Innovation Management

1. Creating sustainable competitive advantage through innovation

Innovation
Innovations are qualitatively new products or processes that are
significantly different from the current status

Only relevant if it creates value for customers

Great new ideas that are turned into hard cash (3M)

Innovation vs. Invention

Innovation = new target market, blue ocean
in)
Invention = old target market, red ocean
(inside-out)

market driven (outside technology driven

How new is an innovation?

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6.

New-to-the-world products and really-new products (Prius)

New-to-the-firm products or new product lines (Samsung Galaxy)
Additions to existing product lines (Dyson hand-hoover)
Improvements and revisions to existing products (iPhone 4S)
Repositionings (Starbucks)
Cost reductions (Nespresso -> capsules)

Innovation Radar

Offering (WHAT) (Prius)

o Platforms (3M)
o Solution (Claas)
Customers (WHO) (Wii)
o Customer Experience (Starbucks)
o Value Capture (iPhone)
Process (HOW) (Southwest Airlines)
o Organization (P&G)
o Supply Chain (Dell)
Presence (WHERE) (Netflix)
o Networking (Facebook)
o Brand (BMW)

Five Sources of Innovation Strength (BCG 2013)

1. Top Management Commitment to Innovation
2. Leveraging Intellectual Property
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3. Managing the Portfolio of Innovation Activities

4. Strong Customer Focus
5. Insisting on Strong Processes
Innovation has an impact on company performance (Porter)
Significant and sustainable competitive advantages
Missed innovations life-threatening crises
Decreasing product life cycles require continuous innovation
Commoditization and downward pressure on profit margins avoided by
differentiation through innovation
o me-too strategies unsuccessful
o Cost cutting, acquisitions, treasury: only short-term
o Differentiation only through innovation
Disruptive Business Models come often from other industries or
start-ups
(e.g. Netflix, amazon.com)
SONY has missed major innovations other brands dominate the
markets SONY once created
Strategic Gap

= evaluation of the difference between a desired outcome and an actual

outcome.

e.g. Intel Chip Prescott is 30% cheaper than the old chips; however,
its not a major improvement in comparison to the old chip rather a
process innovation
Customers might not buy these chips, but future chips are surely
cheaper & better

Growth and Value Creating through Innovation The Apple Case

How Apple fills the Strategic Gap

Samsung: existing businesses will grow and their underlying capabilities

are leveraged to expand into new areas
Sustainable differentiation through integrated R&D, Patenting and
Branding
R&D = engine for innovation
Innovation = better for advertising create strong brand
Successful differentiation through integrated R&D, patenting and
branding
Focus on USP with experienced customer value
Protection by patents
Focus of the more efficient branding campaign
Unique
USP
Experienced customer/user value
Bases on core competences
Protected by patents and know-how
Branded
Market communication
Positioning
Recall
Orientation towards target segments

2. Disruptive technologies and resistance to innovation

Disruptive and Sustaining Technologies
Sustaining Technology
Performance of established products improved along dimensions
customers have historically valued
Performance dimensions derived from major customers
Current performance measures
Current value network
Disruptive
Underperform on performance dimensions of mainstream market
Appeals to fringe customers (new customers)
Potential to beat old technology (old performance measure)
New performance measures
New value network (e.g. emerging market)
impact of disruptive technologies depends on performance
improvement!

Christensen defines a disruptive innovation as a product or service

designed for a new set of customers.

Why successful companies miss out on disruptive change

Disruptive technologies underperform in comparison to current ones

Major customers reject new technology
Initially only small fraction of market addressed
Disruptive technologies appear to be financially unattractive and risky
Goals and incentive systems based on short-term financial goals

Dont stay too close to your customers!

