[MANAGING INNOVATION] &PM

1.1

Introduction

1.2

Why innovation matters

Innovation is driven by the ability to see connections, to spot opportunities and to

take advantages of them. It is about opening up new markets and offer new ways of
serving established and mature ones.

Often success derives in large measure from innovation. There is a strong

correlation between market performance and new products. New products can help
capture and retain market shares, and increase profitability in those markets. New
product development is an important capability because the environment is
constantly changing. E.g. legislation and competitors may open new pathways or
close down others.
Strategic advantages through innovation are complexity, novelty, legal protection,
timing etc. L1, p7

1.3

Old questions, new context

Changing context for innovation

1. Acceleration of knowledge production
2. Global distribution of knowledge production
3. Market fragmentation
4. Market virtualization
5. Rise of active users
6. Development of technological and social infrastructure
Joseph Schumpeter: Entrepreneurs will seek to use technological innovation to make
profits, thereby destroying old structures and creating new ones. (creative
destruction)
Edison: Innovation is the process of the need to complete the development and
exploitation aspects of new knowledge, not just its invention.

1.5

A process view of innovation

There are four key phases of a model of innovation:

Search
How can we find opportunities for innovation?
Select
What are we going to do - and why?
Implementation
How are we going to make it happen?
Capture
How are we going to get benefits from it?
Success of failure? Having a clear and focused direction and creating the
organizational conditions to allow focused creativity.
Scopes for innovation
Sometimes it is about completely new possibilities. Equally important is the
ability to spot where and how new markets can be created and grown. Innovation
is also about offering new ways of serving established and mature markets.
4P approach
Product innovation
Process innovation

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1.6

Position innovation
Paradigm innovation

Exploring different aspects of innovation

Types of innovation:
(1) Degree of novelty Incremental or radical innovation?
Incremental innovation - doing what we do but better
Radical do something different
Level of novelty?
(2) Platform and families of innovation
Development of a basic platform which can be extended in the form of a product
family. Powerful ways for companies to recoup their high initial investments in R&D
by developing the technology across a number of market fields.
Walkman originally developed by Sony as a portable radio and cassette system; the
platform concept has come to underpin a wide range of offerings from major
manufacturers, CD, DVD, MP3

(3) Discontinuous innovation what happens when the game changes?

Sustainable: innovation build on the firms existing knowledge base
Intels Pentium 4 built on the technology for Pentium III.

Discontinuous:
Innovation that creates a new market by allowing customers to solve a
problem in a radically new way. Closely related to radical innovation
Requires a good deal of user-learning, often disrupt his or her routine, and
may even require new behavior patterns.
Sources: new market emerges, new technology emerges, new political rules
emerge, running out of road, deregulation, unthinkable events, business
model innovation etc. (p32-36)
Photocopier machines, personal computer, internet.
(4) Level of innovation component or architecture
Component Innovation that change things at the level of components
Architecture Innovation that involve change in a whole system
(5) Timing the innovation life cycle
Innovation
characteristics
Competitive
emphasis placed
on
Innovation
stimulated by

Fluid pattern

Transitional phase

Specific phase

Functional product
performance

Product variation

Cost reduction

Information on user
Opportunities created Pressure to reduce
needs, technical inputs by expanding internal cost, improve quality
technical capability
etc.
Predominant type Frequent major changes Major process
Incremental product
of innovation
in products
innovations required byand process
rising volume
innovation
Product line
Diverse, often including Includes at least one Mostly
custom designs
stable or dominant
undifferentiated
design
standard products
Production
Flexible and inefficient - Becoming more rigid Efficient, often capital

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Processes

2.1

aim
and defined
is to experiment and
make frequent changes

intensive and
relatively rigid

Variations on a theme

Common innovation and highlighted problems are:

