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  • 1. Innovation Benefits Realization Management for ImplementingBLUE OCEAN STRATEGY 5 Phase-Gates For Managing Innovation From Formulation to Implementation By Dr. Iain Sanders, Design for Innovation, New Zealand 1
  • 2. By way of introduction…• This is part-1 of a 5 part series on - Innovation Benefits Realization:1. Innovation Benefits Realization Management: Blue Ocean Strategy2. Innovation Benefits Realization: 7 Levels to Manage3. Innovation Benefits Realization: Ideation TRIZ4. Innovation Benefits Realization: Managing Complexity5. New Product Development Process: NZTE Workshop(The other parts can be viewed here:http://www.designforinnovation.com/portfolio.html) 2
  • 3. Design for Innovation What is Blue Ocean Strategy (BOS)?• BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).• BOS is the simultaneous pursuit of differentiation and low cost.• The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant.• While innovation has been seen as a random/experimental process where entrepreneurs and spin-offs are the primary drivers: – BOS offers systematic and reproducible methodologies and processes in pursuit of innovation by both new and existing firms. 3
  • 4. Design for Innovation Blue Ocean Strategy Imperative• Prospects in most established market spaces (red oceans) are shrinking steadily.• Technological advances have substantially improved industrial productivity, permitting suppliers to produce an unprecedented array of products and services.• And as trade barriers between nations and regions fall and information on products and prices becomes instantly and globally available, niche markets and monopoly havens are continuing to disappear.• At the same time, there is little evidence of any increase in demand, at least in the developed markets, where recent United Nations statistics even point to declining populations… 4
  • 5. Emerging economies have developed the They have access business to virtually limitless development resources… capabilities ofOECD economies… An endless streamA bottomless pool of hungry,of cheap labour… motivated and skilled workers Thanks to Low Cost Differentiation! 5
  • 6. idea creation & management, product innovation & development, business process improvements Value-Creation random arrays of internal business opportunities Barometer driven by project / business requirementsNo training and leadership to formulate and 6implement blue ocean strategy…
  • 7. “Systematic value capture,Value-Creation evaluation and development” Barometer Internally managed and developed product development process Connections enable continuous innovationSome training and leadership to formulate and 7implement blue ocean strategy…
  • 8. “Leadership-driven Value Creation”Value-Creation Internally and externally managed and developed Barometer product innovation and development process These people drive the creation of new ventures and spin-outs, JVs etc. (True entrepreneurs) Cluster activities are driven by strong leadershipSignificant training and leadership to formulate 8and implement blue ocean strategy…
  • 9. BUSINESS ASSET-CREATING NETWORKS “Systematic Value Capture-Creation for New Ventures”Value-Creation Internally and externally adaptable and evolving value Barometer capture-creation: new ventures initiated anywhere at anytime New Asset Cluster New Venture Blue Ocean Creation Strategy Network-venturing Formulation & brokers are the key Implementation to creating endless is the Norm possibilities in an innovative climate! Network-venturing among business asset 9 clusters to create new kinds of assets, faster
  • 10. Design for InnovationTechnology InnovationTypology of Technological Innovations at the Enterprise Level High Strategic Systemic Innovation Continuous Degree Incremental of Innovation Management Radical Innovation Unplanned Improvements Low Degree of Leadership and Low High Contribution to Competitiveness AGILE INNOVATION FOR SUSTAINABLE COMPETITIVE ADVANTAGE 10
  • 11. Moving With Speed: Agility Opportunity-driven Business Development Fast Fast Fast Sustaining thinking decision- to speed making market Forecasting &  Setting rules  Launching a  Simplicity road-mapping crusade  Getting rid of  Boundarylessness Anticipating bureaucracy  Owning competitive  Self-confidence & Spotting trends  Shuffling advantage growth attitude portfolios Brainstorming  Getting suppliers  Financial flexibility  Unpacking move fast Putting every proposals  Business Process idea through the  Staying beneath Mgmt System “grinder”  Constantly the radar reassessing  Managing creativity Letting the best  Institutionalizing idea win innovation  Staying close to theAdapted from customer 11“It’s not be big that eat the small…It’s the fast that eats the slow”, J.Jennings & L.Haughton