Risk-averse managers
Tunnel view, mental barriers (e.g. PS3 vs. Wii or Walkman vs. iPod)
Attempt to react to disr. technologies in a way that worked already in the
past
Risk-averse, hierarchical and inflexible company culture

Dont be afraid to change! (ignorance, psychological barriers)

Ten ways to inhibit innovation

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Focus on short-term results

Fear of cannibalizing current business
Most of resources devoted to day-to-day business
Innovation not part of everyones responsibilities
Efficiency focus eliminates free time for fresh thinking
No standard procedure to foster new ideas
Incentives are geared towards maximizing todays business
Managers not trained to be innovation leaders
Managers immediately look for flaws in new ideas rather than tease out
their potential
10. Internal opportunities rather than starting with customers needs and
problems
Individuals and organizations give preferred treatment to alternatives that
represent continuation of present programs over those that represent
change

3. Creating a Corporate Mindset for Innovation

Innovation Management to overcome barriers to Innovation
1. Improving early warning systems (technology and competitor
monitoring)
2. Improving forecasting activities (technology, market)
3. Supporting champions of innovation
4. Measures to overcome interface problems
5. Supporting an innovation-enhancing culture
6. Establishing appropriate incentive systems
7. Improving the NPD-process
8. Organizational separation of routine and innovative tasks (Corporate VC;
Task-Force Project Management)

Important challenges

Lengthy development times

Lack of coordination
Risk-averse culture
Limited customer insight
Poor idea selection
Inadequate measurement tools
Lack of ideas
Marketing or communication failure

Assessing Corporate Culture in the organization:

Innovation as shared core value?

Core element in corporate strategy?
Short-term or long-term thinking?
Innovation-related goals?
Management fully committed to support innovation?
Intrapreneurship and risk-taking encouraged?
Explicit room for creativity and thinking out-of-the-box?
Handling of failures (project terminations and flops)?
Incentives to encourage innovation?

CEO = CIO: leadership created mindset for innovation!

Innovation as core element of strategy: P&G

Consumer Understanding
Innovation
Brand-Building
Go-To-Market Capabilities
Scale

Company success of hidden champions: Culture & Leadership

matter most!
1. Entrepreneurship / Leadership
2. Employee qualification and loyalty
3. Professional management
Characteristics of Champions
A champion is an individual who informally emerges in an organization and
makes a decisive contribution to the innovation by promoting its progress
through the critical organizational stages

Commitment: willingness to sink with the innovative project

Creativity: a vision for the innovation
Leadership: fill others with enthusiasm
Technological competence: expert knowledge in critical questions
Managerial competence: organization, planning, steering
Social competence: recognition and handling of conflicts
Organizational competence: power of enforcement and persuasion

Interaction between Champions for Innovation

Executive Champion: strongest impact on innovation due to hierarchical

power
Product Champion:
o Personality (entrepreneurial qualities, responsibility, risk taker)
o Leadership qualities (charisma, enthusiasm)
o Influence (competence in networking, negotiating skill)
Technical Champion: engineers
4. Market orientation, customer integration and cross-functional
integration
Relative product advantage
The relative product advantage (value proposition) of the innovation over
competing products as perceived by the customer is the most important
success factor of innovations.
Implications of relative product advantage (value proposition)

Me-too as unsuccessful business model

Innovator can be successfully challenged (fast second)
Identification of relative product advantage a.s.a.p. in NPD-process
Customer / market feedback required
Superior technology does not necessarily translate into a successful
product (engineers or scientists view)
= most important aspect of any business plan

high amount of failures no real value proposition!

Microsofts move from technology-push to customer-driven new
product development
Before: Windows Vista
Development driven by engineering
Most complex software of all times, slow and unrealiable
After: Windows 7
Development driven by customer needs
Development in cross-disciplinary way
Development in teams
Market Orientation
Its not about data and reports. Its about understanding your consumer
and putting that understanding at the heart of everything your business
does.
1. Generation - tools, methods, resources, competencies, include
customer!
Collection of customers needs and preferences
Analysis of exogenous (outside) factors that influence those needs
2. Dissemination cross-functional integration, NPD process, knowledge
flows
Providing of market intelligence to the organization
Participation of virtually all departments required
3. Responsiveness - cross-functional integration, NPD process,
organization, marketing
Organizations response to market needs
Promotion of end products in a way favourable to the end-customer
Customer Centric Culture
Higher performance can only be achieved by improving all 3
dimensions of market orientation

Improving Dissemination and Responsiveness: Fostering Collaboration in

the Triangle of Sales, Marketing and R&D

Significant positive influence of sales integration on NPD success

Sales needs to be integrated in early stages of NPD process
Sales is important partner of R&D brings voice of customer into NPD
process

