Final Exam ReviewInnovation Management (ISMT 537)

Note: You will be allowed one A4 sized sheet of paper as a “Cheat Sheet” for your reference during the ISMT537 Final Exam. You can fill out both sides, and there are no limits on handwriting, font, or techniques for the information you place on the page. No other materials will be allowed during the exam

What we have studiedDate Topic Innovation Practice* Technique

2-Nov-06 Ch 1:Innovation, Globalization and Commoditization

Create an Innovation that meets predefined specifications

Assumption reversals

9-Nov-06 Ch 2:Understanding Innovation Redesign a successful product or service; redifferentiate in the market

Feature Maps and Feature Segmentation

16-Nov-06 Ch 3:Recognizing the Potential of an Innovation

Quiz, Consumption Chain Analyze and Feature Map a particular innovation

Quizzing and Mind Maps

23-Nov-06 Ch 4:Business Models Design and map a successful business model for commercializing a given innovation

Morphological boxes

30-Nov-06 Ch 5:Assessing and Managing Your Capabilities

Assess the capabilities of a given firm; Identify suitable markets and innovation opportunities

Forced Connection

7-Dec-06 Ch 6:Understanding and Managing Creative People

Take an innovation of your choice to market; map activities over the first 5 years

Feature Fractionation

14-Dec-06 Ch 7:Adaptive Entry Strategies Managing when you have an 'Inventor' on your team

Brainstorming

21-Dec-06 Course Wrap-up and Final Examination

Classes of Things You have Learned

Concepts: Things you need to know before you think about innovating. These include:

Knowledge about previous successful and unsuccessful innovators (people and companies)

Theories and frameworks Facts

All of these underlie and motivate your activities.

Activities and Tasks: Things you (as an entrepreneur or intrepreneur) need to do in developing innovative products. These occur on both sides of the equation: Innovation = Invention + Commercialization Activities can either ‘Invent’ or they can ‘Commercialize’

Tools: Used to make decisions about ‘Inventing’ or ‘Commercializing’ These are the tangible mental exercises, models, spreadsheets, documentation, etc.

that support innovation activities and tasks.

Fundamentals

Definition: ‘Innovation’

An ‘Innovation’ is: Invention + Commercialization

Freeman, The Economics of Industrial Innovation A new way of doing things that is commercialized

Porter

The new knowledge in an innovation can be either Technological, or Market related

The Three Phases of Innovation

M ar k et E n tr yC h 7

O p p o r tu n it iesC h 1 , 2 & 3

C o m p eten c esC h 4 , 5 & 6

Ad ap tiv e E x ec u tio n

In n o v a tio n S u c c e ss

C h a rtin

g you r C

ompe ti

tive T

e rra

in

As s es s in g y o u r C o m p eten c es

Elements of Product Innovation

Ne w Pro du ct :

L o w c o s tI m p r o v ed q u alit iesN ew q u alit ies

C o m pe te n ce sa n d

A s s e t s

Ne wTe ch n o lo g ica l

k n o wle dg e

Ne w M a rk e tK n o wle dg e

The Purpose of a Business is to Create a Customer

-- Peter Drucker

Even if you create marvelous inventions Your customers won’t care Unless that is exactly what they need

Business customers are especially impatient With any product that doesn’t help them gain competitive

advantage

Yet your firm wants to build products that take advantage Of their Core Competences

What makes each of these companies Innovative?

Invention Generation

The opportunity register (OR) should be seen as a repository of ideas that can be pulled up at any time. If a particular idea isn’t working, you have the option

to switch to another OR Entry (i.e., another innovation) You can actually plan these milestones in

advance Hedging your bets By running many innovation projects

Simultaneously, or Sequentially

Inv e s t

D o n 't In v e s t

G o o d N e w s

B ad N ew s

G o o d N e w s

B ad N ew s

Sources of Innovation

How innovation arises Functional:

Innovations arise from thinking about the functional relationships between groups and individuals e.g., customer or manufacturer

Attribute Maps and Quizzing help identify Innovations arising functional relationships

Circumstantial: Innovations arise from thinking about the circumstances in which a product

(innovation) will be encountered e.g., a cooking innovation when it is consumed in a restaurant