  • 12. Survival vs. Market Leadership Strategies Design for Innovation Entry ticket to the SURVIVAL STRATEGY LEADERSHIP STRATEGY competition game Staying alive Targeting market leadership Winning and Retaining Customers Creating higher customerCustomer Value Low cost/benefit ratio value Differentiation andMarketing Strategy Mass marketing positioningCustomer Satisfaction Customer service Customer intimacy New attributes & Line New product categories &Product Innovation extensions New brands Building Your Competitive Advantage Building distinctiveStrategic Growth Focus Building resources capabilities D4IInnovation Linear SystemicTechnology Innovation Incremental Radical FOCUSProcess Innovation Functional improvements Enterprise-wide BPM Perfecting traditional Creating new adaptableBusiness Innovation 12 business model business models
  • 13. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain DomainStrategy Formulation & Implementation 13
  • 14. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain DomainStrategy Formulation & Implementation 14
  • 15. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain DomainStrategy Formulation & Implementation 15
  • 16. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain DomainStrategy Formulation & Implementation 16
  • 17. Strategic Alignment of BusinessPriorities with Opportunities 2. What can we use? (Relevant Context: Customer Needs) 1. Where are we going? (External Perspective: Market Scenarios) 3. How do we use it? (Formulate Strategy: Identify & Evaluate Opportunities) 17
  • 18. Design for Innovation5 Phase-Gates to Manage:1. Where are we Going?2. What can we Use Now?3. Create New Possibilities.4. Select Best Possibilities.5. Take Appropriate Action. 18
  • 19. Design for Innovation1. Where are we Going? Gate-Check Focus: Benefits Identification 19
  • 20. How do we compete more effectively? Existing Value New Value New Expand into Diversify and Context new markets expand into or applications new markets Existing Maintain Diversify and Context current deepen existing strategy relationshipsWhat is our key value proposition? 20
  • 21. Product-Market Matrix: Current Market New Market New Product Product Diversification Development Current Market Market Product Penetration Development 21
  • 22. Product-Market Matrix: Current Market New Market Make new product This strategy chosen in offers more effectively conjunction with one or and inexpensively to more of the others or existing customers when a crisis has been rather than to new recognized ones New Product Product Diversification Development Current Market Market Product Penetration Development Well-developed products introduced De facto strategy: into new markets to change nothing and sell extend value: ideal more of the same to when little existing customers and modification required & extend customer base room for growth in original market is22 restricted
  • 23. Green Mountain Coffee Roasters Strategy Current Market New Market Phase 3: New Sell Product Complimentary Products Phase 2: Current Phase 1: Expand Base via Product Sell to Catalogue, Viral Core Market Marketing 23
  • 24. Product-Customer Matrix: Old Customers New Customers New Define new Approach with Product components and caution solution needs Increase Market and reach Old marketing new customers, Product intensity and improve awareness scalability 24
  • 25. Product-Customer Matrix: Old Customers New Customers New Define new Approach with Product components and caution solution needs Move transaction services horizontally Increase Market and reach Old marketing new customers, Product intensity and improve awareness scalability Develop new emerging “retail” customers 25
  • 26. Product-Customer Matrix: Old Customers New Customers Better solution architectures, New devices, broader control partnered products of customer network New Define new Approach with Product components and caution solution needs Move transaction services horizontally Increase Market and reach Old marketing new customers, Product intensity and improve awareness scalability Develop new emerging “retail” customers 26
