Strategic Innovation - Building and Sustaining Innovative Organizations - Mod 1 PDF

Module 1 Strategic Innovation:
Building and Sustaining Innovative

Organizations
About the Course
Welcome from Professor Geoff Love!

Media Player for Video
Professor Geoff Love - Slide 1
Transcript
Hello. My name is Geoff Love. As a professor at the Giese School of

Business at the University of Illinois, I want to first say that I and we at the
University of Illinois are proud to be offering this course on the fascinating
and important topic of strategic innovation. I want to extend to you a hearty
welcome to it.
Strategic Innovation (1 of 4) - Slide 2
Finding novel ways to compete
Transcript
Now, strategic innovation has been discussed in different ways but then its
core involves a firm finding novel ways to compete. We might and probably
do think first of new products or services, and they are often at the core of
strategic innovation.
Technologies
Product Possibilities
Markets
Segments
Competitors
Transcript
But it's also important to realize that strategic innovation can involve finding
new and unique ways to satisfy customer needs or serve new customers. It
can involve creating new business models that differentiate the firm and
even open the industries. All of these concepts are particularly important to
understand in today's fast-moving business environment, and they will be
central topics in this course. I also said strategic innovation is fascinating,
and there's many reasons why. Just for instance, customers react to new
things very differently than they do to familiar ones. Innovation is about the
future but the future is uncertain and ambiguous.
So innovations often fail, but failure to innovate is not an option. In the end,
companies have to navigate a complex and changing matrix of
technologies, and product possibilities, markets and segments, and
competitors. So, strategic innovation is not easy but there is good research
and there are powerful frameworks that can help you diagnose what's
going on, and then make sound creative decisions about strategic
innovation. That is what we work to bring to you here.
"Building and Sustaining Innovative Organizations"

Transcript
Now at those points in mind, I want to mention that this course is the first in
a linked pair of courses 'sister courses' if you will about strategic innovation.
This course is about the strategy side. That it is mostly about making
decisions that lead to a winning innovation strategy.
"Managing Innovative Initiatives"
Transcript
But there's another side innovation which is about implementing strategic

innovation at firms, that is managing innovation initiatives. That is the
preview of the sister course. I hope you are able to take both, they are
highly complementary.
Now, I also mentioned these two courses for another reason. In this course,
you will see two Giese school professors; myself, and Professor Raj
Echambadi. Raj was one of our leading professors at the Giese school, but
he recently left. Nevertheless, you will see that the videos for this course
continue to feature Him. We are drawing on these videos because we
believe they're quite well done and because the strategic and marketing
side of innovation is very much in his wheelhouse.
Now, if you continue over to the sister course in managing innovation, you'll
see that I take over the videos there. In this course though, I'll play a role
as a guide. I'll introduce the core topics in each module giving you a bit of
an orientation. Some modules cover quite a range of topics, so it'll be
helpful to have an idea what is coming, and then at the end of each module
I'll give you a high level summary, ties together the various key learnings
and taking takeaways, and at times I'll provide a perspective that is
complementary to Raj.
So, next and before we get to the first module you'll see Raj's course
introduction. He actually starts with what I think isn't inspiring orientation.
He talks about the rich heritage of innovation here at the University of
Illinois and highlights the critical importance of innovation to society in
general. Then he proceeds to the idea of Strategic Innovation and the core
course topics. So, I'll see you next when you're ready to start the first
module.
Welcome from Professor Raj Echambadi!

Professor Raj Echambadi - Slide 6
Transcript
Welcome to the Building and Sustaining Innovative Organization course

form the University of Illinois Urbana-Champaign. Home for 23 Nobel
prizes, 19 Pulitzer prize winners, and over 80 National Academy of Science
winners. I'm actually standing in the Grainger Library, which happens to be
the largest library in the world dedicated to engineering studies.
Bardeen, Shockley, and Brattain - Slide 7
The slide contains an image of Bardeen, William Shockley, and Walter

Brattain
Transcript
And, I'm actually standing north of the Bardeen quad. Bardeen is the only
physicist in the world to have won two Nobel prizes. In 1956, he won the
Nobel prize for the discovery of the transistors, along with William Shockley
and Walter Brattain. And, in 1972, he won the Nobel prize for theory of
conventional superconductivity. Actually, right behind me, you can see the
Beckman Institute. Arnold Beckman was a graduate of the University of
Illinois, actually helped William Shockley, the winner of the 1956 Nobel
prize, to find Shockley semi-conductors in what became known as the first
building the modern Silicon Valley. As you can see, the University of Illinois
has been extraordinarily important for the last 150 years for the progress of
human civilization and we are extraordinarily proud to offer this innovation
course to all of you from the University of Illinois.
London City in late 1800 - Slide 8
This slide contains an image of a crowded area of the city of London in the
late 1800s.
Transcript
In the late 1800s, London had 50,000 horses for transportation purposes.
London like many other great cities of the world at that point in time,
including New York, was drowning in manure because horses on average
were dropping about 15 pounds to 35 pounds of manure per day, leading to
hygiene and sanitary problems. More gravely, the life expectancy of a
horse was less than three years and there were dead horses strewn all
over London. In 1894, this problem was so grave that the times of London
had a headline that said that London would be buried in 9 feet of manure
by 1950. Of course, this dire prediction did not come to pass, necessity is
the mother of invention, cars came to the rescue and horses ceased to be
a transportation option.
Moving onto another example. The life expectancy in the United States has
actually improved from 40 to 80 years in the last 200 years. In the last 100
years, in South Korea, the life expectancy has actually quadrupled, while
the life expectancy in India has actually tripled. While these expectancy
gains are attributable to large impressive declines in child mortality, a large
part of the explanation actually goes to innovation in healthcare, including
development of antibiotics.
Transcript
In his book, The Progress Paradox, Gregg Easterbrook writes that the
average store today sells better quality wines than the wines drunk by the
Kings of France. Look at our own lifetimes. PCs in the 70s, cellphones in
the 80s, internet in the 1990s, social networking, digital devices, genomic
mapping in 2000, and now we have the evolution of augmented reality,
machine learning, internet of things, driverless cars. Things get better and
better and better. Think about this for a second. The smartphone that I
have in my pocket is thousands of times more powerful than the onboard
computer that went aboard NASA's mission to space that carried Neil
Armstrong, Buzz Aldrin, and Michael Collins to space.
Innovation - Slide 10
The slide contains an image of cogs. The cogs are labeled as Country,
Company, and Individual.
Transcript
By every conceivable measure involving comfort and productivity, our lives

today are much better than what we were 500, 200, 100 and even 50 years
ago. Innovation is the engine that has driven human progress by providing
breakthrough ideas and practical solutions. Innovation is a message of
hope. Innovation also requires continuous efforts and consistent renewal.
Innovation can be studied at various levels. Country should be innovative
on the whole. In fact, innovation policy is at the top of the agendas of many
governments. For example, the OECD, the Organization for Economic
Cooperation and Development, has right now formulated an innovation
policy for inclusive growth that is actually scalable. But this course is about
how individual companies can be innovative. This is applicable for both
established firms and small startups on how companies can actually foster,
cultivate and manage innovation within their walls so as to achieve superior
performance. But given the fact that companies are made of people,
individual leaders and individual employees, there are going to be a natural
spillover as well and individuals can learn how to be innovative.
VUCA - Slide 11
Volatile
Uncertain
Complex
Ambiguous
Transcript
We are living in a VUCA world, volatile, uncertain, complex, and ambiguous

world out there. John Chambers, the executive Chairman of CISCO, has
said that in ten years, 40% of Fortune 500 companies will cease to exist. Of
course, I do not know about 40% as an informed statistic, but similar
statements have been made by other luminaries, including Richard Foster,
who has said that the average life span of an S&P company has dropped
from 67 years in the 1920s to about 15 years today. In fact, some of the
smart companies S&Phave fallen off the S&P list like Kodak, Radio Shack,
Compaq, Circuit City, Sears, Bear Stearns. And, some smart, new
companies have actually entered the S&P 500 list, Netflix, Google,
Amazon, eBay. And, the broader point here is that people expect that 75%
of the current S&P 500 firms will actually be replaced by new firms by 2027.
All this leads to the fact that this transformative change that is happening in
the economy that requires firms to be vigilant and focus on their innovative
skills. In other words, we need firms to be strategically innovative
Strategic Innovation - Slide 12
Different way of competing
Unique value creation
Superior performance outcomes