Consumption Chain Analysis helps identify circumstantial Innovations

Where innovations arise Internal R&D External Markets (Customers) Competitors & related industries University, government & private labs Other nations / regions

The last two sources are strongly influenced by society and governments

Sources of Innovation

1. Internal R&D2. External Markets (Customers)3. Competitors & related industries4. University, government & private labs5. Other nations / regions

The last two sources are strongly influenced by society and governments

‘Complementarity of several sources may amplify and accelerate innovation

Innovation at the National level

Success in societies which: operate, manage and build instruments of production create, adapt and master new technologies impart expertise and knowledge to the young choose people for jobs by competence and relative merit promote and demote on basis of performance encourage initiative, competition and emulation let people to enjoy and employ the fruits of their labor, enterprise and creativity

Success where government does the following: encourage saving and investment enforce rights of contract secure rights of personal liberty against tyranny and crime provide stable government, though not necessarily democratic provide responsive government provide no rents or favors for government position have governments that are moderate, efficient and ungreedy

Science & TechnologyWhat are they? How are they related?

S c ien c e

T ec h n o lo g y

I n f lu en c e / f eed b ac k

I n f lu en c e / f eed b ac k

Ver b allyE n c o d edI n f o r m atio n

Ver b allyE n c o d edI n f o r m atio n

Ver b ally E n c o d edI n f o r m atio n * p u b lic a tio n s * p a ten ts

P h y s ic a lly & Ver b ally E n c o d edI n f o r m atio n * p r o d u c ts & s er v ic es * d o c u m en ta tio m * p u b lic a tio n s * p a ten ts

ComplementarityWhat other products are needed to complete your Commercialization?

Most economically significant modern products have little value on their own They require complementary

products from many firms to be of value Petroleum has little use without

internal combustion engines Or Cars without Roads (US Road

costs are around $5-10 per gallon of gasoline)

Or Electricity without Electric Motors

Or iPods without MP3s … you get the idea

What are your ‘Killer Apps’? The complements that sell your

product

In v en to ry o r p arty w ithb arg a in in g p ow er

In v en to r

H o ld er o fco m p lem en ta ry a ssets

P ro f it is D if f icu lt Hig h

L o w

F r ee o r Un im p o r tan t T ig h tly h e ld

C o m ple m e n ta ry A s s e t s

I m ita bility

Life cycle of an Innovation Development Determines Optimal Market Entry Strategy

Fluid phase Mainly lab based or custom applications of technology

Transitional phase Standardization of components, and consumer-producer interaction lead to dominant

design Specific phase

Products built around the dominant design proliferate; innovation is incremental

N ear C erta in tyN on techn ica l f acto rs

m ay be igno red

L ittle U n certa in tyL o w in f luence o f

non techn ica l f acto rs

M ed ium U ncerta in tyH ig h in f luence o f

non techn ica l f acto rs

H ig h U ncerta in tyH ig h in f luence o f

non techn ica l f acto rs

Hig h

L o w

E r a o f F er m en t E r a o f I n c r em en ta l C h an g e

S ta te o f Ev o lu t io n o f Te ch

C o m ple x ity

What sort of people are Innovators?

Idea Generators Can sift through large quantities of technological and market data to identify

‘innovations’ Gatekeepers & Boundary Spanners

Conduits for knowledge from other firms and labs Champions (Entrepreneurs, Evangelists)

Sell the innovation to the firm Sponsors (Coach, Mentor)

Senior level manager who provides behind the scenes support, access to resources, and protection from political foes

Project Managers Planners with discipline; one-stop decision making shop

Market side innovation

O p p o r tu n ityR eg is ter

In v e ntio n s

Ide a

s

Com

mercial O

pportunities

Inno va tio n

C o re C o m p etences :A ssessm ent & Investm ent

M ark et E ntra nce &C o m p etitive S tra teg y

A d ap tiveE x ecutio n

The Opportunity ‘Register’ Concept: Always keep an inventory of possible opportunities

so that you are unlikely to run out of ideas for making the next competitive move or capturing the next prospect for growth

Fields:

1. Business concept2. Relevant trends3. Key industry data4. Obstacles and barriers5. Company position6. Competition and Substitutes7. Sources for your information 8. What type of opportunity is this?9. Timing of proposed actions

•CommercializationDefines your market

Who is the target customer for the company’s product (age, income, medical history, and other demographics)

Support this with Attribute Maps and Consumption Chains

What will differentiate your innovation from competitors’ in the customer’s minds?

