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Growth Strategies: Growth Drivers - Innovation and Entrepreneurship
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Growth Strategies: Growth Drivers - Innovation and Entrepreneurship


This is the 5th part of the undergraduate course in Growth Strategies: Growth Drivers - Innovation and Entrepreneurship. Read by Pavel Luksha

This is the 5th part of the undergraduate course in Growth Strategies: Growth Drivers - Innovation and Entrepreneurship. Read by Pavel Luksha

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  • 1. GROWTH STRATEGIES Growth Drivers: Innovation and Entrepreneurship Pavel Olegovich Luksha [email_address]
  • 2. Value proposition and innovation
    • How are innovations and growth related :
      • unsatisfied needs and unnoticed segments
      • hypercompetitive environment and global struggle for consumer’s attention
      • technological and social changes
    • Where do we find innovations : products AND / OR processes ( technologies and management systems )
  • 3. Innovation and new product development
    • Firms can create value through tapping incremental or radical innovations, mostly derived from corporate R&D investment
    • Incremental innovations build on existing knowledge bases and provide small improvements in the current product lines
    • Radical innovations bring about significant technological breakthroughs and create new knowledge and processes
  • 4. Incremental innovations: Балтика
    • Leadership in Russian beer market (38%), one of two Russian brands in top 100 global list (FT)
    • Built a unique brand around its product line in early 1990s
    • Regional expansion late 1990s; expansion into malt production in 2000
    • Produces over 30 brands of beer and 10 non-beer brands. Sales of 2.3 Bln USD (2007), reported modest decline in 2008
  • 5. Incremental innovation: Вимм-Билль-Данн
    • First company to produce packaged juices (1992) and yoghurts (1993) in Russia.
    • Regional expansion in Russia since 1998 (in CIS since 2000)
    • Produces over 1000 dairy products and 150 beverages under brands such as ‘ Домик в деревне ’, ‘J7’, ‘ Агуша ’, ‘ Веселый молочник ’, ‘ Любимый сад ’, ‘ Чудо ягода ’, ‘ Ессентуки ’ etc.
    • Considered to have potential for further expansion through current crisis: 60% product portfolio in low-elasticity products, good cash position to buy minor competitors
  • 6. Some types of incremental innovation
    • Fine-tuning to meet ( changing ) consumers’ tastes / demands
    • Novelty as the way to keep consumers’ attention in highly competitive markets ( e.g. FMCG)
    • Anticipation of trends ( e.g. apparel , perfume )
    • Local adaptations ( local taste , recent event etc. )
  • 7. Global players meeting local tastes
    • McDonald’s ‘localization’: vegetarian McCurry in India , McRice in Indonesia, kosher McShawarma in Israel
    • FritoLays in Thailand: Nori Seaweed Lay
    • KFC in China: top fast food brand due to heavy menu adaptation
  • 8. Addressing regional differences: VF
    • VF: one of the largest apparel companies, owner of jeans brands Wrangler and Lee
      • adjust fabric according to country tastes: e.g. in Latin America consumer prefer more thin and firm fabric
      • intra-country localization : VF identified over 40 consumer types within different US states to localize its products accordingly
  • 9. Unilever’s Axe: timely adaptation of cosmetic line
    • Axe by Unilever
      • Unlimited: used the fame of Crouching Tiger Hidden Dragon and the rising popularity of kung fu movies
      • Vice: used the fame of Morgan Freeman playing in detective movies
    Axe Vice ad
  • 10. AliBaba.Com: a customized solution for Chinese users
    • Website specialized in b2b trade. Primary focus: international traders contacting Chinese manufacturers
    • Complimentary websites: (c2c trade for Chinese users), Alipay (online payments within China)
    • Pushed eBay out of China (23 Mil visitors annually vs global eBay 60 Mil in 2008)
  • 11. Imitation: how this works for the Web
    • Mail.Ru < > Hotmail.Com
    • Vkontakte < > Facebook
    • Odnoklassniki < > Classmates
    • RuTube < > YouTube
    • Liveinternet < > Livejournal
    If this works for the US / Europe, this might work for Russia as well. Pro : idea generation costs are low Contra : the ‘success formula’ is still hard to copy
  • 12. Facebook и Vkontakte: find the 10 differences 200+ Mil users worldwide 30 + Mil users in Russia and Ukraine
  • 13. Russia: business format copycats
    • «Крошка Картошка»: Spud U Like (UK )
    • «Мистер Минутка» ( housekeeping services ): Mr Minit ( UK )
    • «Кофе-Бин», «Кофе-Хауз»: Starbucks ( US )
    • «Тинькофф» restaurants etc.