Transcript
What does strategic innovation mean? Costas Markides from London

Business School defines strategic innovation as a different way of
competing, as a novel way of competing, doing things differently and
thinking about activities differently in order to create unique value for the
consumers. And, when you create unique values for the consumer, you are
likely to differentiate yourself as a company and stand out and thereby
achieve superior performance outcomes.
Transcript
The narrative and the numbers tell us that there is no dominance by

birthright for any company. This is the fundamental truth. Innovation is a
meritocracy where start of David can slay entrenched to Goliath. As long as
companies remain strategically innovative, by which I mean they learn to
play the rules of the game in novel ways, they can renew themselves in the
long run and be poised for long term success. This is a fairly important truth
for companies to understand.
So, what are some guidelines for being strategically innovative? Here are
some topics we'll explore in this particular module.
This Course Will Explore - Slide 14
Customer Value Proposition
Capabilities to Focus On
Collaborator Relationships
Aligning the Ecosystem
Business Models
Transcript
What is the customer value proposition that companies need to craft for
innovative products so that they can [inaudible] unique value? What are the
capabilities that they need to focus on, either building their capabilities in
house or buying the capabilities from the outside? What should their
relationship be with collaborators, i.e., suppliers, in order to reduce co-
innovation risks? Or, retails and distributors in order to mitigate execution
risks so that they can deliver the final innovative product. What should the
alignment be with the ecosystem? And, last but not least, how should one
design a business model so that they can execute the unique value for their
consumers?
Module 1: Finding Your Innovation
Sweet Spot: Crafting a Great Value
Proposition
Introduction to Module 1
Module Introductions - Slide 15
Big picture
Big questions
Transcript
So in these module introductions, as I just talked about, I'm going to give

you the big picture about the videos that you're going to watch in the
modules but also I'm going to give you one or two big questions that each
video is motivated by. And what I'm asking, right, is that you think about
those questions and you write down some answers before you start
learning. Now why would this make sense? Well, if learning is about
thinking in new ways, then it behooves us to be aware of how we're
thinking before we start learning these new ways. And if you do that, the
advantage is you'll be able to see more clearly what's new in these videos
and how you can think in new ways, use new theories, new models, new
frameworks. So that's the idea. And I'm asking you to give it a try. Right.
Take out a pencil and pen and then as these questions come out in the
video, go ahead and write down an answer or if you're mobile, at least think
them through. The whole idea is to be thoughtful about where we're going
before we go through it. So this first module really does two things. The first
couple of videos are about developing a broad perspective on innovation.
Module 1 Questions (Questions 1 and 2) - Slide 16
1. What is innovation?
2. Where do innovators get their ideas from?
Transcript
And so what we're going to talk about here is one very basic question.
What is innovation? I mean, innovation is the topic of the course, right, so it
seems simple but we need to be clear on it. So how would you answer this
question? What is innovation? And when I'm talking about innovation, I'm
talking about it as a process, as a full process not what an innovation is but
what is innovation? And the video asks another key question. Where do
innovators get their ideas from? So write down what you think about that.
Framework to Analyze Innovation Problems - Slide 17
Transcript
Now the second video builds on this by laying out a framework to help you
analyze innovation problems. That's where the framework really comes in.
And what it's about is who is involved in the innovation and what role they
play in its success or failure. So for this one, I think just knowing that
second video is about who's involved and the scope of the analysis that
you then need to do, that'll work.
Customer Choices and Values - Slide 18
Transcript
But the next two videos, in fact the four last ones as a whole, shift gear.
They're about customer choices and value and the links between these and
the third and the fourth talk about some important pitfalls that you can fall
into. So this third video is about how people choose to use an innovation or
not. Here's the question for you to consider.
Module 1 Questions (Questions 3, 4, and 5) - Slide 19
3. How do people make choices about whether to use new products
or services?
4. Does the best product or innovation win out? Why?
5. How would you describe the benefits that your innovation
provides?
Transcript
How do people make choices about whether to use new products or

services? Maybe for this one draw a diagram of how you see this
happening. And if you're into this, answer another quick question. Does the
best product or innovation win out? Why? The fourth video moves on to
have us consider the idea of the benefits that an innovation provides. And
so here's the question. How would you describe the benefits that your
innovation provides to someone? Write out a sentence or two on this to get
you into that fourth video.
Crafting A Customer Value Proposition (CVP) - Slide 20
The slide contains an image of a box labeled CVP in the middle and
connected to three other boxes labeled: What value does the offering
deliver? (Bundle of benefits, What are the pain points? and What are the
points of difference?), How are we reaching the segment(s)? (What are the
channels?), and Who is the target segment?
Transcript
And then the last two videos are about the idea of crafting a value
proposition. And this value proposition -- that's a term you might have
heard before.
Module 1 Questions (Question 6) - Slide 21
3. How do people make choices about whether to use new products or
services?
5. How would you describe the benefits that your innovation provides?
6. What is a customer value proposition? How would you draw a
diagram of one? What makes a winning one?
Transcript
So the question here is what is a value proposition from your perspective?

How would you draw a diagram of one of these? And what makes for a
winning value proposition? Okay. So we'll put up the questions that I've laid
out so you have them in one place and queue them up for you to consider
before you start watching the videos. Now I'm really confident that just by
having these questions queued up in your mind, you're going to learn more
because you'll have that perspective on where things are going and how
you think about it now. And I'm even more confident that if you take the
time to write down your own views, that's going to accelerate your learning.
But we spent enough time on prep work. Now it's time to view Raj's videos.
And I'll see you at the end of the module.
Lesson 1-1 A Concise Framework to
Analyze Innovation Problems
Lesson 1-1.1 A Concise Framework to Analyze

Innovation Problems - Part 1
Transcript
Innovation is thinking differently and arriving at creative solutions. The great

master Proust once said, the art of discovery lies not in seeking your
landscapes, but actually in having new eyes. Let me tell you a story. We all
know that mosquitos cause malaria and a lot of people around the world,
they are coming up with innovative solutions involving mosquito creams
and mosquito coils and mosquito nets. And there is an interesting company
out of the United States that has created a startup because in their
literature review, they found that mosquitos love heat and sweat.
And, therefore, what they did is they developed a paraffin wax cone so that
you can leave it outside your house and during the day the cone actually
absorbs sunlight. At the same time, they gave sweat bands to people living
in the house so that during the day as they go about doing their work, these
sweat bands accumulate the sweat from the body. And at night, the sweat
bands are actually deposited inside the cone of paraffin wax. At night, when
there is no sun, the wax starts emitting light and mosquitos that are
attracted to the heat and the sweat inside the sweat band, they go inside
the cone and they are trapped. This is an example of looking at a problem
very differently and coming up with a creative solution.
Here is a story about Embrace warmers. Twenty million infants are born
around the world. They are born either as low weight or as premature
babies. And in the western world or in cities in the developing world it's not
a problem. These children can be taken to the hospitals where hospitals
have incubators that are about $20,000. But when you think about rural
areas in developing countries, these incubators are expensive, these
incubators are complicated to use, more importantly these incubators you
need 24/7 electricity. And so what a group of researchers decided to do is
they went to Kathmandu Nepal and they found a majority of these infants
that are actually born in rural areas. And what was required was not a very
highly expensive incubator, but a low cost inexpensive baby warmer which
is exactly what they did. And so think of this baby warmer as a sleeping
bag that is coated with a special wax.
And inside the baby warmer, they have what we call as a phase change
material and the phase change material can keep the baby safe and at the
right temperature for about four hours after which the phase change
material can be taken -- that pouch can be taken, submerged in boiling
water, the temperature brought back and put it back in. But the argument
thing is this baby warmer is safe, it can be sanitized, it is inexpensive, it
costs about $25. But more importantly, it mimics the feel of a mother
holding a baby to her skin. And this is what I mean by thinking about the
problem very differently and coming up with creative solutions.
What is Innovation? - Slide 23
"Sometimes these ideas are new"
Innovation is about executing ideas to create unique value.
"Sometimes they are pre-existing"
Transcript
What is innovation? Innovation is about executing ideas to create value.

Innovation is very different from creativity. Creativity is about ideas and
innovation is about executing those ideas. Sometimes these ideas are truly
novel. Think of the penicillin and the transistors. But more times, these
ideas can be adapted and reused from one context to another. For
example, think of Henry Ford who adapted the assembly line that he saw in
meat packing plants at that point in time to assembling his own cars and
the result is history.
A car comes off the end of the line every 10 seconds.
Sometimes it is about recombining or reconfiguring existing technologies in

novel ways in order to create market phase innovations. This is what
Andrew Hargadon calls the recombinant innovations in this book, How
Market Breakthroughs Happen.
Building-Block view of the World - Slide 24
The slide contains an image of 4 blocks of various sizes, arranged in

ascending order.
Transcript
When we think about innovation, we need to think of it as assembling

blocks of knowledge. There are blocks of knowledge out there. All we need
to do is to be creative and put these blocks together in clever ways and
harness value in the marketplace. This is what we call as a building-block
view of the world. Sometimes an easy way to accomplish this is to have
people collaborate. People with different skills, different functionalities,
different experiences. And when they come together, they all bring their
blocks of knowledge inside their head which are all very different and when
they put it all together, magic happens.
Recombinant Innovation - Slide 25
Creating value by combining different components into valuable

innovations that matter to consumers
Transcript
When it comes to recombinant innovation, companies can create value by

combining different components into valuable innovations that actually
matters to the consumers. Think of Netflix in the late 1990's when they
came up with the DVD by mail model, where consumers could go onto the
Netflix website, order a movie online, the movie would come to their homes
where they could watch it in relative convenience within their homes. What
Netflix did was it used the Nathan DVD technology that was already
developed by somebody else and combined it with mail order that Sears
had pioneered a century ago and put it together in an innovative business
model. In other words, they recombined it into a valuable innovation that
delivered unique value for their consumers.
There's been a rise in recombinant innovations in the past decade. And this
rise has actually been fueled by digitization, social networking and the
emergence of new technologies. Take the case of WhatsApp which actually
combined text messaging with social networking in order to create a $19
billion market cap. Or take the case of Waze, a very successful app today
which actually combined digital maps with location information and social
networking in order to create a very successful navigation app. Take the
case of Uber, a potentially model company for the future, which combined
location information with traffic management and [inaudible] management
to create $50 billion market cap. Or Instagram which combined elements of
digital photography with photo filters and social networking in order to
create a billion dollar value for themselves.
The bottom line is this. You have great technologies out there and there are
incredible opportunities for you to recombine these existing technologies
into novel combinations that actually provide value.
Needless Blindness - Slide 26
Transcript
How can we adapt from existing context. Let me talk about Dr.
Venkataswamy or Dr. V as he was known who was facing a pressing
problem. He called it needless blindness. A majority of the patients he was
examining in his native India were afflicted with cataracts which is easily
operable for $300. But given that the majority of his patients were making
less than $2 a day, they couldn't afford it. Dr. V was looking for something
reliable, cheap, affordable, consistent and scalable giving the size of his
patient base. In a visit to McDonald's in the United States, Dr. V found the
solution to his problem. He found specialized labor delivering consistent
quality at affordable prices. Dr. V decided to adapt or transplant this
operation excellence model to his Aravind eye hospitals. To date, Aravind
has catered to 32 million patients and has conducted over 4 million
surgeries.
The Business Model - Slide 27
Recombinations can help in inverting price-performance paradigms,

thereby bringing new sets of customers.
Transcript
But more importantly, by adapting the McDonald's model and incorporating

operation excellence, Aravind has actually inverted the price performance
pattern paradigm that has resulted in an affordable and scalable solution
that has benefited millions more. This model of operation excellence has
been adapted in other health care context now [music] hernia surgeries and
heart surgeries as well.
Lesson 1-1.2 A Concise Framework to Analyze