Quizzing

Detailed look at target customer usage and decision making regarding your product

Looks at the customers “stream of consciousness” Through a series of questions

Looks for ideas to Change the Customer’s Experience (i.e., redifferentiate your product)

Remember: Experience is dynamic So are the questions in quizzing

Over a time period prior to the first time customer is exposed to the product

To a time well after the customer has stopped using it

QuizzingWho?

… is with customers while hey use the product How much influence do they have

If we could arrange it, who would we want the customer to be with …

What? … Do our customers experience when the use the product … needs provoked our offering

What else? … might customers have on their minds When? … do our customers use this .. Where? … are our customers when they use this How? … do customers learn to use the product ..

Toolsets

Organize Answers with a Mind Map

Summarize your Quizzing by the Attributes of the Innovation that are important to the Customer

Basic Discriminator Energizer

Positive Nonnegotiable Differentiator Exciter

Negative Tolerable Dissatisfier Enrager

Neutral So What? Parallel

This provides a heuristic for ‘Functional Innovation’ (Eric von Hippel)

Consumption Chain Analysis

Aw ar en es so f n eed

S to r ag e an dtr as p o r t

In s ta lla t io na n d A s s e mb ly

R ec eip t

F in an c in g

P ay m en t

D eliv er y

O r d er an dp u r c h as e

S e lec tio nS ear c h

F in a l d is p o s a l

R ep air s an dR etu r n s

S er v ic e

Us e

Function of Consumption Chain Analysis A complement to quizzing …

And (perhaps) quizzing done from a different (more graphical) perspective

Consumption Chain Analysis Works from the premise that

opportunities for redifferentiation lurk at every step and decision that your customers take From the time they first become aware of their need for your

product or service To the time thy finally dispose of the remnants of the used up

product Rather than ‘stream of consciousness’

It is time-sequential

Consumption Chain Analysis A complement to quizzing …

And (perhaps) quizzing done from a different (more graphical) perspective

Consumption Chain Analysis Works from the premise that

opportunities for redifferentiation lurk at every step and decision that your customers take From the time they first become aware of their need for your product or

service To the time thy finally dispose of the remnants of the used up product

Rather than ‘stream of consciousness’ It is time-sequential It provides a Heuristic for ‘Circumstantial Innovation’ (Eric von Hippel)

Every Link in the Consumption Chain has its Own Attribute Map

The Attribute Map compares your product to those of others

Basic Discriminator Energizer

Positive Nonnegotiable Differentiator Exciter

Negative Tolerable Dissatisfier Enrager

Neutral So What? Parallel

Toolsets

Consumption Chain Analysis Determine the main steps in

consumption

Each step on the consumption chain has an attribute map

You should only list the 3 or 4 most important steps

These will determine whether the potential customer proceeds to the next step (good)

Or leaves the consumption process (not good)

Aw ar en es so f n eed

S to r ag e an dtr as p o r t

In s ta lla t io na n d A s s e mb ly

R ec eip t

F in an c in g

P ay m en t

D eliv er y

O r d er an dp u r c h as e

S elec tio nS ear c h

F in a l d is p o s a l

R ep air s an dR etu r n s

S er v ic e

Us e

C o n tin u e

Lea

ve

Toolsets

Overview of Feature Set

Prioritize and choose the major features of your innovation from the main branches of the Mind Map

Review the main innovation features with a feature-attribute map for the entire innovation

Basic Discriminator Energizer

Positive Nonnegotiable Differentiator Exciter

Negative Tolerable Dissatisfier Enrager

Neutral So What? Parallel

Toolsets

Feature-Attribute Map the 3-4 Key Steps in the Consumption and Manage those 3-4 Steps

Identify Discriminators and Energizers Describe how you will manage each of these

features of the consumption process

Basic Discriminator Energizer

Positive Nonnegotiable Differentiator Exciter

Negative Tolerable Dissatisfier Enrager

Neutral So What? Parallel

C o n tin u e

Lea

ve

What To Do with the Opportunity Register

When Competences start to matter

Assuming you’ve been religiously adding to your Opportunity Register

You should by this time have a lot of different ideas for new and marketable products

Then the question becomes:Which projects should you take on; emphasize; continue?

