 points for each “most disruptive” answer. Our first year target is …. 2. and Elizabeth J. Altman. For each strategic area. 2008. 5 points for each answer in the middle. The price will be … 5. The business model is … 6. The customer will think the offering is … 4. Use this tool to determine how disruptive a potential innovation is likely to be. The competitor will think … 8. Joseph V. give 0 points for each “least disruptive” answer. Required investment over the next 12 months is … (0 points) the mass market get done better perfect high what we've always done 100% existing channel I need to do this tomorrow huge above average Somewhat disruptive (5 points) a large market get done cheaper good medium … with a few tweaks at least 50% new channel I need to watch this carefully average average Most disruptive (10 points) a niche market get done easier good enough low radically different entirely new channel I don't care small below average Harvard Business School Publishing 2008 Page 12 .Participant Guide Innovation Center: Strategy Tool: Disrupt-o-Meter (10 minutes) Adapted from The Innovator’s Guide to Growth by Scott D. The channel to market is … 7. Anthony. Johnson. 1st-year revenue will be … 9.
” Area 1.Participant Guide Innovation Center: Strategy Tool: Disrupt-o-Meter (cont’d) In the table below.. Rationale Disruptive solutions typically start in limited foothold markets before expanding into more demanding market tiers Strategic opportunities • Focus on smaller customer group • Change to a new geography • Target a new context 2. read the rationale for each of the 9 strategic areas. Our first year target is …. The customer thinks the target job needs to … 3. Harvard Business School Publishing 2008 Page 13 . The customer will think the offering is … 4. disruptive approaches often follow very different business models from the core business • Address a more focused job • Make solution easier to use • De-feature to lower cost • Cut price by 50% 5. Then consider the possible strategic opportunities for those areas for which your innovation scored “not disruptive” or “somewhat disruptive. The business model is … • Add element (e. generally speaking a disruptive solution will be relatively inexpensive compared to existing solutions For an established company.g. The price will be … The customer should be looking for improvements along new dimensions such as simplicity and convenience The customer should think the solution is “good enough” in the early days Although pricing is complicated. service) • Drop element The tool continues on the next page.
1st-year revenue will be … 9.innosight. Harvard Business Press. All Rights Reserved. Johnson. Required investment over the next 12 months is … • Reformulate the business model • Partner with a competitor • Start with a test market • Cut investment by 50% © Copyright 2008 Innosight. impatient for profits implies a slow and steady start Disruptive solutions typically don’t involve “Buck Rogers” solutions so require relatively below average investment to move forward Strategic opportunities • Choose a new channel • Go direct to consumer 7. The competitor will think … 8. 2008. http://www.com/ Adapted from The Innovator’s Guide to Growth by Scott D. Harvard Business School Publishing 2008 Page 14 . Altman.Participant Guide Innovation Center: Strategy Tool: Disrupt-o-Meter (cont’d) Area 6. and Elizabeth J. The channel to market is … Rationale Frequently disruptive approaches utilize distinct channels to market from established products and services (startups should answer this and the previous question from the perspective of an industry incumbent) Disruptive solutions take advantage of competitive weakness and blind spots Patient for growth. Mark W. Joseph V. LLC. Anthony. Sinfield.
blood glucose monitors). it identified numerous characteristics shared by successful innovations. inconvenient.Participant Guide Innovation Center: Strategy Determining Your Success Criteria (3 minutes) Adapted from “Mapping Your Innovation Strategy” by Scott D. analyze major innovations in your targeted market’s history to identify common elements shared by successful offerings. Once you’ve chosen your playing field. Matt Eyring. • • In the table on the next page. or expensive. list all the characteristics shared by those successful innovations. Anthony. In the left-hand column. Competitors had difficulty duplicating the product. In the right-hand column. Example: A consumer health care products company had identified at-home diagnostics as a key growth area and targeted playing field. write down your selected playing field. The results were conclusive without requiring further testing. These included: • Diagnosing the condition was currently difficult. and Lib Gibson. By analyzing the history of home diagnostics (pregnancy kits. list innovations that have scored successes in that playing field. Harvard Business School Publishing 2008 Page 15 .
Participant Guide Innovation Center: Strategy Tool: What Are Your Success Criteria? (2 minutes) Use this tool to identify your selected playing field and then record your insights into the characteristics shared by successful innovations in this same playing field. Your selected playing field: Previously Successful Innovations Shared Characteristics Harvard Business School Publishing 2008 Page 16 .