Innovation Problems - Part 2
Capture Value (1 of 2) - Slide 28
The slide contains an image representing the relationship between

company and customers where companies create value for customers
through unique offerings and capture value back through appropriate
pricing, customer loyalty, word of mouth, potential referrals and long-term
equity.
Transcript
Here is a useful frame to look at innovation problems. At the center of the

equation is the company/customer relationship. Companies create value for
the customers through unique offerings and capture value back through
appropriate pricing and customer loyalty. They may harness additional
value through word of mouth, potential referrals and even long-term equity.
The company can reach the customers directly or through a network of
intermediaries such as wholesalers and retailers.
Capture Value (2 of 2) - Slide 29
The slide contains an image representing the relationship between the

suppliers and company where suppliers create value through supplies &
components and capture value back through revenues.
Transcript
Companies are customers to their suppliers as well. Suppliers create value

by supplying supplies and components and capture value back from the
company through revenues. Suppliers can reach the companies directly or
through a network of intermediaries such as distributors. The suppliers, the
network of intermediaries including distributors, retailers and wholesalers
are what we call as collaborators because they collaborate with the
company in order to create value for the customers.
Co-Innovation Risk - Slide 30

The slide contains an image representing Co-Innovation Risk between the
suppliers and company.
Transcript
Between the suppliers and the company we have something known as the
co-innovation risk. Suppliers have to supply multiple components to a
company in order for the company to develop a good product and
commercialize the product. In other words, multiple supplies have to come
together for a product to work. When one component fails the entire
innovation fails. In other words, the co- innovation risk has to be low for an
innovation to be developed and commercialized by the company.
Execution Risk - Slide 31
The slide contains an image representing Execution risk between the

company and the customer.
Transcript
In a similar vein between the company and the customers we have

something called the execution risk. Consumers need to be aware of the
product, show interest in the product and act upon the product by buying
that particular product. But sometimes the networks including the
wholesalers and retailers may not see the value offered by the company
and the innovative product and, therefore, they might not help in the
adoption. When the values are misaligned then the innovation may never
get commercialized. For example, with an innovative car company if the
retailers fail to provide credit the innovation will not diffuse through the
mainstream population. The suppliers and the companies exist in a
competitive environment. Sometimes the competitors are direct, sometimes
the competitors are indirect.
Let's take the case of the electric car company that we talked about earlier.
Electric cars compete with other electric cars which is what we call as direct
competition. Electric cars also compete with internal combustion engine
cars that run on gasoline or diesel, and this is what we call as indirect
competition. Let's take the case where I have to fly cross-country. I could
take an airplane to go to this destination, and let's assume there are two
airline companies that I can use. I could also use a long distance train
which now happens to be in direct competition to the airline companies. So
both direct and indirect competition has to be examined when we think
about the competitive environment.
Business Ecosystem - Slide 32

The slide contains an image of a business ecosystem. A Business
Ecosystem consists of seven aspects, which are technological, legal,
cultural, environmental, political, economic, and social as well as their
connections and interactions.
Transcript
Last but not the least all the entities we talked about, company, customers,
competitors, collaborators, all of them exist in a context, political, economic,
social, technological, legal, cultural, environmental and industrial context.
This is what we call as the business ecosystem. The business ecosystem
refers to a network of organizations including the suppliers, retailers,
wholesalers, customers, competitors, government agencies, regulatory
bodies and other entities that are responsible for the delivery of the
innovative product through both competitive and collaborative means.
Lesson 1-2 Prospect Theory
Lesson 1-2.1 Prospect Theory: Minimizing Losses and

Maximizing Gains
Transcript
I'm going to talk about prospect theory, which is a very useful theory when it
comes to tackling innovation problems. Prospect theory was first published
by Kahneman and Amos Tversky in 1979 for which Kahneman won the
Nobel Prize in 2002. Unfortunately, since Amos Tversky had passed in
1996, he was not a corecipient. If you want to read more about prospect
theory, here is a book by Daniel Kahneman called "Thinking Fast and Slow"
that can serve as a useful reference. Prospects means choices. Prospect
theory is actually a cytological account of how people make choices under
conditions of risk and uncertainty.
Illustrating Prospect Theory (Point 1) - Slide 34
1. The Reference Point
Transcript
Let me graphically illustrate prospect theory for you.
Reference Point - Slide 35
The slide contains a graph with X/Y axis. The X axis stands for the
outcome. Positive outcome is gains and negative one is losses (pains). The
Y axis stands for the value of the outcome and the origin is called the
reference point.
Transcript
The two axes for prospect theory are as follows. The y axis is what we call
a value. The critical thing for you to understand is it is psychological value
or subjective value, not objective value. And the second axis, the x axis, is
what we call an outcome. And where the two axes meet is what we call a
reference point. Reference points are extraordinarily important. Think about
it. Let's say that I want to buy a bottle of water. I go to the vending machine,
and the vending machine says the bottle of water will cost you $1.50, and
I'm fine with it because it corresponds to my reference prices that I pay for
a bottle of water. But let's say tomorrow I go to the same vending machine,
and it says the bottle of water is three dollars. I'm going to say, this is unfair
because compared to my reference price of $1.50, this price seems to be
exaggerated. This is exactly the important point that you need to
understand. Anytime you encounter a stimulus, it is always with respect to
the reference point that you have inside your head. But on the other hand,
what is interesting is you can go to a five-star resort and pay five dollars for
a bottle of water or you go to an airport and pay four dollars for a bottle of
water. All that is okay because reference point is fundamentally context
dependent.
If I told you that I met a person who is six feet three inches tall, you will
immediately say, way, that person is a tall person relative to all the people
they encounter every day in the population. But if I told you that I saw this
person on an NBA court, National Basketball Association game court
where the average height is six four, then you immediately say, wow, this
person is shorter than the rest of the people on the court. So reference
point is a fairly important point for us to understand because it is always
about deviations from the reference point that are fairly critical. Now, we
have established the importance of the reference point.
We need to understand how consumers or anybody for that matter