  • 27. Charting the Future• FUTURE SCENARIOS – What will the ECONOMIC ENVIRONMENT look like in X years? – What will the POLITICAL ENVIRONMENT look like in X years? – What will the REGULATORY & LEGISLATIVE ENVIRONMENT look like in X years? – What will the DEMOGRAPHIC & SOCIAL ENVIRONMENT look like in X years? – What will the MARKETS look like in X years? – What will CUSTOMER / USER PROFILES & HABITS look like in X years? – What will the COMPETITIVE ENVIRONMENT look like in X years? – What will the next two to three GENERATIONS OF TECHNOLOGY look like in X years? – What FEATURES & CONTENT will PRODUCTS have in the next X years? – What will MANUFACTURING PROCESSES & CAPABILITIES look like in X years? – What will SALES / MARKETING METHODS look like in X years? – What will DELIVERY / DISTRIBUTION METHODS & SYSTEMS look like in X years? – What will HUMAN, FINANCIAL, & NATURAL RESOURCES look like in X years? 27
  • 28. PULL or PUSH Economy?• PULL ECONOMY • PUSH ECONOMY – SUPPLY VS. DEMAND – DEMAND VS. SUPPLY – CUSTOMER-DRIVEN – PRODUCER-DRIVEN – MARKET FRAGMENTATION – MARKET SEGMENTATION – SMALLER NUMBERS OF CUSTOMERS, DISSIMILAR – LARGE NUMBERS OF NEEDS CUSTOMERS, SIMILAR – TAILORED PRODUCTS NEEDS – PREMIUM PRICES – GENERIC PRODUCT – SHORTER PRODUCTION – COMMODITY PRICES RUNS – LONG PRODUCTION RUNS – FLEXIBLE, EFFECTIVE – EFFICIENT MANUFACTURING MANUFACTURING – SHORTER PRODUCT CYCLES – LONG PRODUCT CYCLES – LITTLE BRAND LOYALTY – STRONG BRAND LOYALTY – PROCESS INNOVATION – PRODUCT INNOVATION – CHANGING RULES – FAST & NIMBLE – FIXED RULES – STURDY & STABLE 28
  • 29. Quantify Opportunities: Served Customers Unserved CustomersUnarticulated Unexploited Unexploited Needs Opportunities Opportunities Articulated Exploited Unexploited Needs Opportunities Opportunities 29
  • 30. Quantify Opportunities: Served Customers Unserved Customers Unarticulated-Served Unarticulated- Customers: potential Unserved Customers: for satisfied customers proactive and visionary to become frustrated companies like Honda or uninterested if seek to get inside he unexpressed but felt heads & experiences of needs not addressed unaddressed customersUnarticulated Unexploited Unexploited Needs Opportunities Opportunities Articulated Exploited Unexploited Needs Opportunities Opportunities Articulated-Unserved Customers: offerings Articulated-Served developed & perfected Customers: known for existing customers world of customer extended to new needs customers in different markets 30
  • 31. Design for InnovationBlue Ocean Strategy in Action• To reconstruct buyer value elements in crafting a new value curve, a Four Actions Framework is used.• To break the trade-off between product / service differentiation and low cost, and to create a new value curve, four key questions are used to challenge an industrys strategic logic and business model: 31
  • 32. Design for InnovationFour Key Questions to ChallengeStrategic Logic and Business Model:• Which of the factors that the industry takes for granted should be eliminated ?• Which factors should be reduced well below the industrys standard?• Which factors should be raised well above the industrys standard?• Which factors should be created that the industry has never offered? 32
  • 33. Where are we going? Existing Industrial Changing Industrial Standards Standards Reduce / Over-shot Change Eliminate Customers Consumers Factors Raise / Under-shot Create Nonconsumers Customers Factors 33
  • 34. Where are we going? Existing Industrial Changing Industrial Standards Standards Which factors Which factors that should be reduced the industry takes well below the for granted should industry’s be eliminated? standard? Reduce / Over-shot Change Eliminate Customers Consumers Factors Raise / Under-shot Create Nonconsumers Customers Factors Which factors Which factors should be raised should be created well above the that the industry industry’s has never offered? standard? 34
  • 35. Wine Example Existing Industrial Changing Industrial Standards Standards Reduce: Eliminate: Reduce / -Oenological terminology -Wine complexity Eliminate -Wine range & distinctions Factors -Aging qualities -Vineyard prestige -Above-the-line marketing Raise / Raise: Create: -Easy drinking Create -Price vs. budget wines -Ease of selection Factors -Retail store involvement -Fun & adventure 35
  • 36. Cirque du Soleil Example Existing Industrial Changing Industrial Standards Standards Eliminate: Reduce / Reduce: -Star performers Eliminate -Fun & humour -Animal shows Factors -Thrill & danger -Aisle concession sales -Multiple show arenas Raise / Create: -Theme Create Raise: -Refined environment -Unique venue Factors -Multiple productions -Artistic music & dance 36