Lack of culture of innovation
Lack of strategy for where to focus innovation efforts
Innovation is seen to conflict with fee-paying work and is thus not always
valued
A formal innovation process does not exist
Project management skills are very limited.
Service innovations are often much easier to imitate and the competitive
advantages that they offer can quickly be competed away because there are fewer
barriers.
E.g. intellectual property protection.
Type of innovation
Incremental
Radical
Product service offering to Modified/improved version Radical departure such as
end users
of an established service online retailing
offering such as increased
range of features in
telecomm service.
Process ways of creating Lower cost delivery throughRadical shift in process
and delivering the offering back office process
route, for example moving
optimization.
from face-to-face contact to
Waste reduction through
online, supermarkets and
lean or six sigma.
self-service shopping.
Position target market andOpening up new market
Radical shifts in approach
the story told to those
segments such as opening such as shifting healthcare
segments
specialist insurance
provision to communities.
products for students.
Paradigm underlying
Rethinking underlying
Radical shifts in mindset
business model
model. Example: migrating such as moving from
from insurance agents and product-based to servicebrokers to direct and only based manufacturing.
systems
The extended enterprise
The underlying business model of outsourcing is based on being able to do
something more efficiently than the client and thereby creating a business margin,
but achieving this depends critically on the ability to reengineer and then
continuously improve on core business processes.
Size of the organization is also an important influence on the particular way in
which innovation is managed. Typically smaller organizations possess a range of
advantages.
Advantages

Disadvantages

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Speed of decision making
Informal culture
Flexibility, agility
Entrepreneurial spirit and risk taking
Energy, enthusiasm, passion for
innovation
Good at networking internally and
externally

Lack of formal management control

systems
Lack of access to key resources,
especially finance
Lack of key skills and experience
Lack of long-term strategy and direction
Lack of structure and succession planning
Poor risk management

Small-/medium-sized enterprises (SMEs) often fail to feature in surveys of

R&D and other formal indicators of innovative activity

5.2

Knowledge push

Examples of knowledge-push innovations: nylon, microwave, photocopiers,

antibiotics, medical scanners
Knowledge creation provides a push, creates an opportunity field which sets up
possibilities for innovation.
Not every idea finds successful application and innovation requires some form of
demand if it is to take root.
- Involves a mixture of occasional breakthrough followed by extensive
elaboration on the basic theme.
Moores law: shapes and guides innovation based on the idea that the size will shrink
and the power will increase by a factor of two every two years. affects components
drives rate of innovation in applications

5.3

Need pull

Another key driver of innovation is need the complementary pull to the knowledge
push.
In innovation management the emphasis moves to ensuring we develop a clear
understanding of needs and finding ways to meet those needs.
Henry Ford was able to turn the luxury plaything into something which became
a car for Everyman.
Managing innovation is a dynamic capability something which needs to be updated
and extended on an continuing basis to deal with the moving frontier problem.
Understanding buyer/adopter behavior has become a key theme in marketing
studies since it provides us with frameworks and tools for identifying and
understanding user needs. Advertising and branding play a key role in this process
essentially using psychology to tune into or even stimulate and create basic
human needs.
Need-pull innovation is particularly important at mature stages in industry. Competing
depends on differentiating on the basis of needs and attributes.
Brandwagon effect: as more people adopt so the innovation becomes modified to take
on board their needs.

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Model of Kaizen: Kaizen means improvement. The Kaizen strategy calls for neverending effort for improvement, involving everyone in the organization. Incremental.
- Basic philosophy behind the TQM movements in the 1980s
Innovation is not always about commercial markets or consumer needs. There is
also a strong tradition of social needs providing the pull for new products, processes
and services.
Micro-finance

5.4

Whose needs?

Disruptive innovation: describes innovations that improve a product of service in

ways that the market does not expect. Also when the rules of the game change
dramatically in the marketplace. (Clayton Christensen)
YouTube, DVDs, portable memory, wireless internet access, cellphones, mp3,
low-cost airlines
The role of emerging markets
There is a growing interest in what have been termed the bottom of the pyramid
(BoP) markets.
- Prahalad argued that 80% of the worlds population lived on incomes below
the poverty line.
- See table 5.2 on page 240

5.5

Towards mass customization

Mass customization is the ability to offer highly configured bundles of non-price

factors configured to suit different market segments, but to do this without incurring
cost penalties and the setting up of a trade-off of agility versus prices.
Type of
customization
Distribution
customization

Characteristics

Customers may customize product/service packaging, delivery

schedule and delivery location but the actual product/service is
standardized.
Sending a book to a friend from Amazon.com/Bol.com
Assembly
Customers are offered a number of predefined options.
customization
Products/services are made to order using standardized
components.
Buying a computer from Dell
Fabrication
Customers are offered a number of predefined designs.
customization
Products/services are manufactures to order.
BMW allows you to design your own configuration i.e.
color, size, extras
Design customization Customer input stretches to the start of the production process.
Products do not exist until initiated by a customer order.
Shoe design Adidas

5.6

Users as innovators

Ideas of users + their frustrations with existing solutions lead to experiment and
prototyping and create early versions of what eventually become mainstream
innovations.
Lead users: importantly active and interested users who are often well ahead of the
market.