The answer depends on your competences

This is the point where Demand and Supply side of Innovation Meet

Business Models Matter

Telling a good story Part of selling your strategy / investment

Tying Narrative to Numbers Strategy becomes less philosophy More performance and outcome

When business models don’t work It’s because the fail either

The ‘Narrative’ test Or the ‘Story’ test

Business Models Matter A business model is not strategy

It doesn’t describe external forces: Competition Environment Scaling

It only depicts the systems that will be put into place to achieve a strategic objective

A good model is not enough The boxes on the value map need to be

understood in depth In order to develop a good strategy

R & D

C u s to m erR elat io n s h ipM an ag em en t

L ab o r C u s to m er s

F act o ry

W o r k

Production

Business Models Matter A business model is not strategy

It doesn’t describe external forces: Competition Environment Scaling

It only depicts the systems that will be put into place to achieve a strategic objective

A good model is not enough The boxes on the value map need to be

understood in depth In order to develop a good strategy

R & D

C u s to m erR elat io n s h ipM an ag em en t

L ab o r C u s to m er s

F act o ry

W o r k

Production

Vision

The initial and most general statement you make about your business model

What will your: industry market company

look like in 1, 2, 5, 10 years?

We will be #1; or the world’s largest…; or the world’s best… ; etc. ARE THE WRONG ANSWERS

Business Model A story about your business,

With narrative links to numbers i.e., key ratios, milestones, targets

The story may be laid out graphically in the Value Map Which shows the components and value flows between them of the business model

A Business Model is NOT Strategy Strategy defines how the vision will be attained The Business Model is the vehicle

The story should consider unique aspects of industry technology1. Network externalities (value of a network grows by the square of the number of

users)2. Technology acceleration (e.g., Moore’s Law; performance to price of key

technologies grows exponentially This leads to the Four Phases of Radical Innovation described in chapter 4 of the text.

(or four ‘collisions’ in Chris Anderson's ‘The Long Tail’)

Industry Dynamics

Unique aspects of industry technology such as Network externalities , and Technology acceleration

Are useful in predicting key ‘inflection points’ in a market

The most important of these ‘inflection points’ result from the so-called Innovator’s Dilemma Where existing competitors are locked in to an old

technology by their customers And new technologies can (at the ‘inflection point’) almost

instantly capture their markets

Framing the Challenge Targets and Goals

If I were to do something in the next 3-5 years That my firm and my company’s investors would regard as a major win What would this performance record have to look like?

If I were to do something in the next 3-5 years That my customers would regard as a major (disruptive) innovation How would I change their lives?

How would my relation with customers affect my performance?

Framing the Challenge: Strategy Drivers

These will be the major Performance Metrics that will be stated in your Milestone / Targets

For example Sales growth from 1% growth to the high teens R&D expense from 8% to 11% of Sales Reduce SGA expense from 27% to 19% Reduce tax rate 4% points Increase ROA from 0% to 1%

E n tr ep r en eu r ia lAc tiv ity

P er f o r m an c e( c u s to m er s , in v es to r s ,

e tc . )D r iv es

New Life from Old Competences

Redifferentiating and resegmenting

Redifferentiating Products The Dialectic

Innovation involves a dialectic: On the one-side are arguments about what the customer

wants (demand-side) Remember that the customer doesn’t care about us or our

products We have to make them care

On the other-side are arguments about what we can do (supply-side) These are determined by our core competences Which are to some extent determined by Mission and

Vision statements, and our Business Models

Resegmenting and Reconfiguring

Resegmenting Focusing on and better serving existing market segment

Reconfiguring Completely changing the existing basis for segmentations By reconfiguring existing value maps Or introducing entirely new kinds of solutions