evaluate the deviations that they see. For instance, the deviation to the
right of the reference point, individuals are going to evaluate it as gains,
and any deviation to the left of the reference point, people are going to
going to evaluate it as losses. Some books will actually call it pain. Now, to
understand this, the notion of gains and losses, let's take an example. I
always buy books of physical book stores because I love to go to the
bookstore. I love the touch and feel of a book. I love to see this book with
the other books that I see on the rack so that sometimes serendipitously I
might buy another book that is related or something that is tangential to my
interest at that point in time. I love coffee, so I like the smell of coffee
wafting through the store, sitting there, reading a book. So it's the whole
total experience that I love in a physical bookstore. Those are all what I'm
going to evaluate as gains when I go to a physical bookstore. On the other
hand, it is possible that I am paying a little bit more for these experience,
which given the fact that I'm paying extra may be perceived by me as
losses. So, one of the most important tenets of prospect theory is that any
time you buy a product, it is a bundle of pains and gains. It's a bundle of
gains and losses, and consumers make tradeoffs.
Now, let's evaluate and let's put in another alternative. I have a choice now
to go to an online bookstore, and in an online bookstore, I have two major
advantages or gains. One, the prices are likely to be cheaper. Two, the
online delivery is so convenient that I order the book, and the book comes
to my home. I don't have to drive to a physical bookstore, buy the book and
get back home, etc. So those are my gains. But the losses are, for
somebody who likes the smell of coffee or somebody who loves looking at
books in an aisle, those options are not there for me in an online bookstore.
While there are recommendation algorithms that can predict what book I
might like, etc., it's not the same thing. So those are losses. Now, think
about it. When I have to make a choice to go to a physical bookstore there
are certain losses and gains. When I have a choice to go to an online
bookstore, there are certain losses and gains and consumers evaluate
these two in order to make an adoption decision and adopt innovation. So
that is why it is extraordinarily important for you to understand the notion of
losses and gains and the whole notion of reference point in order to
understand how to create an innovated product and how to break through
the adoption barriers so that consumers actually adopt your product. While
I talked about the impact of reference points for consumers, the same logic
actually extends for companies as well.
There is a very interesting paper by Benner and Trypsis that talks about
how digital cameras were looked at differently by different firms. Analog
cameras looked the digital cameras as substitutes, whereas consumer
electronic firms and personal computers looked at digital cameras as
substitutes. And this had remarkable impact on their forecast as well. For
example, the analog companies thought of the market demand as
anywhere from 1.4 million units to about 1.8 million units between '99 and
2000. Whereas the electronic companies and the computing firms thought
that the market would anywhere be from four million units to ten million
units. The final number was close to about two million units. This goes on
to tell you the importance of the frame. So one of the things that you need
to understand as a company is to ask yourself, what is your reference
point, and when you look at a new stimulus, what is this deviation from is a
very important aspect to think about when you're looking at an innovation
problem.
In order to explain prospect theory and reference point, let's take three
bowls of water. One bowl of water is very hot. One bowl of water is ice cold,
and the third bowl of water is at room temperature. I take my right hand,
place it in the ice cold water, left hand in the hot water, and I wait for a
minute. And then I take both my hands and place it in the room
temperature water. What I am going to feel is that my right hand is colder
and the left hand is warmer relative to the room temperature water, and this
fundamentally is because of the original reference point from where they
came.
2. Diminishing Sensitivity
Transcript
Now that we have established the notion of losses and gains and reference
points, the second important aspect of prospect theory is what we call as
diminishing sensitivity.
Diminishing Sensitivity - Slide 37
outcome. The Y axis stands for the value of the outcome. In the first
quadrant, the value is an increasing function of outcome with decreasing
marginal value. For example, an increase of outcome from $5 to $10 brings
more increase in value than an increase of outcome from $1000 to $1005
with the same magnitude.
Transcript
What does that mean in layman terms? Well, Kahneman has an amazing
example in his book. Let's say I'm reading a book, and the power goes out.
And when the power goes out, I'm using a candle in order to read the book.
The candle has enough illuminating power to help me read, but suddenly
the light comes on, and the candle is no longer enough because it loses its
sense of brightness amidst the bright light. What was powerful in terms of
illumination in a dark room suddenly is completely diminished in the
presence of light around it. And that's the notion of diminishing sensitivity.
So let's draw the value function for a gain curve. The value function for a
gain curve is nonlinear, and it's like this. You know, so you can see, it is
nonlinear. But what does this mean? What does diminishing sensitivity
mean? Let's look at the difference between five dollars and ten dollars on
the gain curve. So, when you look at five dollars, this is five, and let's say
this is ten. And you have a particular value that you see because of this
difference, and this value is given by this number here. On the other hand,
let's take the same objective difference, but let's change it to $1000 and
1005. This is $1000, and let's do 1005. Remember, the objective difference
here is $5. It's the same as here, if you will. But now, let's look at the
subjective value difference, and when you look at the subjective value
difference, you will see the subjective value of the difference between 1005
and $1000 is much, much, much smaller than the subjective value that you
get from a difference of ten dollars and five dollars. This is the notion of
diminishing sensitivity.
From an innovation context, one of the things you have to be very careful
about is as you are developing products, be very careful about adding
features. The first feature, massive impact. Second feature, significant
impact. While you keep on adding features, at some point in time you will
realize adding more features actually diminishes the psychological value for
the consumers, and this is a very important concept as you are thinking
about developing innovative products.
From an innovation context, one of the things you have to be very careful
about is as you are developing products, be very careful about adding
features. The first feature, massive impact. Second feature, significant
impact. While you keep on adding features, at some point in time you will
realize adding more features actually diminishes the psychological value for
the consumers, and this is a very important concept as you are thinking
about developing innovative products.
3. Losses Loom Larger than Gains
Transcript
Now that we have established two concepts, first one that we have a
reference point, and then we have consequent gains and losses. Second
one, the whole diminishing sensitivity of the value function. The third
important concept from prospect theory is what we call as losses loom
larger than gains.
Losses Loom Larger than Gains - Slide 39
outcome. The Y axis stands for the value of the outcome. Positive outcome
is gains and negative one is losses (pains). A same size outcome with
opposite sign (e.g. $20 gain and loss) will bring different sizes of
increase/decrease in value, where losses can lead to a bigger change
(drop) in value.
Transcript
What does this mean in practical terms? Let's say I walk on the road. I
have $20 in my pocket, and for some reason I lose it, and obviously it is
going to create a $20 pain intensity for me that I can represent on my value
graph, and this is a loss of $20. Okay. The next morning I wake up, I'm like
a goldfish. I've forgotten the episode from the night before, and I walk on
the road, and I see $20 on the road, and I take that, and I have happiness.
Twenty dollars' worth of gain intensity, which I can represent here, let's say.
This is positive $20, and what you will realize is that the pain intensity is
much, much, much, much stronger than the gain intensity. This is what we
call as the losses loom larger than gains. Losses hurt us more. What is the
practical implication of this. In the loss domain, people tend to become risk
seeking, because they want to get back to the status quo. In the gain
domain, people want to become risk adverse. The whole notion of losses
loom larger than gains actually matters in how we frame news as well from
a company point of view. Let's take this glass of water. This glass is half
full, or almost half full. If I say to you the glass is half full, I'm actually gain
framing. If I say to you the glass is half empty, I'm actually loss framing.
How I frame actually matters. Let me give you a practical example. Let's go
back to the early 1990s when you had Borders, which was a dominant
physical bookstore, and you had Amazon.com, which was a nascent online
bookstore.
If you are sitting inside Borders as an executive, and you tell your
employees, oh, my God, Amazon.com is going to make us obsolete in
about 10 years, you are loss framing. On the other hand, if you say
Amazon.com is actually going, a physical bookstore, and online bookstores
are going to be complementary to each other, then you're actually gain
framing. And whether you frame it as a loss or whether you frame it as a
gain has huge implication on where you're going to get resources and
capabilities. We'll talk about it later. But this is a fairly important point. I was
actually talking to an auto dealer about a month ago, and she said to me
that she was doing her monthly surveys, and she had been up on about ten
attributes including reliability and problem diagnosis. But she was down in
the survey for the auto dealership in terms of customer service, and her
overall satisfaction ratings had fallen. And I said losses loom larger than
gains. For these consumers that you're talking about, customer service was
a very important attribute, and all your great performance on other
attributes do not matter as much. The loss on customer service loomed
larger in the minds of these consumers.
This has huge implications from innovation context as well. For example,
my mother was using a video cassette recorder, VCR, for a long time, and I
would tell her, you know, mom, why don't you get a DVD player. And for
her, she had a lot of video tapes, a lot of it incorporated family memories,
and she didn't want to change it, and the inability of DVD players to play
those tapes was a huge loss for her. And therefore she would not adopt the
DVD player. And the very fact that the loss, despite the fact that the DVD
player, she understood, was technologically better, but for her, the losses of
not being able to use the videotapes constituted such a big hassle in her
mind that she was not willing to adopt. Of course, the story has a happy
ending. We did finally convince her to go to a DVD player, and we convert
the videotapes that she had into a digital format, now that she can play it.
The concept of loss aversion can also be examined from a company's

perspective. Think of Kodak. Kodak was started in 1888, and by 1976,
Kodak was a dominant player in the analog camera business with an 85
percent share and in the consumable business with a 90 percent share.
Consumables meant films, paper, and chemicals. Now, put yourself in the
minds of a Kodak executive, who has a digital camera. They, by the way
had one of the first digital cameras in 1976. They are evaluating between
their analog camera business and their digital cameras. If they embark on
building capabilities for the digital cameras and appropriate resource
allocations, there are potentially losses. There is potential loss of
dominance in the analog camera business, which was providing a lot of
cash for their business. But the gains in the digital camera business were
fuzzy. And as a result, when loss aversion tends to dominate, it is
absolutely common sensical to see why somebody would have a wait and
watch attitude. A very importance nuance here, if you are a technologist
who worked on the digital camera though, your frame of reference is
actually the digital camera, and you are going to evaluate everything from
that frame. You are going to say, I know this technology well. This digital
camera technology is going to substitute the analog camera. We need to
allocate resources. We need to go into this particular domain. And so the
whole notion of what is your frame is fairly critical for us to understand, but
the larger point is how loss aversion tends to dominate these
conversations.
So, in summary, what is the frame you employ is absolutely critical because
the frame you employ is going to determine your losses and gains, and loss
aversion is an absolutely important concept for us to understand as we
develop innovative strategies.
Transcript
Related to the notion of loss aversion is the concept of endowment effect,

which is defined as the irrational tendency to overvalue things that we own.
This was demonstrated in a lab experiment by Richard Taylor years ago,
wherein he took a classroom, divided the class into two. In one-half of the
class he gave them a mug, and the other half he did not give them a mug.
To the class, to the half of the class where he gave a mug, he said to them,
either you can take it home or you can sell it to the other group. Tell me
what is the price you are willing to accept. To the other half of the class, he
said, now that you don't have a mug, you're free to trade, and therefore tell
me what is the price that you're willing to pay. Trade did not happen as
expected because the willingness to accept for people who had the mug
and therefore had established the ownership was at least two times higher
than the willingness to pay, which is a demonstration of endowment effect.
We see that in the real world all the time.
I remember in grad school I had a desk. I couldn't part with the desk
because I thought people were paying too little for a run-down desk, and of
course, you know, that is because I was emotionally attached to the desk.
You see that in real estate all the time. Sellers balk the market prices that
buyers are willing to offer because they are emotionally attached to the
house. So when you're emotionally attached, you overvalue what you have,
and that affect is about three times the value of the object. Of course, the
endowment effect intensifies the longer the ownership.
Let's put it all together. How does this all apply to a company that intends to
deliver an innovative product? When a company delivers an innovative
product to a consumer, the consumer compares this innovative product to
the product that they currently have, which happens to be their reference
point or their baseline. So giving up an existing product for this innovative
product is going to be seen as a loss by the consumers. Coupled with the
endowment effect, i.e., the rational tendency to overvalue things that you
own, this effect is likely to be three times as large.
Let's compare it to the company's perspective. Their baseline is the

innovative product. They know all about their product, and therefore by
virtue of endowment effect of this innovative product, they are likely to
overvalue his innovative product by as much as three times. Now, you have
a very interesting situation where customers overvalue their existing
product by three times, and companies overvalue the innovative product by
three times, leading to a coalition of perspectives. And this is what leads to
actually resistance on the parts of consumers to actually adopt an
innovative product, and companies are usually very surprised. This leads
us to the following insight. The best product does not win out in the
marketplace. The product that best minimizes the losses and thereby
satisfies the needs of the consumers actually wins out in the long run.
Lesson 1-3 Marketing Myopia
Lesson 1-3.1 Marketing Myopia: Focus on "Needs" for

