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Managing disruptive innovation

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[talk with notes] Disruptive innovation is hard, and constitutes a different set of challenges and risks for all kinds of companies, regardless of size. To increase the likelihood of successful …

[talk with notes] Disruptive innovation is hard, and constitutes a different set of challenges and risks for all kinds of companies, regardless of size. To increase the likelihood of successful outcomes in moving from idea to execution, there are some strategies and lessons learned that Tamara, head of PARC’s global business development and commercial operations, will share. She will also share portfolio management as a framework for managing these challenges especially when you are considering multiple disruptive innovation investments.

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  • 1. “Managing disruptive innovation” – Frontend of Innovation, Boston, 16 May 2011Disruptive innovation is hard, and constitutes a different set of challenges and risks for all kinds ofcompanies, regardless of size. To increase the likelihood of successful outcomes in moving from idea toexecution, there are some strategies and lessons learned that Tamara, head of PARCs global businessdevelopment and commercial operations, will share. She will also share portfolio management as aframework for managing these challenges especially when you are considering multiple disruptiveinnovation investments. 1  
  • 2. Most companies have incremental and next-generation innovation down. There are many bestpractices, infrastructures, and pre-existing tools to manage and ideate towards these goals.But disruptive innovation is incredibly difficult – it’s a very different beast. Yet it’s a necessity forany business that wants to grow: access new markets, create a new line of revenue, or reinventthemselves…Some quick background on why I’m giving this talk – Because PARC is in the business ofdisruptive innovation; it’s our bread and butter. And our own history – from Xerox PARC toPARC, an independent Xerox company is checkered with lessons learned in what happenswhen companies tackle disruptive innovation but do not necessarily have the experience orinfrastructures in place to absorb and execute on it.PARC has identified its “sweet spot” as helping companies disruptively innovate. It’s our valueproposition. I can’t recall how many times I’ve sat across the table from my clients and they’verecounted their Board asking “why didn’t we invent the iphone” [or for that matter, whatever theirindustry’s killer app is]?I’ll draw on some of our experiences in this talk to focus on this type of innovation…       2  
  • 3. This is a common 2x2 matrix with the x axis as existing and new markets and the y axis existingand new technologies.PARC uses a matrix like this to manage its R&D investments (more at http://blogs.parc.com/blog/2011/02/managing-research-as-an-investment-portfolio/).Companies typically know how to innovate in the left side of the matrix… it’s the right side thatpresents challenges.               3  
  • 4. The left side is easier because it involves known expertise, up-to-date infrastructures, and mainly technicalrisks (which domain experts know how to address). Managing this side focuses on increasing sales,margin, and efficiencies in execution, or introducing next generation technologies in known markets.The right side requires an inordinate amount of market focus and analysis. Especially for high-techcompanies where many organizations’ commercial functions are run by technologists.Sometimes we see start ups work through this. For example, they start out with a core technology andadapt the application and/or market as they gain a greater understanding and acquire significant feedback.This is an iterative process and most successful ventures account for this feedback loop.It’s the market focus and understanding that’s key. This is especially important in disruptive innovationwhere there’s a non-existent or nascent market that needs to be explored.The right side is really about the customers, ecosystem, etc. There are three types of risk in managinginnovation – technology, market, and execution. The right side involves much more market and executionrisk. This nuance matters!   4  
  • 5. Even though this conference is called the “Frontend” of innovation, the fact is, we cannot ignoreconsidering the backend at the beginning.Disruptive innovation introduces a whole set of challenges that need to be addressed up front.Many companies are “front-loaded” for bringing in new ideas (dedicated new business divisions, innovationoffices, teams of tech scouts, etc.) but then falter once those ideas are identified and brought in – becausethey do not have the execution infrastructures (budgets, dedicated resources, management shepherding,incentives) in place to help these ideas cross the chasm and face obstacles such as near-term focus, NotInvented Here, etc.For example, when innovating for disruption, your company may face the types of challenges listed above.I want to highlight:*no credibility or customer experience – even at the executive team level!*no channel -- for example, sales, marketing and all other core functions are intimately tied to known, coreproducts and are not set up to handle novel innovations*incomplete information -- how do you know what’s needed in a market you don’t know? 5  