Reconfiguring your Market

Reconfiguration is about Breaking down the Barriers (technological, regulatory or

organizational) That set limits on the Attributes you can offer Or on the way that Consumption Chains can be

configured It builds on your insights from the Consumption Chain

Analysis and Attribute Map Looking to remove the Limitations imposed by your existing

Core Competences

How to Resegment

Resegmentation addresses the Dynamics of Customer Usage of a Product It builds on your insights from the Consumption Chain Analysis

and Attribute Map Looking for new Segments to market to

Observe behavior To Uncover existing Customer’s Needs To find new Customer Groups within your existing customers Keep them from moving to competitors’ products

R&D and CRM

In the perspective presented in this course Customer Relationship Management (CRM) … and Research & Development (R&D)

Are two parts of the same overall process.

Customer Relationship Management serves several functions: Making sure that customers are satisfied with existing products; Make sure that they know about new and upcoming products; Asking them questions to find out what they want in new

products; Making them aware of new features that they didn’t know they

wanted These are essential parts of the R&D process

Production Side of Innovation

Resource based perspective of Strategy

O p p o r tu n ityR eg is ter

In v e ntio n s

Ide a

s

Com

mercial O

pportunities

Inno va tio n

C o re C o m p etences :A ssessm ent & Investm ent

M ark et E ntra nce &C o m p etitive S tra teg y

A d ap tiveE x ecutio n

Resource-based view (RBV) of firmsDominant approach to business strategy today Basis for Core Competences

The resource-based view suggests that a firm's unique resources and capabilities provide the basis for a strategy.

The strategy chosen should allow the firm to best exploit its core competencies relative to opportunities in the external environment.

E n v ir o n m en t 'sR es o u r c e S u p p ly C u r v e

& C o n s tr a in ts

O w n er o fS tr a teg y

( R - P - V S o u r c eo f C o m p etit iv e

Ad v an tag e )

E n v ir o n m en t 's D em an dC u r v e & C o n s tr a in ts

Valu eF lo w

{ v alu e t , v o lu m e t}

Valu eF lo w

{ v alu e t , v o lu m e t}

Valu e Ad d ed b y S tr a teg y( d if f e r en c e b e tw een tw o v a lu e f lo w s )

Core Competences

These are the things that the firm does That they do better than other firms That are the source of their competitive advantage

Firms establish their core competences by: Investing in people Investing in assets, plant and land Identifying and focusing their mission

The Firm’s core competences are often those of its CEO and management

Competences

You best (perhaps your only) opportunities to compete

are Where Product Market

Needs Cross with Competences

Y o u rC o m p eten ces

P ro d u ct M a rk etO p p o r tu n ities

C o m pe ti to r A'sC o m pe te nc e s

C o m pe ti to r B 'sC o m pe te nc e s

C o m pe ti to r C 'sC o m pe te nc e s

Yo u r C o m p eten c e

Delivering on 7-10 critical ‘Key Ratios’

This is what Investors and Venture Capitalists will look for The particular accounting statement measures That indicate whether your strategy is succeeding or not

The exact set of measures depends on your business model and your strategy

People

Innovations require a number of types of people for success – the invention is just the beginning of the process (and some might say the easiest part)

Five sorts of people (at least) need to be hired to develop a commercially successful product a. Idea Generators (i.e., those who can sift through large

quantities of technological and market data to identify ‘innovations’) b. Gatekeepers & Boundary Spanners (who bring ideas from one

department, company or industry, to another) d. Champions (entrepreneurs, evangelists and other promoters of

new ideas, even though they may not have very great technical knowledge)

e. Sponsors (coaches and mentors that can clear the way politically for an innovation)

g. Project Managers

Delivering on 7-10 critical ‘Key Ratios’

This is what Investors and Venture Capitalists will look for The particular accounting statement measures That indicate whether your strategy is succeeding or not

The exact set of measures depends on your business model and your strategy

Competences:

E.g., Dell’s Hyper-efficient supply chain

Dell is relentless in negotiating the best prices from suppliers, and

driving those savings through the supply-chain.

To do that, Dell replaces inventory with information.

Competences:

E.g., The FedEx Way

Compete for customers

Using new technologies

i.e., the increasing size and speed of jets

That restructure the geography of space

time

money

Competences:

Fedex: Overnight Delivery

Smith reasoned that he could turn Post Office economics upside-down

Post Office delivery optimized distance traveled

time was not a critical value,

package handling was cheap.