Long-Term Advantage

Transcript
In this lesson, I'm going to talk about marketing myopia. Every year
thousands of products are released in the marketplace and 90% of these
new products fail and they fail because of marketing myopia, which is a
very nearsighted focus on products and services rather than looking at the
big picture on all consumer needs. Think of the great companies in the last
50 years. Digital Equipment Corporation, Polaroid, Barters, Blockbuster,
Kodak. These companies have all fallen off their website, they've fallen off
their dominant perch if you will because they were all too focused on the
product and not on the overall picture. As the great Ted Levitt, the Harvard
business school professor used to say, consumers want a quarter-inch
hole; they don't want a quarter-inch drill. And a lot of times what happens is
companies because of virtue of developing innovative products they
become too product focused and the solution to avoiding marketing myopia
is fairly simple to consistently ask yourself what is the business you are in?
And, B, needs focused and not once focused.
What Business Are You In? - Slide 42
WHAT BUSINESS ARE YOU IN?

Transcript
A lot of times in the real world you will find that companies are obsessed
with growth opportunities in their industry without understanding that there
are potential opportunities on the horizon, which is where consumers are
likely to gravitate. Let me give you an example. If you think of the oil and
gas industry right now, obviously gasoline petroleum is doing very well and
if you are a company that is a dominant player there, why you need to
exploit the petroleum, the opportunities in the petroleum sector, you also
need to start thinking about alternative fuels. Otherwise, you're likely to fall
victim to marketing myopia. One of the things I always say to people is if
you're an airline company today obviously I take a plane to go from the
United States to China, but tomorrow there is some technology that comes
in and I say beam me up, Scotty, and I'm in Beijing. Well, you know, airline
companies have to figure out a way to capitalize on that market as well.
And the way to think about it is what business are you in is the key question
that you need to ask yourself.
That was a good picture of the Clock Tower that I took on my phone. About
15-20 years ago if I had to take a picture of that, I would have used a film
camera. And the way it worked is I would take a picture, I would wait for all
the exposures, go to a film studio, get the pictures developed and see the
prints. About 10 years ago if I had to do it, I would have used a digital point
and shoot. It has a storage disk, I will take the picture, the images are
stored, I upload it onto a computer for potentially printing it or even
manipulating the images, et cetera. These are all different technology
generations if you will of how we have evolved in the photography business
from the analog to the digital, but the critical issue is if you are product
focused as in film camera focused, then you would not have caught the
transition to the digital camera. On the other hand, if you think through it
very carefully the need for capturing memories have not changed for me in
the last 20 years, but the means by which I have done it has actually
changed, which is the reason why we advise companies to focus on
customer benefits and always define their business in terms of customer
needs because that enables you to capture the transitions and move on to
the next generation without a problem.
I have 10 minutes to kill before I meet somebody and at this point in time I
have a choice of reading this newspaper because I have to kill time or
going on my Smartphone and accessing the various information sources.
Now, while it is true that this newspaper is in the business of providing
news, at a broader level at this point in this context it is alleviating boredom.
If I have 20 minutes to travel on a New York subway and I don't have
access to a cell phone, I use the [inaudible]. If I have 4 hours to kill on a
flight to San Francisco and I don't have access to a cell phone, I might use
an Applet pocket, but the broader point that you have to understand when
you think about marketing myopia is value is contextual and understanding
the context actually opens up a lot of innovative opportunities. A lot of times
companies get locked into a very specific position and they become non-
creative, but understanding the context can open up your world.
Port of St. Louis, MO - Slide 43
The slide contains an image of cargo ships representing heavily crowded

port of St. Louis.
Transcript
Here is an illustration of marketing myopia using 2 American cities, St.

Louis and Chicago. In 1850, St. Louis was the second largest port city in
the United States after New York. They were bustling with shipping activity.
They cater to a lot of shipping companies. So when railroad companies
came and asked permission from St. Louis to build railroad bridges across
the river so that they can transport freight, St. Louis was not too thrilled.
They didn't want to antagonize their shipping companies, therefore, they
did not accept the request of the railroad companies. So these railroad
companies turned to a nearby city, Chicago, and asked for permission to
lay tracks into downtown Chicago and, of course, Chicago agreed. By
virtue of the simple decision made in the mid-1850s Chicago today is a
much more bustling metropolis compared to St. Louis. St. Louis thought of
itself as being in the shipping business when it should have considered
itself as being in the transportation business. That business definition of
being in the transportation business would have enhanced the long-term
prospectives of St. Louis
Theodore Levitt - Slide 44
"The railroads let others take their customers away from them because
they assumed themselves to be in the railroad business and not in the
transportation business."
—Theodore Levitt
Transcript
Here is an interesting update about the railroads in the 1950s. Railroads

that were dominant for a century actually got into trouble because the need
for trade transportation was actually filled by others including cars, trucks
and airplanes. And what was interesting as Professor Ted Levitt writes is
that railroads let others take their customers away from them because they
assume themselves to be in the railroad business rather than in the
transportation business. In other words, they fell victim to the exact
marketing myopia that plagued shipping companies in the mid-1850s.
Railroad companies were product oriented instead of customer oriented.
So the lesson is very simple the lesson is do not fall victim to marketing
myopia and one way to not fall victim is to define your business with an eye
towards the future because remember markets consistently evolve and
consumers change and as long as you're going to define your business in
terms of the broader consumer needs and benefits, you're going to be fine
as a company in the long run.
Define Business in Terms of Need - Slide 45
Always define the business in terms of needs of the consumers and not
wants.
Transcript
Do not define your business in terms of wants. Wants change, needs don't.
My need for thirst is always going to be there, but whether you use bottled
water or a cup of coffee or a cup of tea, it changes. And similarly we talked
about cameras before, cameras are, should not be defined as being in the
film business or the digital business as much as being in the capturing
memories business. If you are in the airlines space, you are in the
transportation business. Think about IKEA for instance. When all other
companies were focused on custom furniture that's very expensive, IKEA
focused on a segment whose needs were to have furniture that was stylish
but inexpensive, but more importantly this segment did not have the time to
wait for custom furniture to arrive at their homes. So in order to mitigate
these problems, the segment was willing to assemble the furniture
themselves and the result is IKEA was able to design modular furniture that
was stylish and quick to assemble and went after this need for convenience
and flexibility for this particular segment.
Encyclopedia Britannica - Slide 46

Transcript
Need assessment is usually done by talking to the consumers. Consumers

sometimes can articulate their needs, we call it the manifest needs.
Sometimes it is very hard for consumers to articulate what their true needs
are. We call it latent needs. Let's take the example of this beautiful 9th
edition of Encyclopedia Britannica. You go to a consumer and say, hey, why
do you have this Encyclopedia Britannica in your walls? A consumer will
say, well, this is for knowledge. Whenever I have an important question or a
doubt to be answered I can actually check the Encyclopedia Britannica as a
reference. True, this is what we call a manifest need because the
consumer can easily articulate the value proposition, but there's also a
deeper need at work. Think about it when you have this Encyclopedia
Britannica at home, this beautiful volume, it also communicates something
about your household. The fact that you care for the education of the entire
family is a symbolic need that cannot be articulated by the consumers. This
is a latent need. So companies should not only focus on the latent needs
but also on the manifest needs
The manifest needs are fairly straightforward, you'll talk to the consumers,
but the latent needs that are a variety of techniques that companies can
use like Z-Ment or anthropological studies inside consumer homes, but the
bottom line is when you develop a product that caters to not only the
manifest needs but also accounts for the latent needs of the consumers,
you're most likely going to develop a winning innovative product.
Needs Are Complex - Slide 47

The slide contains an image of a Pyramid in which 5 categories of Needs
are arranged from bottom to top in the following order: Physiological,
Safety, Social, Esteem, and Self-actualization.
Transcript
As we saw, needs can be manifest, needs can be latent. One way to think
about the complexity of these needs is to have an organizing framework
such as the Maslow's Hierarchy of Needs, which actually defines needs in
terms of 5 categories, physiological, safety, social, esteem and self-
actualization. Sometimes, for example, if you're a luxury automotive, you
are not only catering to the safety needs you're also catering to the esteem
needs of your customer base. So this is where the complexity comes in and
once you have an organizing framework and you talk to your customers
and you ascertain the complexity of their needs then the business definition
actually becomes easy.
Why is the Business Definition Important? - Slide 48
Building capabilities within the company and resource allocations follow the
business definition.
Transcript
Why is a business definition important? Business definition is important

because building capabilities within the company and consequent resource
allocation actually follow the business definition. Think of that famous piece
that President John F. Kennedy made before the Congress in 1961 wherein
he said "I believe that this nation should commit itself to achieving the goal
before this decade is out of landing a man on the moon and returning him
safely to the earth."
But in the same speech as you read, he will talk about the development of
the appropriate lunar spacecraft, he will talk about liquid and solid fuel
boosters and engine development, which are all basically building
capabilities, but they also followed it up with appropriate resource
allocations. They spent about $531 million in fiscal '62 and an estimated $7
to $9 billion additional over the next 5 years and the result was a very
successful man flight to the moon and back in 1969, which goes on to tell
you the power of a moon shot and following it up with building capabilities
and resource allocation.
Gives his personal pledge that this nation will move forward with the full
speed of freedom in the exciting adventure of space.
References - Slide 49
IKEA. (n.d.). Living Room Furniture: Sofas, Coffee Tables & Inspiration.
Retrieved February 02, 2017, from
http://www.ikea.com/us/en/catalog/categories/departments/living_room/
Transcript
No instruction provided during this slide.