  • 6. But of all these challenges, it’s the lack of information that seems to be key to address in order tounlock new, disruptive innovation opportunities…Or rather, too much information: How does one sort through the myriad of new data anddetermine what’s relevant and important??There’s an abundance of choice. With so many choices, how do you enter the market?The problem is really a lack of clarity…in moving from idea to execution, there are 2 keyelements related to addressing disruptive innovation so you enter in the right place, at the righttime, and with the right investment.These are:     6  
  • 7. (1)  Determining the MVP shapes WHAT to enter a market with.(2)  Developing the value chain shapes WHERE to enter the market.…Because they shape your strategy for how to address a disruptive innovation opportunity.If you think of the components of a business plan:Market opportunityValue propositionCompetitionResearch roadmapResources requirementsRisk assessment and mitigationIP strategyFinancialsAll of these are heavily influenced by the details of your offering and how you’ll take it to market.Let’s take a look at these two in a bit more detail… 7  
  • 8. So you need to figure out WHAT you’re going to enter market with – defining the product involves figuring out:-- what does the market need?-- what features should your offering have? (often disruptive technologies enter as a niche play with limited features or a key feature that may not be relevant for a later main stream market)-- how should it perform?-- what’s the required prototype or proof-of-concept for engaging with potential investors and/or customers?-- how to maximize ROIThe analysis that happens here will also hint at whether you have the timing right – something which we’re very intimate with at PARC.HOWEVER, this is not a simple needs-and-requirements analysis exercise, because if you get this wrong you are at risk of over- or under-investing/pricing, not creating a truly differentiated product, of creating a market and value chain but nota central role for yourself.The important nuance or filter here is what is the MINIMUM feature/performance/embodiment that customers will pay for? (This is not just about the differentiation.) Determining this enables you to engage with the market with the least amountof risk and time to learn and fine-tune the product-market fit. 8  
  • 9. Nascent markets require a careful analysis of the ecosystem, because “nascent” by definition involves an emerging picture or landscape.In this situation, at first glance you can maybe see some of the key players within it peeking out above the fog… but you need toENGAGE THE ECOSYSTEM to really figure out its contours, players, desired endgame, where and how to build the appropriate valuechain within it.“Defogging” this means will enable you to go in at the right place, with the right funding, at the right time… but you must be flexible enoughto adapt your approach so once the fog lifts, you’re able to fill in the action plan for moving from idea to execution.So how do you do it? Some tactics include attending trade events/conferences, getting to know your customer’s customer, engagingexperts…The end result of this analysis should be a flexibly defined value chain with prospective partners.   9  
  • 10. One more note on the value chain:In figuring out WHERE you’re going to stake your claim along this value chain – you need toexamine your strengths, as well as your weaknesses and gaps that can be filled by others.Determine what are you willing to give up in order to decrease your execution risk andpotentially increase the size of the pie.       10  
  • 11. How could PARC commercialize opportunities here, given its core/foundational investment, decade of investment in PE research? Where(value chain) would we enter, and with what (MVP)?Nascent market or non-existent market. Just the world’s vision of what would be enabled with printed, flexible electronics.We first engaged through materials testing and characterization when potential players were still in exploration mode. We were prettysuccessful.Engaged a consultant (conferences…) and after thorough analysis it seemed like it made sense to move up the value chain and decidedto focus on prototyping services.Within a year (and the fall of an iconic company in the space), we soon realized that the market didn’t need prototyping services whenthere wasn’t yet a killer app! [The display application didn’t take off. Amorphous silica was too powerful. Companies were lulled into thepromise of form factor and the leading technology was the display. The fall was that the integration of