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One strategy around managing innovation is thus to identify and engage with such
lead users to co-create innovative solutions. Perpetual beta: testing new software
modules across a community to get feedback and development ideas.

5.7

Extreme users

5.8

Watching others

An important variant that picks up on both the lead user and the fringe needs
concepts lies in the idea of extreme environments as a source of innovation. Users
in the toughest environments may have needs which by definition are at edge.
Antilock braking system began life as a special add-on for premium highperformance cars

Innovation is essentially a competitive search for new or different solutions.

Imitation is a viable and successful strategy for sourcing innovation.
Benchmarking: enterprises make structured comparisons with others to try and
identify new ways of carrying out particular processes or to explore new product of
service concepts.
Southwest Airlines became most successful when it copied the pit-stop
techniques in the Formula 1 Grand Prix events. This reduced the turnaround
times at airports.

5.9

Recombinant innovation

Recombinant innovation: transferring or combining old ideas in new contexts

(Andrew Hargadon)
Reebok pump running shoe
Rich innovation through: recruited teams with diverse industrial and professional
backgrounds and thus bring very different perspectives to the problem in hand.
Very often original breakthrough ideas come about through a process of what
Artur Koestler called bisociation the bringing together of apparently unrelated
things which can somehow be connected and yield an interesting insight.
Key message: Look to diversity to provide raw materials which might be combined
in interesting ways and realizing this makes the search for unlikely bedfellows a
useful strategy.

5.10 Regulation
Deregulation may open up new innovation space.
Privatization of telecommunications led to rapid growth in competition and
high innovation rates.
Regulation can also trigger counter innovation: solutions designed to get round
existing rules or at least bend them to advantage. Regulation both pushed in key
directions and pulls innovation through in response to changed conditions.

5.11 Futures and forecasting

Another source of stimuli for innovation comes through imagining and exploring
alternative trajectories to the dominant version in everyday use. Concept models
and prototypes are used in this context.

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5.12 Accidents

Making adhesive resulted in Post-it notes

The secret is not so much recognizing that such stimuli are available but rather in
creating the conditions under which they can be noticed and acted upon.
9/11 provides a huge stimulus to innovate in areas like security, fire safety
and evacuation

5.13 A framework for looking at innovation sources

The key challenge for innovation management is how to make sense of the
potential input and to do so with often limited resources. Innovations tend to resolve
into vectors combinations of the two core principles. These direct our attention in
two complementary directions creating possibilities and identifying and
working with needs.
User-led innovation may be triggered by used needs but it often involves creating
new solutions to old problems essentially pushing the frontier of possibilities in
new directions.
(1) All eggs in one basket: push/pull
(2) Incremental or radical innovation. There is a pattern of what could be
termed: punctuated equilibrium. This means that most of the time innovation is
about exploiting and elaborating, creating variations on a theme within an
established technical, market or regulatory trajectory.
(3) Timing at different stages in the product of industry life cycle the emphasis
may be more or less on push or pull.
(4) Diffusion the adoption and elaboration of innovation over time. Understanding
diffusion processes is important because it helps understand where and when
different kinds of triggers are picked up.

5.14 How to search

The challenge in managing innovation is how to seek out and find the relevant
triggers early and well enough to do something about them.
Community Innovation Survey reinforces the view that successful innovation
is about spreading the net as widely as possible, mobilizing multiple
channels.
In open innovation, organizations move to a more permeable view of knowledge
in which they recognize the importance of external sources and also make their own
knowledge more widely available.