  • 14. AirAsia
    • First no-frills airline in Asia, based in Malaysia
    • Bought in 2001 as a loss-making company with 11 Mil USD debt for 26 cents, became profitable in one year
    • Grew from 2 to 84 owned planes (+116 ordered)
    • Regional expansion (from 3 to 66 destinations, incl. flights to other continents)
    • Associated businesses: ‘no-frills’ hotels, ‘no-frills’ online financial service
  • 15. Global imitation as local innovation : ‘ Русский стандарт ’
    • Vodka premium brand in 1998:
      • sales over 1 Mil boxes p.a.
      • has 67% market share in premium segment
    • Consumer credit bank in 1999
      • novel approach for the Russian market ( credit + retail )
      • kept market leadership despite weaker starting position (10% in consumer credit market )
    Used McKinsey competencies (knowledge of globally successful solutions )
  • 16. Local imitation of global solutions: get your market fast
    • How to manage hypergrowth ( A . Izosimov , former BeeLine CEO):
    • Put sales at the top
    • Don’t try to be too innovative
    • Standardize structures and processes : McDonald’s as a s case
    • Hypergrowth – highly dynamic growth in ‘empty’ markets :
      • mobile telecom market increase five times between 2002 and 2004 ( penetration leapt from 20% to 80%)
    Source : ( Izosimov, 2008)
  • 17. Imitation in FMCG market: food products
    • Caviar sauce market :
      • ‘ Санта Бремор ’ innovation (2001)
      • Imitated by : ‘ Русское море ’ , ‘ Балтийский берег ’ , ‘ Реста ’ , ‘ Океан ’ etc .
    • Wal-Mart and Target:
      • cheaper imitations of vendor products sold by retailer own brand
  • 18. Imitation : second mover advantage
    • Risks of mistake and possible failure are borne by ‘first mover’ innovator, while imitator copies the solution that is already working
    • There is no ‘tail’ of dissatisfied consumers
    • Global innovation will suit local imitations and adaptations
  • 19. So … why innovate?
    • Organic growth from current operations and incremental innovation is not sufficient for survival in the long term
    • New sources of revenue must be developed
    • Traditional markets and technologies are not sufficient to ensure acceptable growth rates
    • To local imitators: global competitors are already here, and they know better
    Source : ( Leifer et al. 2005)
  • 20. Radical innovations: high impact and high risk
    • By definition, radical innovations have high impact
      • RI change the basis of competition in the market
      • RI are new to the world performance: improve performance 5x/10x or cut cost 30-50% or more
    • Radical innovations are notably more risky (market uncertainty + technological uncertainty + organization & resource uncertainty)
    Source : ( Leifer et al. 2005)
  • 21. DuPont Biomax
    • Polyester material that can be recycled or decomposed, holds up for a period specified
    • A ‘problem child’:
      • prototype in 1988
      • initially targeted P&G (degradable diapers)
      • tried luck with fruit companies (Dole, Chiquita)
      • began sales only in 2000s for European customers concerned with environment safety
    • Due to increasing concerns for clean environment and companies’ commitment, potential is huge
    Biomax product range
  • 22. Managing radical innovations
    • Idea generation: source ideas from within the company through various channels (Intranet…)
    • Opportunity recognition: people tasked at finding ideas + evaluation board
    • Reduce uncertainties so that project can be transitioned into commercialization phase
      • Develop initial applications within current lines of business, or provide technological solutions to known problems, customers, products etc.