Limited customer insight and marketing failures often caused by lack of

cross-functional coordination
Virtual Customer Integration Characteristics
1. Efficiency
Efficient information provision (time and money)
Increased number of options
Richness of media
2. Direct and interactive communication
Active and passive information gathering
Firm-to-customer and customer-to-customer interaction
3. Customization
Customized information (e.g. products) to individual consumers
Segmentation of customers (for NPD purposes; e.g. lead users)

1. Idea generation
New product ideas contests
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 Customer suggestions for product improvement

2. Idea screening / project definition
Product concept testing (e.g. conjoint analysis or online focus groups)
3. Development
Large scale market research (e.g. assessment of market potential or
optimal pricing strategy)
Rapid prototyping with customers
4. Product testing
Prototype testing
Virtual test-markets
5. Market launch
Pre-announcement of new products
Stimulation, support, and use of customer innovation communities (CIC)
Continuous market research and iterative customization of products
Techniques of Virtual New Product Development with Customers
1. User Design
2. Web-based CA
3. Information Pump
4. Securities Trading of Concepts (trading game)
Virtual Customer Integration (VCI) in Multiple Stages of NPD
1. Idea Generation and Assessment

Key Idea: Customers as idea generators and consultants for idea

assessment and selection
Customer input:
o Ideas for new products
o Assessment of ideas
o Suggestions for improving existing products
o Complaints about existing products
Key benefits:
o Increased number of ideas
o Use of customers creativity
o Early customer feedback for idea assessment
o Identification of valuable customers for new product development
(e.g. lead user)

2. Concept Definition and Project Selection

Key idea: Customers as consultants for concept assessment and

selection and co-creators for concept refinement
Customer input:
o Refinement of product concepts
o Assessment of product concepts
Key benefits:
o Identification of relative product advantage (value proposition)
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Mass customization
Increased number of testing options
Reduced market risks
Customer feedback in the most critical stage of new product
development
o Better market information for early termination decisions
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Examples of Co-Creation

Audi Virtual Lab

McDonalds My Burger

Advantages of VCI for the company

Alignment of new product development with customer requirements

Continuous update of customer preferences along entire NPD process
External creativity potential
Efficiency gains (time and money)
Lower market risks (decreased flop rates)
Image: innovation leader
Brand loyalty
Market-pull effects

Lead user curve

Lead users face needs that will be general in a marketplace months or

years before the bulk
LUs benefit significantly by obtaining a solution to these needs

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 important source for NPD:

1. Provide insights in future markets
2. Develop own innovations
3. Richest and most valuable information regarding the solutions
responsive to these needs; the higher the expected benefit the higher
the commitment
Improve integration between R&D and marketing/sales:
1. Strengthen corporate culture of innovation and cross-functional
collaboration (align incentives)
2. Functional process-driven organizational structure
3. Balanced leadership approach: R&D marketing / sales
4. Support information sharing processes between R&D, sales and
marketing (application of knowledge management tools
5. Increase physical proximity
6. Proficient execution of NPD
7. Cross-functional teams
8. Joint incentives
9. Sponsor from business units for technology-push
10. Job rotation
Job Rotation, Training, Recruiting, Staffing (of projects)
Coordinate and collaborate: Building creative companies takes
synchronisation from the centre, cross-boundary collaboration and
structural changes to the org chart
Balanced Leadership on Technology and Market

CMO position (in each hidden champions top-management team, dual

leadership
Functional divisional organizational structure (smaller business teams)
Decentralize R&D to get closer to customer / market requirement
Key-account management to drive innovation with important customers
Cross-functional strategic planning & steering committees

Cross-Functional Teams

Joint team responsibility

Trust and understanding among team members
Decrease functional differences
Information exchange and collaboration
Joint vision and aims, joint culture
Joint concrete result

Summary: Customer and Market Orientation

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Integrate customers (early!) lower flop rates

Active participants: co-creation
Qualified people with market understanding
Find trendsetters only they perceive the need or understand the USP
Commitment of significant customers reduces internal resistance to
change
Foster communication, tools like QFD
Avoid niche solutions, update market information along NPD process
Enhance integration of R&D, sales and marketing
Leverage internet and social media
Customers = partners (incentives, information) brand ambassadors