  • 37. Market Entry / Growth ScenariosSCENARIO 1 SCENARIO 2 SCENARIO 3Non-consumers converted via cost, Non-market legal barriers or Business models exploit non-marketaccess or education distortions overcome or bypassed regulatory barriers without addressing economic constraintsExample: telephone replacing Example: Wireless bypasses telecomtelegraph, wireless replacing cable monopoly access to customers Example: Revolving loans for bundled Renewable Energy options address reliability requirements but not economies of scale constraintsSCENARIO 4 SCENARIO 5 SCENARIO 6Non-market forces will not remove Non-market forces will not overcome New business models emerge totechnological interdependence lack of industrial motivation or serve least demanding overshot ability customersExample: Broadband ISPs dependenton telecom landline access Example: Artificial price-fixing at Example: Advertising revenue model petrol pump for free Google softwareSCENARIO 7 SCENARIO 8 SCENARIO 9Specialists entering and displacing Standards or rules allow different Sustaining new, and/or improvedintegrated players for overshot providers to meet min. requirements products and services for undershotcustomers of overshot customer segments customers: integrators thrive, specialists struggleExample: DataCol meter reading Example: Parallel imports of solarservices for electric utilities hot water systems, synthetic Example: Windows operating system substitutes and other appliances 37
  • 38. Signals of Change1. What jobs are customers in the industry trying to get done? Are customers not served, undershot, or overshot by current offerings? Along which dimensions do firms compete for customers?2. What improvements garnered premium prices in the past?3. Do integrated or specialized business models currently prevail? Are interfaces specifiable, verifiable, and predictable? If so, where is modularity occurring?4. Where are new business models emerging? Is there growth in fringe markets?5. What role does the government or its regulatory bodies play in enhancing or inhibiting innovation?38
  • 39. Competitive Battles1. What are industry players’ business models? What are their motivations? What are their skills?2. How do industry players compare to one another? How do they compare to the needs of the market? Where are there symmetries? Where are there asymmetries?3. Do the asymmetries tilt in favour of the attacker or the incumbent?4. Does the innovation naturally fit its target market? Is there evidence of cramming (forced fit)?5. Are there signs that a company is ceding a low-end market and trying to move up? Is there an “up” to move to? For how long? 39
  • 40. Strategic Choices1. Is a company in a situation in which the right strategy needs to emerge? Is the firm giving itself the freedom to encourage emergent forces? Have managers wrestled with problems they are likely to face again? Have they shown the capacity to learn?2. Are investor values aligned with company needs? If the investor is a corporation, has growth stalled?3. Do value networks overlap? If they do, what are the degrees of overlap? Do they make it impossible to create a business model that has asymmetries?4. Is this an appropriate situation for a spinout? Is the company giving the spinout the freedom to do what is necessary? 40
  • 41. Design for InnovationCreating the Future• “The best way to manage the future? Create it!” – The best competitive position to be in is to have no competition • This position can only be achieved by NOT playing the way your competition plays the game but rather by controlling the game, by creating products and services that change the rules in your favour. 41
  • 42. Design for InnovationHow to Create the Future Use a framework that classifies best-practice business processes for identifying, developing and retaining customers The first-level processes in this framework for identifying best- practice business opportunities, define a company‟s basic operations, such as: 1. Understand markets and customers 2. Involve customers in the design of products and services 3. Market and sell products and services 4. Involve customers in the delivery of products and services. 5. Provide customer service 6. Manage customer information Supporting these basic operations, management and support processes maximize the value and use of human resources, information and technology, and financial and physical resources, to name a few 42