Lesson 1-4 Developing a Value
Proposition
Lesson 1-4.1 Developing a Value Proposition - Part 1

The Basic Building Block of Strategic Innovation is Value - Slide 50
The slide contains an image representing the 2-way process between How
do companies create value for customers? and How do companies capture
value back from customers?
Value = Quality obtained / Price paid
Transcript
In this lesson, I want to talk about value. Value is the fundamental building
block of strategic innovation. I define value as the quality obtained by the
consumer relative to the price paid. But a critical point is that value is not
objective value but is psychological value as perceived by the consumers.
Once you understand value, you can actually understand how to craft
winning customer value propositions.
The basic building block of strategic innovation is value. How do companies
create value for their consumers? How do companies capture this value
back from the customers? This could be through appropriate pricing. This
could be through word-of-mouth. This could be through customer loyalty.
This could be through referrals or enhanced customer equity. But the most
important thing that you need to understand about value is, value is
psychological. Value is value that is perceived by the consumers. And it is
usually given by the expression "quality obtained given the price paid."
A Company Endures in the Long-Term - Slide 51
When a company endures in the long-term, it does both the value creation
and value capture as well.
How do companies execute the "creation and capture" of value over time?
Transcript
A company needs to simultaneously value created and value capture well.

A company that does the value creation part without the accompanying
value appropriation is not likely to survive in the long run. In a similar vein,
a company that does the value capture well but does not create value
creation is again not likely to last in the long run. So a company has to do
both well, executed the value creation and value capture part. Because
then it becomes actually a virtuous cycle that creates genuine long-term
competitive advantage.
Crafting a Customer Value Proposition (CVP) - Slide 52
Slide has the same information as Slide 20 Crafting a Customer Value

Proposition (CVP)
Transcript
Customer Value Proposition, or a "CVP", is a statement that has three

facets. What is the value that the product offers? Who's the target
segment? And how are we reaching this particular segment? As far as the
what part of the value offering is concerned, think of it as a statement. And
a statement has to have the following three things. What are the bundle of
benefits that your product is offering? And does your product actually
alleviate the pain points that customers have in case they feel some losses
from a prospect theory perspective by adopting your product? Does your
product alleviate those losses? And last but not the least, it also highlights
the favorable points of difference that actually delivers unique value. These
favorable points of difference need not be explicitly mentioned, but they
have to be implicit.
The second facet is fairly obvious: Who's the target segment. Remember,
crafting of customer value proposition is usually segment-specific. So the
third facet is: How are we reaching the segments? So there are two unique
characteristics here. You need to talk about what are the channels that
you're going to use and what are the relationships you're going to employ.
As far as the channels are concerned, it could be direct. Or you could say,
I'm going to have intermediary such as wholesalers and retailers in order to
reach the customers. And as far as the relationships are concerned, you
need to ask yourself: Is it a transactive relationship? Is it a relationship-
based business? Are we going to co-create communities for these
customers? These are all the questions. So when you put the what, who,
and how together, you'll get a customer value proposition. But more
importantly, you have to understand, the primary driver in a customer value
proposition happens to be the what. And then you can see that the who
and the hows will actually follow.
The value proposition of a taxi is taking a passenger to their destination.

And on a crowded street, I can actually hail a taxi off the street. But in this
particular case where my trip was actually planned, I called the dispatcher
and I asked for a cab at this point in time. And while the cab came on time,
there's always a source of anxiety. Is the cab going to come on time? As
they're coming to your home, where exactly are they? How long is going to
take, one minute, two minutes? But more importantly, when the cab comes
in, you have to tell the destination. And when the cab ride is done, you
have to pay using either cash or credit card. But the positives about a cab,
especially a cab that is regulated by your local government and your state
government, is the fact that the physical and the psychological safety of the
passenger is guaranteed.
As I'm getting into the airport, when it comes to drafting a value proposition,
the what part of the value proposition, you need to be careful about two
things. What are the pain points that you're alleviating? And what are the
points of differentiation? Once you do this, the what part of the value
proposition is usually well crafted.
I'm back from my trip. Now I need to go home. And instead of taking a
yellow cab taxi back home, I've ordered an Uber. I went to their -- I have an
app of Uber on my phone. I punched in my destination. I know who the
driver is. The driver is highly rated. And I know exactly where the car is at
this point in time, and it's about a minute away. And here is the Uber.
This is a daily ritual for me. I have a need to be clean-shaven. What I do is

go to the store once a month and buy a bunch of cartridges that fit in with
my razor. I've paid for this razor. I buy cartridges. And four cartridges cost
me about 15 bucks or so. So what in 2011 Dollar Shave Club did was flip
this business model. Instead of people going and buying a razor and
cartridges forever, they decided to follow a subscription model. You
subscribe to a monthly plan with Dollar Shave Club, so they send you a
razor handle and they send you cartridges every month. So they provided a
cost-effective and affordable solution. You don't like your razor, don't worry,
there is a flexible razor plan. One of the pain points in a subscription model
could be whether as a consumer you are locked into a contract. This Dollar
Shave Club said, no contracts, no commitments. They day you don't like it,
just say you don't want to be a part of it, etc. The result is, today they were
bought out by Unilever for $1 billion. Tells you the power of innovative
strategies and how innovation can actually create value.
Creation of Value - Slide 53
The slide contains an image representing a Bell Curve with one Standard
Deviation on each side from the center with the numbers 18,000, 81,000
and 33,000 in the left, middle and right portions of the Bell Curve
respectively.
Transcript
Customer needs our diverse, they are not homogeneous. For every
segment, customers key in on an attribute or a rank-ordered set of
attributes that can actually be represented by a bell curve. Take the case of
the SUV market in the auto industry. People choose based on size. So
when you represent size on a bell curve, the x-axis represents the size and
the y-axis represents sales. About 130,000 non-luxury SUVs are sold in the
United States each month. The middle part of the curve, i.e. the average
size SUVs, 81,000 of them were sold. About 18,000 small SUVs and
33,000 large SUVs were sold. So if you are a company focused on the
mass-market, being in the center makes sense. But when you move away
from the center, which is where there are abundant opportunities, there are
opportunities as well. Choose a segment which happens to be a sweet spot
with respect to your capabilities.
Let's take the example of Trader Joe's, which is a grocery chain based in
the United States. Trader Joe's opted not to reach a mass-market but went
after the periphery by providing affordable products for health and diet
conscious shoppers. Its latest sales volumes at about $11 billion. And they
have about 500 stores nationwide. Trader Joe's consistently tops the
rankings in customer satisfaction. And the first store sales per square foot
is one of the highest in the nation. So by virtue of going after a niche
market and by virtue of not focused on the mass-market, Trader Joe's has
had a very successful strategy. Bottom line: On any bell curve, while it
makes sense for you to go to the center, you have to understand there are
innovative opportunities available at either the underserved end or the
overserved end. As a company, you need to figure out what your sweet
spot is, where you actually have the right to win, and you absolutely can
win provided you reach the right segments.

Transcript
Dell delivered great value by thinking and performing activities differently.

Dell was commercialized in the mid-1980s. At that point in time, IBM was a
dominant player in the market. And all major computer manufacturers sold
their products through intermediaries, because intermediaries did the
activities of educating consumers, informing consumers, and persuading
them to buy computers. When IBM was involved in a value differentiation
focus, Dell focused on cost leadership. And when you think about the value
chain, the source from suppliers at scale, they manufactured the items in-
house. They assembled the computers. And then they bypassed the
intermediaries completely. Given the fact that less than 5% of the US
population had adopted the computers at that point in time, this was a
major risky move, and some would say a counterintuitive move. Because
Dell lost the education function. But instead Dell pursued a very innovative
strategy by saying that they were going to focus on the 5% of the
consumers who had already adopted the computers, therefore, didn't need
any education and persuasion.
Therefore, by following a low-cost leadership strategy, by focusing on the

operational excellence across the value chain, and by thinking very
creatively, Dell created a very innovative strategy that made them the
market-dominant leader for the next 25 years or so in the personal
computer industry.
Lesson 1-4.2 Developing a Value Proposition - Part 2