5.15 Balancing exploitation and exploration

Exploitation: the use and development of things already know.
It builds strongly through knowledge leveraging activities on what is already well
established but in the process leads to a high degree of path dependency.
- Supported by applied research
Exploration: long jumps or re-orientations that enable a firm to adopt new attributes
and attain new knowledge outside its domain.
- Supported by wide-ranging blue-sky activities

5.16 Absorptive capacity

Absorptive capacity (AC): the measure of the ability to find and use new knowledge.

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Technological learning: the processes whereby firms acquire and use new
technological knowledge and underlying organizational and managerial processes
which are involved.
Reasons why firms may find difficulties in growing through acquiring and using new
knowledge:
1. Unaware of the need to change (problem of SME growth)
2. Recognize the need to change, but lack the capability to target their search
or to assimilate and make effective use of new knowledge once identified.
3. Clear what they need but lack capability in finding and acquiring it
AC involves multiple and different activities around search, acquisition, assimilation
and implementation. Connectivity between these is important the ability to search
and acquire may not lead to innovation. To complete the process further capabilities
around assimilation and exploitation are also needed.
Developing AC involves 2 complementary kinds of learning:
1. Adaptive learning about reinforcing and establishing relevant routines for
dealing with a particular level of environmental complexity.
2. Generative learning for taking on new levels of complexity.

5.17 Tools and mechanisms to enable search

Managing internal knowledge connections

How can organizations tap into the rich knowledge within its existing structures and
amongst its workforce?
Use communities of practice, such as Innovation scouts, intranet
One rich source of internal innovation lies in the entrepreneurial ideas of
employees. Encouraging intrapreneurship (internal entrepreneurship) is increasingly
popular and used by Google and 3M.
Bootlegging: a culture in which there is tacit support for projects which go against
the grain.
BMW Series 3 Estate caused concern because of the conflict with the highquality brand image.
Extending external connections
Open innovation is needed to make new connections.

Page 263, table 5.5

Extending search strategies for innovation

Sending out scouts
Exploring multiple futures Using the web
Working with active
Deep diving
Probe and learn
users
Mobilize the mainstream Corporate venturing
Idea generators
Use brokers and bridges Deliberate diversity
Corporate
entrepreneurship and
intrapreneuring

5.18 Two dimensions of innovation search

High rates of R&D investment push technological frontiers even further

technology overshoot

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Firms in a particular field can adopt the same way of framing when they assume
certain rules of the game. These frames correspond to accepted architectures the
way which players see the configuration within which they innovate.
Search behavior is essentially bounded exploration and raises some challenges:
When there is a shift to a new mindset/cognitive frame established players
may have problems because of the reorganization of their thinking which is
required think outside the box.
Bounding process they create a box we need to get out of.
Architectural innovation is easier for new players
There may be incremental innovation to make the new configuration work but
this is not usually new to the world but rather problem solving.

5.19 A map of innovation search space

With this model organizations learn to manage innovation within this space and
construct routines. In mature sectors a characteristic is the dominance of a
particular logic which gives rise to business models of high similarity. This model
represents a dominant logic of trajectory for a sector they are not the only possible
way of framing things. In high-complexity environments with multiple sources of
variety it becomes possible to configure alternative models to reframe the game
and arrive at an alternative architecture.

page 271-274

6.1

No man is an island

A network can be defined as a complex, interconnected group or system, and

networking involves using that arrangement to accomplish particular tasks.
Teamwork is about links between organizations, developing and making use of
increasingly wide networks.
Internal project teams are formal and informal networks of knowledge, often
organized as a team.
Challenge: crossing department borders.
Fluency is the ability to produce ideas; and flexibility is the ability to come up
with different types of idea.
Technological breakthrough all kinds of inputs from the marketing skill set
getting access to finance spend the money wisely.

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6.2

The spaghetti model of innovation

Why greater levels of networking in innovation?

1. Collective efficiency
2. Collective learning
3. Collective risk taking
4. Intersection of different knowledge sets
Rothwells vision of the fifth-generation innovation is essentially the one in
which we now need to operate, with rich and diverse network linkages
accelerated and enabled by intensive set of information and communication
technologies.