  • 43. Design for Innovation Set Strategic Direction• Which way is the business heading? 1. What (if anything) gives this business distinctiveness? 2. What skills does this business currently have that are better than those of the competition? Can this advantage be sustained for a period of more than a few years? 3. How is this organization generally regarded in the industry or by outside experts? How do outsiders see the businesss strategy? What do they think about it? 4. What are this organizations strengths in creating a high performing business? 5. What are the biggest roadblocks to this business becoming a high performing business? 6. What does the business do? Why? 7. What does it not do? Why not? 8. Who are its customers / Who are not its customers? 9. What are its products / What are not its products? 10. What are its markets / What are not its markets? 11. Why is the business in this business & not another? 12. Why is the business focusing on these customers & not others? Why is it providing these services (or making these products) & not others? 13. Does this business have more than one strategy? 43
  • 44. Design for InnovationSet Strategic Direction• BUSINESS STRATEGY ISSUES 1. VISION, VALUES, PURPOSE 2. OVERALL DIRECTION 3. DESIRED OUTCOMES 4. LONG TERM OBJECTIVES 5. STRATEGY TO ACHIEVE OBJECTIVES• IDENTIFYING BUSINESS STRATEGY ISSUES – Identify 7 business strategy issues that need to be addressed in your business plan, examining: A. Strategic Issue B. Impact C. Action Required 44
  • 45. 45
  • 46. Design for Innovation Establish Clear Objectives• What is the business trying to achieve in the near future? – STRATEGIC 1. Has the business developed clear & formal objectives for the long-term as well as the immediate future? 2. Are those objectives quantified in terms of rate & return, growth, market share, product or service development? 3. Does the business know at what stage in their life cycles its products currently are? 4. Does the business consider the following in its development of strategic objectives:  Economic conditions, including the effects of inflation?  Political conditions?  Labour requirements?  Capital requirements?  Tax implications?  Production capacity? 5. Have the strategic objectives been embodied in a formalized financial plan looking a number of years ahead? 6. Are the objectives & plans reviewed regularly & is the actual performance monitored against the plan? 46
  • 47. Design for Innovation Establish Clear Objectives• What is the business trying to achieve in the near future? – OPERATIONAL 7. Is the role to be played by each individual Advisor in achieving the plan clearly identified? 8. Have the Advisors developed their own business plans? 9. Is the business planning to expand in the coming year into a new:  MARKET?  SERVICE?  CUSTOMER BASE? 47
  • 48. Design for InnovationEstablish Clear Objectives• DEVELOP CLEAR OBJECTIVES & PLANS – S: SPECIFIC – M: MEASURABLE – A: ATTAINABLE – R: REASONABLE & RESOURCED – T: TIME BOUND• KEY STRATEGIC OBJECTIVES – Identify 7 key strategic objectives for your business, the desired outcome, & how it can be measured, examining: • STRATEGIC OBJECTIVE • OUTCOME • HOW MEASURED 48
  • 49. 49
  • 50. Design for InnovationDevelop Marketing Strategy• What market is the business in, & who are its customers? 1. Does our current marketing strategy give us the share of the local market we might expect? 2. What kind of demand is there for our products & services? 3. Will our strategy provide us with a sustainable competitive advantage? 4. Will this marketing strategy help us accomplish our business objectives? 5. What kind of future opportunity is there if the business objectives are achieved? 6. What are the vulnerabilities of this strategy? 7. Is this strategy consistent with the environment & changing 8. How does this strategy fare in future mapping or scenario analysis? 50
  • 51. Design for InnovationDevelop Marketing Strategy• DEVELOP MARKETING STRATEGY 1. DEFINING YOUR MARKET 2. IDENTIFYING TYPES OF CUSTOMERS 3. COMPETITORS 4. MARKETING STRATEGY 5. PRODUCTS & SERVICES 6. CUSTOMER SERVICE• MARKET SEGMENTATION – Identify the 7 key market segments for your business, identify their future potential & what action is required: A. SEGMENT B. NUMBER OF CUSTOMERS PER MONTH C. AVERAGE SPEND D. ON WHAT? E. POTENTIAL FOR DEVELOPMENT (HIGH, MEDIUM, LOW) F. HOW TO DEVELOP 51
  • 52. Design for Innovation2. What can we Use Now? Gate-Check Focus: Benefits Qualification 52