4. Key drivers of innovation success (best practices)

Measuring innovation performance

Overall revenue growth

Percentage of sales from new products or services
Customer satisfaction
Return on investment in innovation
Number of new products or services
New product success ration
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Higher prices

The Top 10 Success Factors of Innovations

1. Relative product advantage (USP)
2. Corporate culture
3. Innovation champions
4. Adequate human and financial resources
5. Market orientation
6. Cross-functional collaboration (especially R&D M&S)
7. Effective project management (teams)
8. Proficiency of the NPD process management (idea to launch)
9. NPD portfolio management (monitoring, assessment, decision)
10. Alliances and partnerships (Open Innovation)
Decision Process at Gates during NPD process
1. Discovery
Idea Screen
2. Stage 1 Scoping
Second idea screen
3. Stage 2 Build Business Case
Go to Development (if it is prioritized, otherwise kill or place on hold)
4. Stage 3 Development
Go to testing
5. Stage 4 Testing and validation
Go to launch
6. Stage 5 Launch
Post-Launch Review: Target $

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Important aspects of NPD-process

Fuzzy-front end (FFE concept development stage)

Idea management
Portfolio management

The Fuzzy Front End (FFE) is the messy "getting started" period of new
product engineering development processes. It is in the front end where the
organization formulates a concept of the product to be developed and
decides whether or not to invest resources in the further development of an
idea.

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FFE Key organizational issues

Early classification of projects / ideas (newness; potential)

Strong project management
Multifunctional Team
Core Team Members
Sufficient resources, relatively more corporate funds
Top Management Involvement at Milestones (Steering)
Involve Champions early (high level of the organization)

Strengthening of the FFE and improving T2M in the early stages

FFE Phase vs. Development Phase

The Innovation Funnel

Quantity of ideas is important for the generation of a sufficient amount

of innovations
Fixed idea raw projects board projects launched projects, of
which
o Flops
o Losers
o Middle of the road
o Success products

Workflow: The 3M ESPE approach

Strengths
Intelligent IT implementation
Incentives for ideas
Commitment and corresponding corporate culture

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Integration into workflows / NPD process

Evaluation criteria & responsibilities are clear

Results
Ideas are taken out of the heads and are discussed
Knowledge does not get lost
Good ideas are implemented fast avg. T2M (technology to market)
reduced by 6 months in FFE
Drivers of T2M Reduction

Project organization
Up-front homework
Market attractiveness

The importance of portfolio management

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8.

Financial achieve goals, maximize returns

Maintain competitive position
Allocate scarce resources
Link between project selection and business strategy
Focus not too many projects
Balance between long- and short-term projects / high- and low-risk ones
Communicate priorities vertically and horizontally
Better objectivity in project selection

Strong impact on NPD success

Terminate unpromising innovation projects is important for
performance, but difficult to execute
Senior management even holds on innovation projects where financial
market data clearly shows that they will be unsuccessful
Dedicated project organization

Progress of innovation project not negatively effected by daily routines

Members have to be assigned to innovation team
Existence of cross-functional innovation teams

Autonomous team structure (Task Force)

Main characteristics
Project team completely independent from both divisional and functional
units

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Professional and disciplinary sphere

Project manager has project and bottom-line responsibility
Multifunctional composition (compensation for lower degree of
specialization)
Importance of lead times

Main
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advantages and disadvantages

Clear focus on the goals of the project
Efficient project management
Minimization of interfaces
Separation from daily business
Motivation of the team members
Deviation from the goals of the company
Emergence of independent product areas (low synergies)
Re-integration of teams after completion (problem of project-focused

career paths)

Matrix team structure

Main characteristics
Not independent from functional or divisional structures
Responsibility shared between line and project managers
Project manager has no disciplinary authority
Division of decision-making process: PM (What? When?), FM (Who?
How?)
Main
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advantages and disadvantages

Improved inter-functional coordination and communication
More influential project manager
Stronger focus on the project
Access to specialized know how in the functional units
Decision making process slower
Potential for conflicts increased
Fuzzy hierarchical position

Corporate Venture Capital (CVC)/Corporate Venturing

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Best practices in new product development read slides 47-52

1. Strategy
2. Portfolio Management
3. Process
4. Market Research
5. People
6. Metrics and Performance Evaluation

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