5. Sources of Innovation

MOI – Sources of Innovation

Prof. V.Seshadri

SVKM’s NMIMS

© 2009 John Wiley & Sons Ltd. www.wileyeurope.com/college/tidd

2

http://www.wileyeurope.com/college/tidd


3


Learning from Markets

• We have examined how firms identify their technological competencies and develop the appropriate organizational structures and processes to support these

• We now focus on the identification and development of marketing innovations for commercialization. It deals with linkages with customers and markets.

• Market innovation includes the identification of market trends and opportunities, the translation of these into new products and the promotion and distribution of these products.

4 Prof.V.Seshadri MOI - 7. Markets Ref 1 Ch 7

Market for novel innovations

• where new products or services are very novel or complex, potential users may not be aware of, or able to articulate, their needs.

• In such cases traditional methods of market research are of little use, and there will be a greater burden on developers of radical new products and services to ‘educate’ potential users.

• Therefore we examine how the novelty and complexity of technologies and markets influence the identification, development and adoption of innovations.

Prof.V.Seshadri MOI - 7. Markets Ref 1 Ch 7 5

Learning from markets

• ‘understanding user needs’ and the involvement of ‘lead users’ improves the likelihood of new product success:

• Involving users in the development process helps firms to acquire knowledge from the users, and encourages the subsequent acceptance of the innovation and commitment to its use.


Figure 7.1 Technological and market maturity determine the marketing process

©2005 Joe Tidd, John Bessant and Keith Pavitt

Technological and Market Maturity

1. Differentiated: Mobile Phone, Lap Tops, New model of cars, late night home delivery of gas cylinders.

2. Architectural: Music and Camera in Mobile Phone, Use of I.T. in e-Commerce.

3. Technological: Pen drives in place of CDs, Digital Camera in place of Roll film Camera

4. Complex: Walkman, Multi media products,


Creating architectural products

• Architectural products consist of novel combinations of existing technologies to serve new market segments.

• Market share is directly associated with profitability; market leaders earn three times the rate of return of businesses ranked fifth or less.

• Therefore, the goal is to segment the market into a sufficiently small and isolated segment which can be dominated and defended


Case: IDEO – Learning from Users

• IDEO is one of the most successful design consultancies in the world, based in Palo Alto, California and London, UK. It follows a standard process comprising:

• close observation of potential users in real life context

• Visualize new concepts using prototyping, models and simulations.

• Evaluate and refine the prototypes in a series of quick iterations.

• Implement the new concept for commercialization.


Case: Philips – Market Focus

• Since 2003, Philips has been engaged in a market-driven change program to rejuvenate its brand and approach to new product innovation with expertise on end-user insights. It created 3 distinct focus teams-

• A vision team in the Central Lighting Development Lab.

• An exploratory automotive project for car headlights

• A Philips Lighting ‘New Business Creation’ (NBC) group



Philips Case: Results of innovation Study Project

By the end of 2005…

• In total over 1800 people had been involved globally, across and beyond Philips Lighting.

• 3 foundation documents were published with over 1000 copies distributed.

• Patents: > 50 IDs submitted, > 25 patents filed, > 10 patents in pipeline


Understanding user needs in Hyundai – case study 5.1

• Development of “Santa Fe” for US market in 2007. Deep study of US people’s driving habits by staying very close to major customers.

• Evolved the concept car with ‘Assertive Grace’ punch line to meet needs of ‘glamour mums’

• Women’s purchasing habits were studied to understand what motivates them most. These were incorporated in the car design.

• Several team members drove around south California which was a major target segment.

MOI - Ref 1 Ch 5 Pr9of.V.Seshadri 14

Tools & Mechanisms to enable search

• Managing internal knowledge connections

• Extending external connections


Managing internal knowledge connections

• High Involvement Innovation (HII) e.g. 3M, Google

• Recruitment of people with diverse and deep knowledge

• Kaizen

• Formal suggestion schemes

• Strong Intranet-work

• Appraisal system based on competencies


Managing internal knowledge connections

• Intrapreneurs

• Encourage bootlegging e.g. BMW”s U-Boat project.


Extending external connections

• Building strong relationship with key stakeholders is an important factor in innovation search strategies

• A recent IBM survey of 750 business CEOs – 76% ranked business partner and customer collaborations as the top source for new ideas, whilst R&D ranked only eighth.

• There are several search strategies for leveraging markets for innovation



19


Exploring multiple futures – Case “Novo Nordisk”

• “Diabetes 2020” project – aim to prevent diabetes on this earth by 2020.

• Coming together of Scientists, doctors, patients, government health officials.

• Lars Sorenson –CEO of Novo believed that new business opportunities can be derived even from this philanthropic exercise.