To assess new ideas’ potential. evaluate them against the success criteria you’ve defined. Day. Also assess their risk—by subjecting them to the “R-W-W” test: Is it real (does a market exist for it)? Can your company win (will the offering be competitive)? And is the innovation worth doing (will it be profitable and make strategic sense)? Consider how you might determine answers to these questions: Is It Real? A market exists for the innovation if: The product is real if: Can We Win? The product will be competitive if: Your company will be competitive if: Is It Worth Doing? The innovation will be profitable at an acceptable risk if: The innovation makes strategic sense if: Harvard Business School Publishing 2008 Page 17 .Participant Guide Innovation Center: Strategy Assessing New Ideas’ Potential (5 minutes) Adapted from “Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio” by George S.
Worth It) test.) • Now use the table on the next page to choose the right team for your innovation. You can boost its chances of success even further by selecting the right kind of team to move the project forward.) “How well does the innovation fit with our company’s processes?” (Processes include decision-making protocols and project coordination patterns. if your innovation team can tolerate lower profit margins than your established company demands. Win. and they may operate within your company or separately from it. There are several kinds of teams. the value fit is poor. Christensen and Michael Overdorf.Participant Guide Innovation Center: Strategy Choosing the Right Team to Lead the Innovation (5 minutes) Adapted from “Meeting the Challenge of Disruptive Change” by Clayton M. Harvard Business School Publishing 2008 Page 18 . How to pick the right kind of team and make the right choice about where it should operate? Ask yourself two questions: • “How well does the innovation fit with our company’s values?” (For example. Congratulations! Your potential innovation meets your success criteria and passes the R-W-W (Real.
In-house development capitalizes on existing processes. no new capabilities or organizational structures are called for. Fits well with existing values but poorly with existing processes Fits poorly with existing values but well with existing processes Within your existing organization Within your existing organization for development. you heighten your chances of innovating successfully. The poor fit with existing processes requires new types of coordination among groups and individuals. or lightweight teams—ad hoc crossfunctional teams who work simultaneously on multiple issues Heavyweight team dedicated exclusively to the innovation project. A spin-off for the commercialization phase facilitates new values—such as a different cost structure with lower profit margins. followed by a spin-off for commercialization Fits poorly with your existing values and processes Heavyweight team dedicated exclusively to the innovation project. with complete responsibility for its success Heavyweight team dedicated exclusively to the innovation project.Participant Guide Innovation Center: Strategy Choosing the Right Team to Lead the Innovation (cont’d) If your innovation … Fits well with your existing values and processes Select this type of team … Functional teams who work sequentially on issues. with complete responsibility for its success To operate … Within your existing organization Because … Owing to the good fit with existing processes and values. A spin-off enables the project to be governed by different values and ensures that new processes emerge. Harvard Business School Publishing 2008 Page 19 . with complete responsibility for its success In a separate spin-off or acquired organization Key point: By selecting the right kind of team for your innovation and making the right choice about where it will operate.
Example: Does your company have trouble changing before it’s forced to? Unleashing front-line employees’ imaginations? Imagine a “can’t do” you can turn into a “can do. Like innovative products and services.Participant Guide Innovation Center: Strategy Tips for Innovating New Ways of Doing Business (handout) Adapted from “The Why. Such beliefs may also be making it difficult for employees to get support for their ideas. Example: What are the ramifications of escalating consumer power? Near-instant commoditization of products? Challenge Your Management Assumptions • Ask what shared beliefs may be inhibiting your company’s ability to tackle the meaty problem you’ve identified. Example: Does obsessive pursuit of short-term earnings undermine your willingness to invest in new ideas? Is your organization growing less agile while pursuing size and scale advantages? What other “either/or’s” can you turn into “both/and’s”? • Ask what your organization is bad at. and How of Management Innovation” by Gary Hamel. Identify a Meaty Problem • Ask what tough trade-offs your company never gets right. breakthroughs in how your company does business can deliver potent competitive advantages. The following practices can help you identify innovations in business processes and models.” • Ask what challenges the future will hold for you. Example: Do shared beliefs include “Change must start at the top”? If so. Harvard Business School Publishing 2008 Page 20 . such beliefs may be inhibiting employees from offering fresh ideas about how to do things more efficiently or effectively. What.
Participant Guide Innovation Center: Strategy Tips for Innovating New Ways of Doing Business (cont’d) Exploit the Power of Analogy • Identify a decidedly unconventional organization and ask what practices it applies that might help you solve the meaty problem you’ve identified. study Bangladesh’s Grameen Bank. Borrowers—which by 2004 numbered more than 4 million—use the funds to start small businesses that benefit themselves and their communities. It makes micro-loans to poor people with no collateral requirement and little paperwork. Ask: “How can we make it equally easy for our employees to get the capital and other support they need to bring a promising new idea to fruition?” Harvard Business School Publishing 2008 Page 21 . Example: If you seek ideas for funding ordinary employees’ glimmer-in-the-eye innovations.
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