6.3

Innovation networks

Networks have been claimed by some to be a new hybrid form of organization

that has the potential to replace both firms (hierarchies) and markets. = virtual
corporation
How can a network influence actions of its members?
1. Through flow and sharing of information within the network.
2. Through differences in the position of actors in the network.
Sources of power: technology, expertise, trust, economic strength and
legitimacy.
Different network perspectives in innovation research
Social
network
focus
Actor
network
focus

Regional and business

groups; communities
of scientists and
engineers
Portfolios of strategic
alliances
Focus on general
innovativeness

Diffusion and
commercialization of
innovations
Networks mobilized
for a specific
innovation
Focus on discrete
innovations

High transaction costs in purchasing technology: network approach/market model

Where uncertainty exist: network approach/full integration or acquisition
A process of information exchange between supplier groups is path-dependent in
the sense that past relationships between actors increase the likelihood of future
relationships, which can lead to inertia and constrain innovation.

System attributes

Unconnected, closed
(1) Incompatible
technologies

Connected, open
(1) Compatible across
vendors and products

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Firm strategies

(2) Customer
components and
interfaces
Control standards by
protecting proprietary
knowledge

Source of advantage

(2) Standard components

Shape standards by
sharing knowledge with
rivals and
complementary markets
Economies of scope,
multiple segments

Economies of scale,
customer lock-in
E.g. Microsoft in
operating systems
Organizational networks have two characteristics that affect the innovation
process:
1. Activity cycle create constraints within a network. The repetition of
transactions is the basis of efficiency, but systemic interdependencies
create constraints to change.
2. Instability.
Zaibatsu is a family based organization.

Keiretsu are the more loosely connected organizations.

(1) Vertical types organizes suppliers and distribution outlets hierarchically
beneath a large, industry-specific manufacturer. E.g. Toyota
(2) Horizontal shows relationships between entities and industries, normally
centered around a bank and trading company.
Benefits of keiretsu include access to low-cost, long-term capital, and access to
the expertise of firms in related industries. This is important for high-technology
firms. Keiretsu is associated with below-average profitability and growth.
Mitsubishi: machinery by Nikon, cars by Mitsubishi motors, food by Kirin
brewery
Mitsui , Sumitomo, DKB (commercial banks), Sanwa
Emergent network emerges and develops as a result of environmental
interdependence and through common interest.
Engineered network requires
some triggering entity to form and develop.
Innovation networks can also have emergent properties - the potential for the
whole to be greater than the sum of its parts. Without such networks its hard to
bring ides successfully to the market.
Another way in which networking can help innovation is in providing support for
shared learning. A lot of process innovation is about configuring and adapting
what has been developed elsewhere and applying it to your process.
Long-lasting innovation networks can create capability to ride out major waves
of change in the technological and economic environment.
Silicon Valley
Entrepreneur-based
Internal project teams
Communities of
practice
Spatial clusters
Sectoral networks

Types of innovation networks:

Sectoral forum
New technology
Emerging standards
development
Supply-chain learning
consortium
New product/process
development
consortium

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6.5

Networks on the inside

Organizations have many people spread across their organizations with all sorts of
knowledge. The trouble is that many of these knowledge elements remain
unconnected.

6.6

Networks on the outside

Principles of open innovation by Chesbrough:

1. Not all the smart people work for you
2. External ideas can help create value, but it takes internal R&D to claim a part of
that value.
3. It is better to build a better business model than to get to the market first.
4. Make the best use of internal and external ideas and you will win.
5. Profit from others use of your intellectual property and buy others IP whenever
it advances your own business model.
6. Expand R&Ds role to include not only knowledge generation, but knowledge
brokering as well.
Case of Procter & Camble:
- Inward-focused approach innovation
- Connect and develop an innovation process based on the principles of
open innovation.

6.7

Learning networks

A learning network is a network formally set up for the primary purpose of increasing
knowledge.
Formally established and defined
Have primary learning target
Have a structure for operation, with boundaries defining participation
Processes which can be mapped on to the learning cycle.
Measurement of learning outcomes: feedback and decision to continue
Co-laboratories, sectoral research organizations, horizontal/vertical
collaboration
Enable learning through: experiment (e.g. R&D), transfer of ideas from outside,
working with different players, reflecting and reviewing previous projects and even
from failures.
Key element shared learning: active participation of others in the process of
challenge and support

6.8

Networks into the unknown

Primary objective
Finding prospective
partners

Type of
barrier
Geographic
al

Technologic
al

Description
Geographical and cultural distance makes
complex opportunities more difficult to
access, and as a result they typically get
discounted.
Discontinuous opportunities often emerge
at the intersection of two technological
domains.