information, applications, andbusiness model – and it wasn’t clear that PE could be manufactured at high production requirements.]After analyzing the ecosystem, which had a number of small players commercializing products in niche markets, decided to play a“connector” role in the ecosystem, assembling a value chain from materials to devices to applications. Our role was early-stage research,but big companies – our ultimate desired customers – kept telling us, “we need all of you players to talk to each other”…So we used government funding to build prototypes (sensor project), worked with materials companies (e.g., Polyera to get them helpcreate new materials that could meet performance requirements for these novel form factors and applications); created partnerships withcomponent manufacturers (e.g., Thinfilm, for memory) as well as production experts (e.g., Soligie, who could help scale up to volumeproduction any potential applications).What we gave up.What we gained – ability to connect and help assemble the value chain for PE. Still seeking its killer app, but creating chain beforehandmeans players are perfectly positioned to reap benefits and create value for others.Takeaways:1.  Flexibility to change course once information is gained (ie., from consultant). Listening at events (ie., potential customers). Don’t suffer N=1 problem!2. Role of architect as key; gained credibility through partnerships; be prepared to redefine your role in the value chain.3. And guess what, the first apps are toys! Talk about MVP! 11  
  • 12. PARC had networking competency, core legacy (we invented the Ethernet, were involved with ipv etc.) – so we asked, what next?Identified a vision for next-gen networking we could invest in, and a visionary expert to shepherd this future. The technology is Content-centric Networking (orCCN), an architectural change to the internet where information would be found by “what” not “where”. The new platform adds speed, security, agility, andresilience to mobile devices. Sits on top of TCP/IP.I mentioned engaging experts earlier as one way to “defog” the ecosystem so you can identify where and how to build the value chain. But I think it’s important toclarify here that by expert I don’t just mean a domain specialist, but someone who has a vision, a network, credibility, is an influencer, can lead, etc.In this case, that expert is Van Jacobson. He was the CSO of Cisco, and was frustrated that he was unable to find avenues to address his vision.When we first realized what we had, it was like owning a copper mine and trying to decide what to make. To explore we aggressively and widely engaged theecosystem and community:-Engaging ecosystem to identify needs and opportunities. Found partners willing to invest in the vision by co-developing technology with us.-Released open source to build community and garner feedback.-Also led to our being awarded NSF contract (with others) for NDN.A year later we were able to better understand the lay of the land (Named Data Networking gaining traction); key players acknowledge internet is broken and arewilling to do something about it.We were able to build an R&D roadmap and commercial roadmap that were synergistic. We understood that we needed to tackle the landscape from theperiphery to the core, building islands of networks much the same way the internet was adopted.Takeaways:1. True commitment is required.-- Before we were able to articulate the business plan and model, we had to commit to the vision and build critical skills and invest in the analysis. (We knew itwas a big deal.)--Both our customer had to take a leap of faith, as did we, since we were investing a significant portion of our internal R&D into this vision as well.2. Critical mass.--Created through open source, then NSF collaborators and industry visionaries….as well as our own internal experts.3. Engaging the ecosystem early--Our first client asked, how will all the stakeholders in the value chain profit … in other words, will this be widely adopted. We had what the value proposition wasfor our visionary platform across the ecosystem.More about CCN at: http://blogs.parc.com/blog/2010/11/ccn-now-supports-android/ 12  
  • 13. A portfolio approach is necessary to minimize risk and maximize return.We talked about ways to mitigate and reduce risk by exploring MVP and value chain/ecosystemsof emerging markets. It’s important to take a step back and take a holistic view of your entireR&D investments.This approach has helped give us a view of our leverage in market/execution risky investmentsand to take approaches to manage these appropriately. (We manage these investments verydifferently at PARC.)It helps us to offset these investments with Core and Next Gen opportunities.It allows you to stay in business through diversification and the ability to manage yourinvestment profile to match the health (wealth) of your company.More about portfolio management at: http://blogs.parc.com/blog/2011/02/managing-research-as-an-investment-portfolio/ 13  
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