      • Resistance within: prove new solutions in demonstration markets to overcome natural resistance of operating units
    Source : ( Leifer et al. 2005)
  • 23. Some of Russia’s radical innovations
    • ‘ Sukhariki’
    • ‘ Kvas’
    • Tetris
    • Finereader
    • ‘ Что? Где? Когда? ’
    • ‘ КВН ’
    • Soyuz space rocket
  • 24. Time for the group project Are Russians really poor in innovating globally, and why?
  • 25. Innovator traps
    • Strategy failures :
      • too high expectation : not every innovation should be radical ( Time Inc.: no new journals for 10+ years )
      • too narrow focus : not only product innovation , but also technology or process innovation ( ‘thirty-two years’ )
    • Process failures :
      • too tight control : innovation process managed as the ongoing business
  • 26. Innovator traps (cont.)
    • Structure failures :
      • too weak links between the innovator division and the ongoing business (Saturn & GM)
      • too weak division integration ( Gillette: toothbrush (OralB), electric appliance ( Braun), battery ( Duracell) )
    • Skill failures :
      • low team stability : min 2 yrs of joint work ( Honeywell: actively promoted team managers )
      • weak leadership ( innovative TravelGear boots by Timberland: blocked by sellers )
      • low communication
  • 27. Innovation and strategic entrepreneurship
    • Innovation is a key outcome firms seek through entrepreneurship and is often the source of competitive success, especially in turbulent, fast-changing environments
    • Innovations in established firms are the results of corporate entrepreneurship, a process whereby an individual or a group in an existing firm creates a new venture or develops a new generation of products
    • Firms engaging into strategic entrepreneurship are prepared to take risks and innovate.
  • 28. Strategic entrepreneurship and innovation: Embraer
    • Has been the only company to make a successful entry into the commercial jet market since 1950s
    • Serves military & corporate segment, as well as minor airlines and emerging markets
    • For the past years, has plowed 6% of revenues into R&D
    • In the late 1990s, decided to invest 1 Bln USD to design a new plane for rapidly growing low-cost airlines
    Embraer EMB120 corporate jet
  • 29. Strategic entrepreneurship: teaching via the Internet
    • TutorVista: private English-speaking tutors in India to teach Western students over the internet for a fee of $100 per month. Premium services include individual Skype talks and chats with teachers
    • Multilingual Center: Spanish lessons with English-speaking Spaniards over the Internet
  • 30. Cisco venture support
    • Leader in network equipment with solutions in IP telephony, optical networking, security, ATMs, wireless technology
    • Prepares potential high-tech entrepreneurs in its (online and offline) Entrepreneur Institute
    • Heavily invests into its own R&D and relies on organic growth, but …
    • Also acts as a venture capitalist backing startups: ‘smart money for high tech ventures’ – Cisco gets involved with resources, market presence, brand, distribution capacity – highly increasing success probability
  • 31. Innovation and entrepreneurship within ecosystems
    • Internet enables new models of alliances and community participation where innovation are driven by ‘ecosystems’
    • The key task of the business is to retain its focal position within the community and serve as efficient infrastructure provider to community participants
    • The focal position is kept by being the central agent that selects, and captures value from, innovations.
  • 32. Threadless: using the leverage of the ecosystem
    • Community around the website where designers can publish new T-shirt designs
    • Designs are rated by community members . Top-rated designs get a limited print every week.
    • Designers get ‘royalties’ if their design is accepted and if there are repeated prints.
    • Online model success allowed to launch a specialized retail network (clicks to bricks model)
  • 33. Google innovation ecosystem Google platform Users Content providers Advertisers Innovators Media companies and individuals 150+ Mil unique users daily Over 1 Mil companies and individuals Enthusiastic programmers , independent software vendors , Google engineers, open-source community
  • 34. Sun Java: open control model
    • Java is the leading platform-independent solution for applications running in Internet, mobile phones, and DVD players, created by Sun Microsystems
    • Development of Java: contribution from users in Java Community Process
    • Sun gradually donated Java to ‘open-source’ community while keeping central position as service and solution provider