Southwest Airlines - Slide 55
Transcript
Southwest Airlines thought differently and performed activities differently in

order to become an innovative leader in the US airline industry. The
competitors for Southwest at that point in time were large airlines that flew
all over across multiple destinations. They followed what is known as a
hub-and-spoke operations. Hubs were large airports and spokes were
small airports. Given that they flew across large and small airports, they
had different sized aircrafts. The hub is the large airport which aggregates
passengers and then flies them to the various smaller destination, also
known as spokes. They also catered to business class. They had to
coordinate schedules and baggage. They were consequently able to
appropriate price premiums and differentiated themselves from the
competition.
On the contrary, Southwest Airlines focused on low-cost leadership by

focusing on less congested airports. Southwest few point-to-point and did
not employ a hub-and-spoke system. And given that they were flying point-
to-point between destinations, they had a standardized fleet of 737 planes,
which effectively meant that they could get the best rates from their
suppliers. More importantly, they were able to control costs with respect to
spare parts, with respect to airline service, and with respect to the inventory
on the supply side. Given that they flew from point-to-point, there was no
major coordination of baggage or schedules. And they could have fast
turnaround of planes.
Southwest Airline vs Full Service Airline - Slide 56
Southwest Airline
Strategy: Low-Cost Leadership

Planes flown from less congested airports in larger cities
Point-to-Point Business Model
Standardized fleet of 737 planes
No business travel - only economy
Full Service Airline
Strategy: Value Differentiation

Planes flown from all airports, large and small
Hub-and-Spoke Business Model
All types of planes
Business travel available
Transcript
Given that they did not cater to business travelers and they were able to
bypass agents, they were able to employ a low-cost leadership strategy
that was very different from the differentiation strategy employed by large
airlines.
Generic Competitive Strategies - Slide 57
The slide contains an image of a pie-chart divided into three equal parts
representing Customer Intimacy, Product Development, and Operational
Excellence dependent on each other.
Transcript
To deliver unique value, companies need to understand what they are good
at. And there are three value disciplines: operational excellence, customer
intimacy, and product development. As far as operational excellence is
concerned, companies need to focus on cost leadership by focusing on
volumes and standardize processes. Think of Walmart, Southwest,
RyanAir, where the focus is fundamentally on scale and the focus is on
having great processes that enable you to standardize. By customer
intimacy, companies segment and target markets precisely and then tailor
the offerings to these segments. The focus is on obtaining detailed
knowledge about the customers and combine it with operational flexibility.
So acquiring customers, retaining customers, maintaining customer
relationships are very critical.
Think Procter & Gamble. Think Netflix. Where the focus is on the
economies of scope and the shed of the wallet. Getting the customers to
buy multiple products from the same company is very critical. By product
development, we mean that companies should offer leading-edge products
and services. The focus is on developing premium products that get you
premium prices. Think of Intel and Apple as example. The focus is
fundamentally on nurturing talent and fostering talent that can help you
create these cutting-edge products. And typically these organizations are
employee-oriented. So what does this all mean to a company? What this
means is, companies need to become champions in one of these three
value disciplines. An enterprise cannot excel in all three because the
structure, capabilities, and cultures required for excellence in one may be
incompatible with achieving excellence in others. So the goal should be
become excellent in one and match the industry standard in the other two.
In the best-case scenario, be excellent in two value disciplines and be
industry standard in the third, and that should make you world champions.
Mapping Company Capabilities and Customer Needs - Slide 58
Balance what the customer wants and what the company can really
produce
Mapping Company Capabilities and Customer Needs

Relevance to Relative Capability of Company
Segment Low High
Irrelevant. Do not Resource Drain. Stay away from
Low
spend resources. the developer's curse.
Table Stakes. Build Differentiator. Emphasize these
High
these features. points of difference.
Transcript
We know one of the benefits that a customer is looking for in an innovative

product. And we also know what the company can really produce, because
we know the value discipline they are focused on. So how do we really
balance the customer needs and what the company can produce? We do
that by mapping company capabilities and customer needs together and
doing a typology of the relative capability of the company with the
relevance to the segment. When you map the company capabilities and
customer needs, you can derive a 2 x 2 matrix. On one axis I have relative
capability of the company at different levels, low and high. The other axis
has relevance to the segment, again marked as low and high. So when you
look at the high/low -- high relative capability of the company and low
relevance to the segment -- you will realize that investing in developing
these features is a resource drain. This is also indicative of a developer's
curse, that you want to develop the features because your attitude as a
company is one of, if we build it, they will come. Be very careful about this
because these attributes are absolutely not relevant to the consumer.
This slide shows the same information as Slide 32 Business Ecosystem

Transcript
Last but not the least, look at the high/high cell. High relevance to the
segment and high relative capability of the company. These are the
differentiating features. You have to emphasize these points of difference.
The odds are, these will become the points of difference between you and
your competition that will enable you to deliver the unique value to your
consumers.
Too often companies think that creating innovative products based on

customer insight is enough to deliver value and thereby succeed in the long
run. Nothing can be farther from the truth. Alignment with the ecosystem is
very critical. Otherwise, the best laid innovation plants may actually go
awry.
What should companies aspire for when it comes to creation of

value? - Slide 60
Ensure alignment with collaborators and environmental contexts for

market success.
VHS versus Betamax
HD-DVD versus Blu-ray

Transcript
Edison developed the electric bulb in 1879, a full 40 years after the first
electric bulb. But Edison's development of electric lighting was not the story
of the electric bulb superiority but the alignment with the entrenched value
chain of gas utilities. Gas utilities had been around for a long time. They
were very well entrenched with proper institutional structures. And what
Edison did to dismantle these infrastructures was just remarkable. What did
he do? Well, despite the fact he had capabilities to create a 40 watt bulb at
that point in time, Edison decided to create a 13 watt bulb, electric bulb, to
be equivalent to a 12 watt gas lighting that was prevalent at that time. For
distribution, instead of taking overhead lines, Edison buried the electric
lines under the ground, so as to not upset the construction workers. More
importantly, he utilized the gas industry system of centralized production
and distribution and mimicked it.
So what Edison did was incorporate the new into the old, and thereby he
presented a system to the public they were already familiar with. And
hence, the consumer assistance was greatly minimized, consumer
adoption was accelerated. And in 15 years, Edison dismantled the gas
lighting industry.
VHS versus Betamax - Slide 61
The slide contains an image of VHS and Betamax

Transcript
Let's talk about Betamax and VHS. They were both revolutionary products.
Before they came onto the marketplace, people had to go to the movie
theater to watch movies. Or, if they wanted to watch a program, they had to
watch a program live. But Betamax and VHS gave the opportunity for
people to play prerecorded movies or programs. And therefore people
could watch the programs or movies whenever they wanted it. Technically,
if you asked the observers, people would say to you that Betamax was a
superior recording format, because of its better resolution, slightly superior
sound, better construction, and a more stable image.
Betamax actually lost out to VHS in the long run. And the fundamental
reason is that VHS was better aligned with the content producers. So more
content producers were actually creating cassettes for the VHS standard.
And because there was more content for VHS, more users started using
VHS. And the result is a virtuous cycle that enabled VHS to actually win out
over Betamax. The same scenario played out later on, about 30 years later,
with Blu-ray and HD-DVD. While HD-DVD camp sold more DVDs, Blu-ray
actually attracted more content providers. And therefore because they had
more content, more users were attracted. Again, this virtuous cycle enabled
Blu-ray to win out the technology standards in the long run.
References - Slide 62
Hoikka 1 (2011), Beta Max [Online Image]. Retrieved from

https://commons.wikimeida.org/wiki/Valued_image_set:_Betamax_recorders
Josch13 | Pixabay. (2104). Untitled [Online Image]. Retrieved from

https://pixabay.com/static/uploads/photo/2014/06/25/06/33/light-bulb-
376926_960_720.jpg
Jrdn88 (2011), Blure-Ray and DVD Discs [Online Image]. Retrieved from
http://www.regionfreedvd.net/discs.html
Treacy, M., & Wiersema, F. (1985). The discipline of Market Leaders

[Image]. New York, NY: Perseus Books.
Urireal (2012), HD DVD-R [Inline Image]. Retrieved from

https://ru.wikipedia.org/wiki/%D0%A4%D0%B0%D0%B9%D0%BB:Hddvd-
r_side_12022.jpg
Transcript