Smith saw that new air technology could let him ignore distance traveled

… and instead, optimize speed and handling to create new market value

What is an Innovation Worth?

Value ‘Happens’ in the Future Your ‘Vision’ of the Innovation Firm is the best source of information about this

future value From the ‘Vision’ you derive your ‘Business Plan’ From your ‘Business Plan’ you derive your ‘Strategies’ ‘Strategies’ comprise ‘Real Options’ which are conditional particular ‘Events’ occurring

in the future The feasibility of each ‘Event’ is ultimately ‘Discovered’ at some point in the future

Finance and accounting are geared towards measuring the past Strategy is designed to plan and control the future

To select the correct innovations from our opportunity register We need to assess how good our strategy will be

This is why Strategy Drivers The basis of our key ratios Are the basis of value as well

The move towards A Resource Based View of Strategy

O u tco m es

P ro cesses

P r o f it- m ax im iz in g

E m er g en tD elib er a te

P lu r a l

C la ssica lE v o lu tio n a ry

S ystem ic P ro cessu a l

1970 s

1980 s

1 9 9 0 s

C lassica l M ilitary S tra tegy

Easy and Difficult Industries

Deciding on investments in core competences for the future is easy as you move to the left on the line below

It is nearly impossible as you move to the right

W h e r e to u s e F in a n c ia l D y n a m ic s(a n d w ha t k in d s of corp ora te a ssets or serv i ces g en era te v a lu e)

P roperty,M ortg ages,M in in g & E x tractiveIn du stries

U tilities &V oice T eleph on y

In su ran ce,E lectron ic M arkets& R isk M an agem en t

S of tw are,V ideo gam es,C in em a , M u sic,N ew s

D ata T eleph on y,G loba l N etw orkS ervices (e.g . , sh ipp in g )

C om m odityM an u factu rin g(e.g . , paper)

C om p lexM an u factu rin g(e.g . , ca rs, ch ip s)

L oca l S ervices(e.g . , L ega l,G overn m en t)

R eta ilin g ,E du ca tion &P u re R & D

B ran ded-L u xu ryM erch an d ise

M a in ly Ta n g ible A s s e t s M a in ly K n o wle dg e - I n ta n g ible A s s e t s

D C F & Tra dit io n a lV a lu a t io n M e th o ds a re A ccu ra te

Fin a n cia l D y n a m ics is Ne ce s s a ryfo r A ccu ra te V a lu a t io n

Uncertainty and Decision Milestones

The Real Options decision tree (left) assumes that the manager makes a decision, then finds out what happens

Where this fails is when the manager finds out what happens (or at least guesses what might happen) prior to making a decision

In this case, scenario analysis (right) is better suited for the task of dealing with uncertainty.

G o o d New s

B ad N ew s

In v e s t

D o n 't In v e s t

In v e s t

D o n 't In v e s t

Inv e s t

D o n 't In v e s t

G o o d N e w s

B ad N ew s

G o o d N e w s

B ad N ew s

Business Models:Tying Narrative to Numbers

What activities, operations and products are within the ‘scope’ of the valuation analysis? (Bubbles: depends on audience)

What are the significant environmental influences? (Boxes: major competitive forces outside management control)

How does value flow through the relevant scope of the analysis? (Arrows: value metric)

R & D

C u s to m erR elat io n s h ipM an ag em en t

Lab o r C u s to m er s

F act o ry

W o r k

Production

Investment

Innovations are either funded internally, Or by banks, shareholders, bondholders, and other 3rd

parties They all want to know “where they will make their

money”

Adaptive execution defers expenses until the latest possible date And tries to learn as much as possible about the product,

service, market, technology, customer, etc. as possible At the lowest possible investment cost

Entry Strategy

O p p o r tu n ityR eg is ter

In v e ntio n s

Ide a

s

Com

mercial O

pportunities

Inno va tio n

C o re C o m p etences :A ssessm ent & Investm ent

M ark et E ntra nce &C o m p etitive S tra teg y

A d ap tiveE x ecutio n

CompetitionWho is competing in this product market?