Search strategies –Using the web

• Provide links across extranets and intranets to speed up the process of bringing signals into where they are needed.

e.g. Zara and Benetton – early warning of emerging fashion trends through leveraging the web space.

e.g. Social networking site “Myspace” for tapping emerging music ideas.

e.g. “CommuniSpace” largest network of web based communities (over 300 by 2007)

e.g. BMW – web based “Virtual innovation agency”


Use of Brokers & Bridges

e.g. IDEO – firm devoted exclusively for “making and facilitating connections”

YET2.com – web based broker firm.



23


Innovation search space : Zone 1: Exploit

• Stable and shared frame for adaptive and incremental development e.g. working with key suppliers and customers to deliver established innovations more efficiently.

• Innovation is at the component level, where the incremental innovation is involved.


Innovation search space Zone 2: Bounded exploration

• Pushing the frontiers within the established framework. Empathic design, Latent needs analysis. Big role for corporate R&D; Secrecy & Patent regimes.

e.g. Conducting Polymer in place of metal conductors

Involves more radical innovations at the- not too complicated- component level


Innovation search space Zone 3:Reframing

• It involves searching a space where alternate architectures are generated, exploring different permutation and combinations of elements in the environment.

• E.g. Christenson’s work on ‘fringe markets’; Prahalad’s ‘Bottom of the Pyramid’ or von Hippel’s ‘extreme users’

• E.g. Low Cost Airlines


Innovation search space Zone 4: Co- evolve

• Represents the ‘edge of chaos’ – complex environment where innovation emerges as a product of a process of co-evolution.

• This represent the ‘fluid state’ before a dominant design emerges and sets the standard. It is characterized by high levels of experimentation.

• Difficult for companies to evolve clear search strategies for this segment.

• ‘Be in there, be in there early, be in there actively’.


Markets vs Maturity

• The real rate of growth of a market provides a good estimate of the stage in the product lifecycle and by inference the maturity of the market.

• Paramaters: 1. New Product’s contribution/Sales 2. Marketing cost/Sales 3. R&D cost/Sales 4. Gross Margin/Sales 5. Return/Sales


Figure 7.2 Market maturity affects the innovation process


Differentiating Products

• Differentiation measures the degree to which competitors differ from one another in a specific market.

• Markets with low differentiation or perceived quality difference are characterized by low profitability.

• ROI is also low in such cases.


Figure 7.3 Relationship between innovation and market performance


Profit impact of market strategy (PIMS)

Strategic Planning Institute’s database of 3000 business units helps to identify factors in PIMS

1. High relative quality is associated with high return on sales

2. Good value (high quality/low price) is associated with increased market share

3. Product differentiation is associated with profitability.


Market Segmentation

• Market segmentation is the process of identifying groups of customers with sufficiently similar purchasing behavior so that they can be targeted and treated in similar way.

• The objective of segmentation is to maximize across-group variance and minimize within-group variance.


Segmenting consumer markets

• Consumer buying behavior is largely based on their social and behavioral styles.

• The buying decision follows a sequence of changing attitudes to a product: awareness, interest, desire and finally action.

• Advertising plays a very critical role in stimulating the whole sequence of events.

• However, research shows that attitude plays only 10% of decisions and can rarely predict buyer behavior.


Segmenting consumer markets

• Decision making for fast moving consumables involve little risk and cost and hence there is low involvement by the buyer. Consumers tend to minimise the financial, mental and physical effort involved in purchasing. In such cases, advertising and packaging play a vital role.

• In contrast, in high involvement situations in high cost products or services, buyers search for information and make more informed decisions


Marketing strategies for Novel vs Incremental Innovation

• In terms of frequency of use, the most common methods used for high novelty projects are segmentation, prototyping, market experimentation and industry experts.

• For the less novel projects the most common methods are partnering customers, trend extrapolation and segmentation


Role of market segmentation

• Market segmentation is commonly used for product development and marketing strategy in fast moving consumer goods such as foods, toiletries; consumer durables such as washing machines etc., consumer electronics such as lap tops; products such as cars and services such as holiday resorts.


Marketing of Technology Products

• The segmentation of market for technology products involves the study of the technical application requirements and critical behavioral patterns of customers to identify niche markets


Segmenting Business Markets

• In business markets, several people are involved in decision making and they are well informed and make rational purchasing decision – unlike the consumer segment.

• In the organization, the technical personnel involved in decision making may emphasize the performance parameters while the actual buyer may stress value-for-money.


Three stage segmentation

For business markets there is a three stage process for segmentation for identifying new business markets.