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Institutional
Forming
relationships with
prospective partners

Ideological

Demograph
ic
Ethnic

Zone 1
LEGOs decision to develop its
next-generation Mindstorms
product involved using network
of lead users of the firstgeneration product.
Zone 2
- Scouts and agents play a key
role
Zone 4
BBC Backstage

6.9

Arise because of different objectives or

origins of two groups, such as those dividing
public from private sector.
Not sharing values and norms which can
blind from seeing threats or opportunities
which might arise at the interfaces between
the 2 world views.
Different values and needs of different
demographic groups.
Arise from deep-rooted cultural differences
between countries or regions in the world.

Reluctant 1. Building
to engage
relationships
with you
with unusual
Keen to
engage
with you

partners
1. Creating
new
networks in
proximate
areas

2. Moving
into
uncharted
territory
2. Seeking
out new
networks
in distant
areas

Easy to find

Hard to find

Managing innovation networks

Configuring innovation networks

Important success factors:
Highly diverse
Third-party gatekeepers
Financial leverage
Proactively managed

Learning to manage
innovation networks
How to manage something we dont own or control.
How to see system-level effects not narrow self-interests.
How to build trust and shared risk taking without typing the process up in
contractual red tape.
How to avoid free riders and information spillovers.

9.1

Processes for new product development

Four main types of team structure

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1. Functional structure Traditionally hierarchy structure where communication is
handles by function managers to standard procedures.
2. Lightweight product manager structure traditional hierarchy where a project
manager provides an overarching coordinating structure to the inter-functional
work.
3. Heavyweight product manager structure matrix structure led by a manager
with authority.
4. Project execution teams full-time project team where staff works under project
leader direction

Filter ideas
to
preliminary
investigatio
n

Filter
projects to
business
opportunitie
s

Filter
projects to
product/proc
ess
development

Filter
product to
limited
launch

Filter
products to
international
marketing

Concept generation
Identifying the opportunities for new products and services
Incremental adaptations or product line extensions market pull
Product assessment and selection
Screening and choosing projects which satisfy certain criteria.
Two levels of filtering:
1. Aggregate product plan
1.1
Ensure resources are applied to the appropriate types and mix of projects
1.2
Develop a capacity plan to balance resource and demand
1.3
Analyze the effect of the proposed projects on capabilities to ensure it
meets future demands.
2. Specific product concepts
Development funnel: identify, screen and converge development projects
as they move from idea to commercialization.
Stage-gate system: provides a formal framework for filtering projects on
explicit criteria.
Product development
Translating the selected concepts into a physical product.
Product commercialization
Testing, launching and marketing the new product.
Best criteria for success:
Product advantage
Market knowledge
Clear product definition

Risk assessment
Project organization
Project resources

Proficiency of execution
Top management
support

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Five key practices that contribute to the successful development of blockbuster
products:
1. Commitment of senior management
Functioned as sponsors and toke an active and intimate role.
2. Clear and stable vision
Project pillars are the key requirements. Mission, objectives and leadership clarity.
3. Improvisation
4. Information exchange
Blockbusters development teams are generally cross-functional where communication
is difficult.
5. Collaboration under pressure

9.2

Influence on technology and markets on commercialization

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Strategic marketing: whether or not to enter a new market
Tactical marketing: concerned mainly with the problem of differentiating existing
products and services, and extensions to such products.
High novelty: segmentation, prototyping, market experimentation and industry
experts.
Low novelty: partnering customers, trend extrapolation and segmentation
Many of the standard marketing tools and techniques are of limited utility for the
development and commercialization of novel or complex products. Weaknesses:
Identifying and evaluating novel product characteristics.
Identifying and evaluating new markets or businesses
Promoting the purchase and use of novel products and services.

technologNovelty
y
of

High

Low

9.3

Technological
Complex
New solutions to
Technology &
existing problems markets co-evolve
Differentiated
Architectural
Compete on
Novel
quality and
combinations of
features
existing
technologies
Novelty of
High
Markets

Differentiating products

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

Good value is associated with increased market share.
Product differentiation is associated with profitability.
Low relative costs
Innovation relative quality relative value + brand image market share
Quality function deployment (QFD)
Used to identify opportunities for
product improvement or differentiation,
rather than to solve problems. It is a
useful technique for translating
customer requirements into
development needs, and encourages
communication between engineering,
production and marketing.
Does not work where relations between
technical and marketing groups are a
problem.
Types of users:
1. Must bes
product

Must exist before a potential customer will consider a

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2. One dimensional
between
3. Delighters

9.4

Quantifiable features which allow direct comparison

competing products.
Most subtle means of differentiation, attractive features.