1. How you will measure the usefulness or attractiveness of your prodict’s Attributes to the target customer.

This performance metric should be a numerical measure

2. Who are your innovation’s top competitor in each of these three Attributes

a company marketing a competitive product or service Are these companies profitable? How big (approximately) is their business?

Think: Low-cost or Differentiated Products?

Every product or service has multiple competitors … there are no exceptions

Two Realities

Competitors simply cannot allow you to go unchallenged and must try to erode your position

Understanding where to create a competitive position that cannot easily overcome is thus essential

You are not only competing with other organizations in customer markets You are also competing with them in the capital markets for

critical funds that you need to build future competitive position

You Convince Competitors and Financiers By … Proving that your ideas can perform on Key Metrics (e.g., Profit)

Show me the money!

This raises the question: “What are the important Metrics?”

The answer is complex … and is not necessarily “Profit” Accounting metrics like Profit

Measure the Past Competitors and Financiers are interested in your future!

Future Profits, Revenues, etc. are Unknown

Thus Other Measures both needed and More Important than Profit!

Competitive ResponsesThink War

3 Questions Is this area important to them? Have they been increasing

their commitment here? Have they invested heavily in

this area?

Capacity Capacity HighHigh

Capacity LowCapacity Low

Commitment Commitment LowLow

Sleeping Dogs(track them)

Bystanders(monitor)

Commitment Commitment HighHigh

Combatants(Your main focus)

Skirmishers(selective in their responses due to resource limits; monitor)

Tactics

feint (fānt) noun

1. A feigned attack designed to draw defensive action away from an intended target. 2. A deceptive action calculated to divert attention from one's real purpose. See synonyms at artifice.

gam·bit (gămʹbĭt) noun

1. Games. An opening in chess in which a minor piece, or pieces, usually a pawn, is offered in exchange for a favorable position.

2. A maneuver, stratagem, or ploy, especially one used at an initial stage. 3. A remark intended to open a conversation.

on·slaught (ŏnʹslôt´, ônʹ-) noun

1. A violent attack. 2. An overwhelming outpouring: an onslaught of third-class mail.

gue·ril·la (gə-rĭlʹə) noun (warfare)

A member of an irregular, usually indigenous military or paramilitary unit operating in small bands in occupied territory to harass and undermine the enemy, as by surprise raids.

noun, attributive.Often used to modify another noun: guerrilla warfare; guerrilla tactics.

Entry Tactic

Business strategy was once only a military metaphor for corporate competition to enter a market It has since grown to become a more complex study

But in entering a market with an innovation, military metaphors are perfect

Entry tactics all have a common objective To avoid debilitating competitive interaction by using speed, skill

and surprise, rather than scarce startup resources.

A good entrance strategy achieves these objectives using imagination, innovation, creativity to outmaneuver

competitors … not resources.

Combatants

Market entry marks the point at which all of the investment and work on your innovation is put to the test

Almost every innovation competes against some existing product or service (usually many) produced by other firms

These firms fall into four categories major combatants (size and commitment), sleeping dogs (size only), bystanders (neither size nor commitment), and skirmishers (commitment but insufficient size).

You really only need to directly be concerned about major combatants But you will need to keep an eye on the others

Entry Tactic

Business strategy was once only a military metaphor for corporate competition to enter a market It has since grown to become a more complex study

But in entering a market with an innovation, military metaphors are perfect

Entry tactics all have a common objective To avoid debilitating competitive interaction by using speed, skill

and surprise, rather than scarce startup resources.

A good entrance strategy achieves these objectives using imagination, innovation, creativity to outmaneuver

competitors … not resources.

Market Entry Strategy Model

What are the major competitive forces molding managerial strategy which add to, or take away from ‘Value’?

What ‘levers’ (strategy drivers) can management pull to influence value added?

What is the functional relationship between value and the strategy drivers? (Define the ‘Strategy Model’)

Technology Choice

Technology is shared across all competitors. It offers: Efficiency (improved performance at the same cost) Quality Novelty Substitutes

What are the major technologies relevant to managerial strategy which add to, or take away from ‘Value’?