1. Segmentation based on functionality of the technology, mapping functions against potential applications

2. Next, a behavioral segmentation to identify potential customers with similar buying behavior (for prize or service)

3. Combine 1 & 2 in a decision matrix to identify potential customers with relevant application and buying behavior.


Nokia – Differentiation (Design and Innovation) 1-3

1. Nokia began as a forestry company in 1865 in Finland and remained so for the next 100 years.

2. Strategy for change: a) Go Global b) Telecom oriented c) Focus d) Value added 3. By 1990, Nokia had become a conglomerate in Aluminium,

cables, paper, rubber, TV, tyres, power generation and real estate. By 1992, Nokia decided to divest itself of all other businesses and concentrate on the telecom sector.



4. It decided to focus on it’s digital and data traffic expertise and co-development of GSM standard.

5. It has managed to develop a strong brand and carefully segmented the market be means of product design and innovation.

6. Annual growth has been regularly 40% and in 2000 the company sold more than 400 million phones. Employs 44,000 people in 11 countries. Average age is 32 . Spends 9% of revenues on R&D. One third of it’s staff work in R&D and design. The R&D staff are located throughout the company for better communication.



7. In 2003 it began to lose sales and market share due to competition in clam-shell handsets and higher end camera phones from Samsung and Motorola. As a result market share fell below 30% and margins fell below 20%

8. In 2004, Nokia decided to introduce 20 new phones to remedy this.

9. Nokia does not simply decide to introduce a new technology or take advantage of a new opportunity. Instead it introduces needed strategic changes in the company’s organization and people to align the company towards the new technology.


Nokia - 2010

10. Mr.Stephen Elop was drafted in from Microsoft as CEO - in September 2010 to halt Nokia's decline & to claim back market share and the innovative edge it has lost to Apple and other rivals.

11. including partnership with Microsoft and an organisational rejig.


Nokia - 2010

12. As part of this innovation strategy. Nokia would make Windows Phone as its primary Smartphone platform & it’s own Symbian operating system would become a franchise platform.

13. Smart Devices unit, responsible for smartphones, would be led by Jo Harlow. Further, Symbian Smartphones, MeeGo Computers and Strategic Business Operations would come under the new division.

14. Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience,


Steps in the analysis of new business markets

1. Cross functional teams, including customers, are used to generate new product concepts by means of brainstorming, morphology and other structured techniques

2. These concepts are refined and evaluated using techniques such as QFD

3. Parallel prototype development and market research activities are conducted. Customer’s feedback is taken and analyzed.



• Marketing of Technology Products is characterized by the application of new technologies in existing or relatively mature markets

• The key issue is to identify existing applications where the technology has a clear advantage (cost or performance)



• A product consist of number of devices/components which are developed using technologies of varying complexity.

• Customers buy products and not the devices that go in them; hence customers are not concerned with the level or type of technologies used but on the product’s performance; it’s cost and how well it meshes with his specific needs.

• Hence it is the job of the developer to identify why a potential customer might look for an alternative to the existing solution


Marketing of Technology Products – eg. PC

• a personal computer (PC) is a product consisting of a large number of devices or sub-systems, including the basic hardware and accessories, operating system, application programs, languages, documentation, customer training, maintenance and support, advertising and brand development.



• Therefore a development in microprocessor technology, such as RISC (reduced instruction set computing) may improve product performance in certain circumstances, but may be undermined by more significant factors such as lack of support for developers of software and therefore a shortage of suitable application software.



• it is not sufficient to carry out a simple technical comparison of the performance of technological alternatives, and conventional market segmentation is unlikely to reveal opportunities for substituting a new technology in existing applications.

• It is necessary to identify why a potential customer might look for an alternative to the existing solution.

• In such cases there are two stages to identify potential applications and target customers: technical and behavioural.


Figure 7.5 Technical and behavioural segmentation for marketing high-technology products



• Several features are unique to the marketing of technology products and can affect customer behavior

1. Buyer’s perception of differences in technology affect buying behavior

2. Buyer’s perception of the rate of change of the technology affects customer behavior

3. Organizational buyers may have strong relationships with their existing suppliers, which increases switching costs.


MOI - Ch 2 Ref 1; Prof.V.Seshadri 54

Gate 1

Gate 2

Gate 3

Gate 4

Project Charter

Business Plan

Launch & Proposal

Sanity Check

Idea Generation

Concept feasibility

Capability Development

Ramp-up Launch

Innovation process at Enterprise level - Traditional phase gate model (Linear Model of Innovation)

Financial & Technical Feasibility

Prototype Development

Test Marketing

Feedback & Corrections

Commercialization


55


Cases on Sources of Innovation

• “Connect and develop at Proctor & Gamble”

• “Lego”


Date post:	31-Dec-2015
Category:	Documents
Upload:	harshit-marwah
View:	21 times
Download:	0 times

5. Sources of Innovation

Documents