Building architectural products

Architectural products consist of novel combinations of existing technologies that

serve new markets or applications.
Segmenting consumer markets
Utilitarian theories: consumers are rational and make purchasing decisions by
comparing product utility with their requirements. Rational approach states that there
is not influence on buying behavior.
Utilitarian: Problem recognition information search evaluation of alternatives
purchase
Behavioral approaches have greater explanatory power. The balance between rational
and behavioral influences will depend on the level of customer involvement.
Segmenting by: socioeconomic class, life-cycle groupings, lifestyle, psychographic.
Yuppy, Dinky, Yappy, Sitcoms, Skiers
Segmenting business markets
Business customers tend to be better informed than consumers and make more
rational purchasing decisions. They are segmented on the basis of common buying
factors or purchasing processes.
People involved in the process: actual customer/buyer, ultimate users, gatekeeper,
influences.
Benefit segmentation is only practical where such preferences can be related to more
easily observable and measurable customer characteristics.
3-stages segmentation process for identifying new business markets.
1. Functional segmentation: mapping functions against potential applications.
2. Behavioral segmentation to identify potential customers with similar buying
behavior.
Price of service
3. Combine the functional and behavioral segmentation in a single matrix to help
identify potential customers with relevant applications and buying behavior.
Phases of analysis:
1. Cross-functional teams are used to generate new product concepts.
2. These concepts are refined and evaluated, using techniques such as QFD.
3. Parallel prototype development and market research activities are conducted.
Incremental product innovation within an existing platform can either introduce
benefits to existing customers, such as lower price or improved performance, or
additionally attract new users and enter new market niches.

9.5

Commercializing technological products

Technologists are concerned with developing devices. Potential customers but

products, which marketing must create from the devices.
Appraise

Select

Develop

Field Trial

Operate

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Identify
technologies and
evaluate

9.6

On the basis of
the data from
Appraise select
the best
technology

R&D program to Identify field trial Commercialize

develop a route targets, engage the technology
to the
business units, and implement
technology and
execute field
within BP
demonstrate its
demonstration
applicability and
effectiveness

Implementing complex products

A special case in marketing: neither technology nor markets are well defined
and understood.

The nature of complex products

Products consist of a large number of interacting components and subsystems.
Customers evaluate purchasers at the system level, rather than at the component.
Robot manufacturers offer manufacturing solutions rather than stand-alone
robot manipulators.
Links between developers and users
Technical knowledge of customers is greater, but there is a burden on
developers to educate potential users. This requires close links between
developers and users.
Expeditionary marketing is the process that acknowledge that failure might take
place, bit it is a risk worth taking.
Apple didnt identify a specific audience that needed the benefits of a touch
screen computer, they launched a product and caused enough of a buzz
around it through marketing and PR.
Three distinct processes need to be managed, each demanding different linkages:
development, adoption and interfacing. The interface process can be thought of
as consisting of two flows: information flows and resource flows which are negotiates
by developers and adopters.
Two dimensions help determine the most appropriate relationship between
developers and users: the range of different applications for innovation; and the
number of potential users of each application:

Few applications, few users

Few applications, many users

Face-to-face negotiation
Classic marketing case which demands careful
segmentation, but little interaction with users.
Many applications, few users
Multiple stakeholders, skills to avoid optimization
of technology for one group at the expense of
others.
Many applications and different Developers must work with multiple architects of
users
users and aim for the most generic market
possible.
Role of lead users
Lead users can help to co-develop innovations, and are therefore often early adopters
of such innovations. They recognize requirements early, expect high level of benefits,