Disruptive Innovation

Four critical phases marking radical change in the photographic industry the critical phase when the alternative camera technology

became price competitive; critical mass, when complementarities set off a growth in

interest in the alternative technology; displacement of film cameras as the new digital cameras

finally outsold film cameras, and continued decline of digital camera prices to zero, causing

cameras to be placed in every product imaginable (in 2006 Nokia was the world’s largest seller of cameras by volume).

Disruptive Innovation:Exponential Growth of Performance and the Attack from below

Disruptive innovation: Digital Cameras

(4 collisions)

Disruptive innovation: Digital Cameras

(4 collisions)

Adaptive ExecutionDiscovery Driven Planning

Decide on an entry strategyAnticipating competitive behavior and response

Planning to learn when uncertainty is highRather than meeting objectives set in advanceAssessing your project as it unfolds

You can’t sell 10 until you sell 1Each of the early sales is an opportunity:

To test your attribute map and consumption chainTo learn about your product and customerTo innovate again and again

Milestones

Adaptive execution defers expenses until the latest possible date And tries to learn as much as possible about the product,

service, market, technology, customer, etc. as possible At the lowest possible investment cost

The vehicle to accomplish this is the ‘milestone’ A particular event: a deliverable at a point in time

Each milestone must trigger a test of one of your underlying assumptions about the business and product. You should always be able to specify an assumption test for

each milestone; The assumption test tells you what you have learned about your

innovation

Where are your Customers? Lead-steer customers

Opinion leaders in their industries Highly regarded by peers Customers with blogs, review or other sites

Use these customers’ enthusiasm to: Test your assumptions about attribute maps and consumption chains Use their success with your offering to sell others

Customer Risks

Learning (experience) curve Opportunity costs Failure or uncertain operation Employee resistance Legal and Environmental Quality & Perception

No Sales until ‘First 3 Sales’prioritizing the first few sales

Risk LowRisk Low Risk HighRisk High

Benefit LowBenefit Low 2nd Priority(make risk of not buying higher than of buying)

Forget it!

(postpone until

value or risk

Benefit HighBenefit High 1st Priority(easy sell)

3rd Priority(‘if it doesn’t work, send me the bill’)

Customers

The first three customers are the most important that your company will acquire for the innovation They will tell you what works and doesn’t work about your

innovation They will tell other customers whether they should buy your

innovation (the lead or steer other customers to your business, thus they are called lead-steer customers)

They are the only true test of the ‘experience’ of consuming your innovation.

Generic classes such as “teenagers,” or “scientists” are NOT acceptable Rather, you need to be able to state names

3M’s Model for adaptive execution

"Give it a try—and quick!"

When in doubt, vary, change, solve the problem, seize the opportunity, experiment, try something new (consistent, of course, with the core ideology) even if you can't predict precisely how things will turn out

Do something. If one thing fails, try another. Fix. Try.

Do. Adjust. Move. Act. No matter what, don't sit still.

3M’s Model for adaptive execution"Accept that mistakes will be made"

Darwin's key phrase: "Multiply, vary, let the strongest live, and the weakest die."

In order to have healthy evolution, you have to try enough experiments (multiply) of different types (vary), keep the ones that work (let the strongest live), and discard the ones that don’t (let the weakest die).

You cannot have a vibrant self-mutating system—you cannot have a 3M—without lots of failed ex periments.

Even the flops are valuable in certain ways.... You can learn from success, but you have to work at it;

A visionary company tolerates mistakes, but not "sins," that is, breaches of the core ideology.

3M’s Model for adaptive execution

"Take small steps."

It's easier to tolerate failed experiments when they are just that—experiments, not massive corporate failures.

small incremental steps can form the basis of significant strategic shifts.

If you want to create a major strategic shift in a company, you might try becoming an "incremental revolutionary"

harnessing the power of small, visible successes to influence overall corporate strategy.

3M’s Model for adaptive execution

“Give people the room they need."

A key step that enabled unplanned variation.

When you give people a lot of room to act, you can't predict precisely what they'll do

This is good.

Visionary companies decentralized more and provided greater operational autonomy than the comparison companies in twelve out of eighteen of Porros and Collins cases. (Five were indistinguishable.)

Corollary: Allow people to be persistent.