Application Corner
The Case of DeWalt Tools

Transcript
I'm going to talk about the story of Black & Decker, creating a really
innovative strategy involving a total product. Defined as the core product,
augmented product, and the ecosystem. For that, I have to transport you
back to the early 1990s, when Black & Decker was a very dominant player
in the power tools industry. Among all the segments, we are going to focus
on two segments that Black & Decker competed in. One is the consumer
segment, the hobbyist segment, the do-it-yourself segment. Where people
use power tools like this cordless screwdrivers, etc. for projects that they
could do on their own. The other segment is the professional tradespeople
segment, comprised of carpenters, roofers, electricians, plumbers, people
use these tools for living at other job sites.
Black & Decker was a dominant player in the consumer segment. Whereas
they were a marginal player in the tradespeople segment. Now, among all
the competitors, I want to focus on Makita, which was a dominant
competitor in the professional tradespeople segment but a marginal player
in the consumer segment. At the same time as this was happening, Black &
Decker was also involving a change in their corporate strategy. They were
moving from the garage to the house. They were also starting to make
household appliances. Now, the question that people might ask is: How did
Black & Decker that was such a dominant player in the consumer segment
be a marginal player in the that tradespeople segment? And the answer
actually lies in revisiting the concepts of prospect theory and marketing
myopia.
Think about it from a different perspective. While Black & Decker tools were
competitive quality in majority of the categories, there were some products,
some tools, that were really not leadership quality. If you are a professional
tradesperson, and you have 20 tools in your toolkit, you have to have all
these tools work flawlessly. If you have even one or two that don't work,
that's a pain point, that's a problem. Because your risks are very high as a
professional tradesperson, because your livelihood is affected. The second
and the larger point is one of psychological value.
While Black & Decker was very, very product-focused, they were not
needs-focused. What do I mean by that? Think about it from a professional
tradesperson's perspective. You are a professional tradesperson, you walk
into somebody's house, your client's house, and they also have Black &
Decker. Same color, same tool. And now you're a professional, using a tool
as a hobbyist. How do you differentiate yourself? How do you say that you
as a professional tradesperson add value? This is a huge issue. This is a
symbolic need for a tradesperson to differentiate their work. And more
importantly, on a trade site, when you're looking at other tradespeople
around you, you need to say, I am a professional, I'm using a regular tool.
And this was a problem. So what did Black & Decker do? They did
something very, very, very innovative.
So what Black & Decker did was they bid product pruning. And what I
mean by that is they ensured that all products that they were going to
launch in the tradespeople segment were of the highest quality. They
changed the brand name to DeWalt. They actually changed the color to a
slightly more rugged color as opposed to the original colors of Black &
Decker. But more importantly, it said DeWalt serviced by Black & Decker.
Because service was a great attribute of Black & Decker at that point in
time. But more importantly, in order to alleviate the pain points, to reduce
the losses in the minds of the tradespeople, they gave extensive technical
support. They gave loaner tools in case the tool failed in the job site, the
professional tradesperson could get a loaner tool. They had a very
generous return policy. All of these from a core product perspective and
augmented product perspective were very important for achieving their
returns. But last but not the least, they were completely aligned with the
retailers. Retailers loved the brand that was high-quality, provided service.
Which effectively means this alignment of the retailer or the ecosystem
made it into a complete total product, and the result is history.
In about three years, they went from being a marginal player to a dominant
player in the tradespeople segment. Which goes on to tell you one
important lesson. Once you understand and move away from the core
product track and think about augmenting your core product with
accessories and enlisting the support of the ecosystem, you're going to be
fine. You're going to go ahead and do great things.
Reference - Slide 64
Hetrick, R. (1992, April 5) INVOKING A 'MYSTICAL' NAME Black & Decker

hopes DeWalt tools' reputation will conjure new business. The Baltimore
Sun. Retrieved from http://articles.baltimoresun.com/1992-04-
05/business/1992096094_1_dewalt-tools-power-tools-makita-tools
Transcript

Module 1 Wrap Up
Module 1 Summary
Module 1 Questions (Questions 1 to 6) - Slide 65
3. How do people make choices about whether to use new products or
services?
5. How would you describe the benefits that your innovation provides?
6. What is a customer value proposition? How would you draw a diagram
of one? What makes a winning one?
Transcript
Okay, you're through the videos from module one and you can see that all
of them were about fundamentals. What the innovation is, who's involved,
who the players are, how customers decide whether to use the innovation,
and the basics of creating winning value propositions for those customers.
Concept 1: Innovation - Slide 66
Transcript
So to finish, I'm going to summarize the core concepts and their

implications and connect up with the questions I challenge you to think
about at the start as I do that. So the first concept innovation itself, well,
what is it? Raj said it was thinking differently and arriving at creative
solutions.
Executing Ideas - Slide 67

Transcript
But he emphasized executing ideas, executing ideas as the heart of

innovation. The implication there is for our course. We're mostly going to
take ideas as given and try to figure out how to create value through them
whether through strategic choices or good implementation.
Recombinant Innovation - Slide 68
Transcript
Now that said, Raj did talk about the concept of recombinant innovation.
The innovation is about connecting existing knowledge and technology in
new ways. That's often how it happens. Now that is a fundamental and
powerful insight that can reframe how you think about where ideas come
from. So, take a moment and consider, how do these points compare with
your thinking at the start of the module.
Concept 2: Innovation Framework - Slide 69
Transcript
The key implication here is that you need to account for multiple players
and innovation, suppliers, competitors, customers and beyond, and you
need to have a strategy to develop the full ecosystem around the
innovation.
This slide shows the same information as Slide 32 Business Ecosystem

Transcript
This often involves collaboration, for instance, encouraging development of

complimentary products, of technical standards and so on as much as it
involves competition. That's the implication. Without a strategic attention to
the ecosystem and collaboration, you can lose just as surely as if you failed
in your own strategic implementation of the idea.
Concept 3: Prospect Theory - Slide 71
Losses loom larger than gains
Transcript
The third concept is prospect theory. This helps us answer that question
that I started with, how do people make choices about adopting
innovations? Now, what prospects theory says is that people compare an
innovation with what they already have that becomes their reference point
and so innovations become bundles of losses or pains and gains and the
signature insight is that losses loom larger than gains so that there's an
implication. That's the best product does not always win, rather the winner
is the one that best minimizes the losses, the pains and thereby satisfies
customer needs.
Concept 4: Marketing Myopia - Slide 72
Transcript
Fourth concept is marketing myopia. What this does is it offers insight

about that question of how you should think about the benefits that an
innovation provides. Marketing myopia says, beware. If the answer you
gave was about feature and products and not about consumer needs, you
need to watch that you don't get stuck in the here and now, rather than
getting ready for what will be. You need to be ready for game changing
innovations that can redefine how needs are fulfilled and to do that you
have to define your business in terms of needs not products. You want to
be the railroad that thinks ahead and puts itself in the transportation
business, not the railroad that is stuck myopically thinking it is in the
railroad business.
Concept 5: Customer Value Proposition - Slide 73

Transcript
Final concept is customer value proposition. This is a bedrock principle.

Innovators need a winning customer value proposition. The question was
well, what is a customer value proposition? We saw the answer has three
parts.
Customer Value Proposition (Answers) - Slide 74
1. What is the value we provide? (Needs)

2. Who are we trying to reach? (Segment)
3. How are we reaching them? (Channels)
Transcript
Final concept is customer value proposition. This is a bedrock principle.

Innovators need a winning customer value proposition. The question was
well, what is a customer value proposition? We saw the answer has three
parts. These are, what is the value we provide? What need are you
fulfilling? So the what. Who are we trying to reach? The customer segment,
so the who. How are we reaching them? The channel, the how.
Crafting a Customer Value Proposition (CVP) - Slide 75
This slide shows the same information as Slide 20 Crafting a Customer

Value Proposition (CVP)
Transcript
The implication that emerge from this idea is that to win, you need to hit
that sweet spot where the needs of the segment that you reach aligns with
the value discipline where your company is superior to your competitors
whether that discipline is operational excellence, customer intimacy or
product development. Okay then, that's a wrap. I'll see you at the start of
the next module.

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Module 1 Strategic Innovation:

Building and Sustaining Innovative

Welcome from Professor Geoff Love!

Professor Geoff Love - Slide 1

Hello. My name is Geoff Love. As a professor at the Giese School of

Finding novel ways to compete

Strategic Innovation (2 of 4) - Slide 3

Strategic Innovation (3 of 4) - Slide 4

"Building and Sustaining Innovative Organizations"

Strategic Innovation (4 of 4) - Slide 5

"Managing Innovative Initiatives"

But there's another side innovation which is about implementing strategic

Welcome from Professor Raj Echambadi!

Professor Raj Echambadi - Slide 6

Welcome to the Building and Sustaining Innovative Organization course

The slide contains an image of Bardeen, William Shockley, and Walter

By every conceivable measure involving comfort and productivity, our lives

We are living in a VUCA world, volatile, uncertain, complex, and ambiguous

Strategic Innovation - Slide 12

Different way of competing

Unique value creation

Superior performance outcomes

What does strategic innovation mean? Costas Markides from London

Professor Raj Echambadi - Slide 13

The narrative and the numbers tell us that there is no dominance by

Customer Value Proposition

Aligning the Ecosystem

Module Introductions - Slide 15

So in these module introductions, as I just talked about, I'm going to give

Module 1 Questions (Questions 1 and 2) - Slide 16

Framework to Analyze Innovation Problems - Slide 17

Module 1 Questions (Questions 3, 4, and 5) - Slide 19

How do people make choices about whether to use new products or

Crafting A Customer Value Proposition (CVP) - Slide 20

So the question here is what is a value proposition from your perspective?

Lesson 1-1.1 A Concise Framework to Analyze

Professor Raj Echambadi - Slide 22

Innovation is thinking differently and arriving at creative solutions. The great

"Sometimes these ideas are new"

Innovation is about executing ideas to create unique value.

"Sometimes they are pre-existing"

What is innovation? Innovation is about executing ideas to create value.

A car comes off the end of the line every 10 seconds.

Sometimes it is about recombining or reconfiguring existing technologies in

The slide contains an image of 4 blocks of various sizes, arranged in

When we think about innovation, we need to think of it as assembling

Creating value by combining different components into valuable

When it comes to recombinant innovation, companies can create value by

Needless Blindness - Slide 26

Recombinations can help in inverting price-performance paradigms,

But more importantly, by adapting the McDonald's model and incorporating

Lesson 1-1.2 A Concise Framework to Analyze

The slide contains an image representing the relationship between

Here is a useful frame to look at innovation problems. At the center of the

The slide contains an image representing the relationship between the

Companies are customers to their suppliers as well. Suppliers create value

Co-Innovation Risk - Slide 30

Execution Risk - Slide 31

The slide contains an image representing Execution risk between the

In a similar vein between the company and the customers we have

Business Ecosystem - Slide 32

Lesson 1-2.1 Prospect Theory: Minimizing Losses and

Professor Raj Echambadi - Slide 33