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develop their own innovations and applications and perceived to be pioneering and
innovative.
Early adopters can provide insights to forecasting the diffusion of innovations.
Research note Beyond lead users: the co-development of innovations
Shift towards a more open, democratized form of innovation driven by networks of
individual users.
Free revealing: users will often freely share their innovations with others.
Adoption of complex products
Adoption involves long-term commitment cost of failure to performs is high
Buying process is lengthy, adoption may lag years behind availability.
1. Performance risk: the extent to which the purchase meets expectations.
2. Psychological risk: associated with how other people in the organization react
to the decision.
If theres a agreement concerning the buying criteria, a process of persuasion and
bargaining is likely to be necessary before any decision can be made. Three factors
that affect the purchase decision:
1. Political and legal environment
2. Organizational structure and tasks
3. Personal roles and responsibilities

9.7

Service innovation

Productivity paradox: disappointing returns to IT investments in services have

resulted in a widespread debate about its causes and potential solutions.
The service sector includes a very wide range and a great diversity of different
activities and businesses, ranging from individual consultants and shopkeepers, to
huge multinational finance firms.
Differences services and goods:
Good tend to be tangible, services are mostly intangible.
Perceptions of performance and quality are more important in services.
Perceptive are affected by:
- Tangible aspects appearance of facilities, equipment and staff
- Responsiveness prompt service and willingness to help
- Competence the ability to perform the service dependably
- Assurance knowledge and courtesy of staff, ability to convey trust and
confidence.
- Empathy
Simultaneity
Storage
Customer contact
Location
Types of service organization for innovation
(1) Client project orientated
Reduces time to market and improves service delivery by focusing on customer
requirements and project managements.

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Structured processes, such as QFD, are used to identify/influence customer

requirements.
Demands achievement of innovation solutions and significant time compression
at the same time.
Knowledge management initiatives to encourage sharing of know-how

Cross functional communications meetings and skills networks, project database,

expert intranet.
Consultancies and technology-based firms
(2) Mechanistic customization
Reduces costs by setting standards and through the involvement of suppliers and
customers.

Standardization is key factor in controlling relationships.

A project is complete when all physical work is completed, all costs relation to
the work have been incurred, and all benefits have been delivered.

(3) Hybrid knowledge sharing

Provides a combination of innovation and efficiency by promoting team work and
knowledge sharing.

People are cross-trained, co-rewarded and organized in groups, which reinforces

team identity.
Group systems are self-contained value knowledge
Able to become experts in developing and delivering products as quasiprofessionals provides advantage of codified knowledge with far less
hierarchical control.
Strong in organization, tools and system integration, lacks formal processes.
Distributed database, templates for process mapping
(4) Integrated innovative
Raises innovation and quality by means of cross-functional groups supported by
groupware and other tools and technology, but this increased coordination raises the
time and cost of service development.
Co-located, cross-functional teams in a flattened hierarchy.
Several common elements:
- Organizational mode of bringing people together.
- Control mechanism, either impersonal (documentation) or interpersonal (colocated teams).
- Shared knowledge and/or technical information base.
- External linkages, e.g. customer, partners, suppliers.
Service delivery is improved by customer focus and project management, and by
knowledge sharing and collaboration in teams. Time to market is reduced by
knowledge sharing and collaboration, and customer focus and project organization,
but cross-functional teams can prolong the process.
Summary:
Where both technologies and markets are relatively mature, the key issue is how to
differentiate a product or service for competing offerings. Tools like quality function
deployment (QFD) are useful. Where existing technologies are applied to new
markets, what we call architectural innovation, the key issue is resegmentation of
markets to identify potential new applications. Where new technologies are applied to

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existing markets, the key issue is to assess the advantage the technology may have
over existing solutions in specific applications, and then identify target users based
on behavioral characteristics. Finally, where both technologies and markets are
complex, the key issue is the relationship between developers and potential users.

Slides
Inventor innovation
Often radically new invention
Individual discovers new product or process, often commercializing it
Predominant till the early 20th century
E.g. Siemens, Daimler, Bosch
Laboratory innovation
Pioneered by the German chemical industry since the 1870s
Predominant till the 1980s
Pooling of experts at a single location the laboratory
Typically improvement of competence
Network innovation
Several firms with different competencies involved
Predominant since the 1990s
Process often called open innovation