  • 53. Customer Value Map Matrix: Low Customer- High Customer- perceived perceived quality qualityHigh Customer- Worse Customerperceived price Unique Value ValueLow Customer- Better Customerperceived price Commodity Value Value 53
  • 54. Customer Value Map Matrix: Low Customer- High Customer- Upscale goods and Customer preferences perceived perceived services that offer shift in economic quality quality unique value. Examples downturns, higher- include: high-margin priced products often products such as find themselves in this custom jewelry for position which close substitutes not availableHigh Customer- Worse Customerperceived price Unique Value ValueLow Customer- Better Customerperceived price Commodity Value Value Products perceived as Goods are commodities value leaders; costs are with little competitive, and the differentiation between products possess the vendors, resulting in quality attributes that products selling on customers value most price highly 54
  • 55. Levi Jeans Example Low Customer- High Customer- perceived perceived quality qualityHigh Customer- Worse Customer Normal Customerperceived price Value ValueLow Customer- Normal Customer Better Customerperceived price Value Value 55
  • 56. Levi Jeans Example Low Customer- High Customer- perceived perceived quality quality Competitor 1High Customer- Worse Customerperceived price Value Levi’s Competitor 2Low Customer- Better Customerperceived price Value Competitor 3 56
  • 57. Design for InnovationHow to Create the Future Use a framework that classifies best-practice business processes for identifying, developing and retaining customers The first-level processes in this framework for identifying best- practice business opportunities, define a company‟s basic operations, such as: 1. Understand markets and customers 2. Involve customers in the design of products and services 3. Market and sell products and services 4. Involve customers in the delivery of products and services. 5. Provide customer service 6. Manage customer information Supporting these basic operations, management and support processes maximize the value and use of human resources, information and technology, and financial and physical resources, to name a few 57
  • 58. SWOT Matrix: Internal Internal Environment Environment Strengths Weaknesses External Environment Confront Avoid or Prepare Threats ExternalEnvironment Exploit SearchOpportunities 58
  • 59. SWOT Matrix: Internal Internal Threat matched with Environment Environment weakness. Some threats Threat is matched with Strengths Weaknesses avoidable, and others are organizational strength – not. Confronting mobilize to limit and competitive threats with control the looming weakness is not only danger dangerous but drains resources External Environment Confront Avoid or Prepare Threats ExternalEnvironment Exploit SearchOpportunities Opportunity is matched Opportunity is matched with weakness. with strength. Business’s Opportunities exist that growing edge – where it the organization can can capitalize on areas of recognize but is not strategic advantage equipped to tackle 59
  • 60. Generic Strategy Matrix: Lower Cost for Differentiate for Competitive Competitive Advantage AdvantageBroad Target for Competitive Cost Leadership Differentiation Scope Narrow Target Differentiationfor Competitive Cost Focus Focus Scope 60
  • 61. Generic Strategy Matrix: Lower Cost for Differentiate for Deliver some unique Competitive Competitive form of value that Achieving the lowest Advantage Advantage customers recognize costs in an industry and appreciate, while maintaining an developing or acceptable level of exploiting talents and quality resources that set the company’s offer apartBroad Target for Competitive Cost Leadership Differentiation Scope Narrow Target Differentiationfor Competitive Cost Focus Focus Scope Take advantage of the unique needs of a Added value within a segment of an industry small segment of a that is difficult or market rather than uneconomical for the across the entire broad cost supplier to market service adequately 61
  • 62. Means and Ends Matrix: Incompatible Compatible Ends Ends Compatible Means Coalition CooperationIncompatible Means Conflict Competition 62
  • 63. Means and Ends Matrix: Incompatible Compatible Deliver some unique Ends Ends form of value that Formed by competitors customers recognize to address common, and appreciate, usually short-term developing or problems or exploiting talents and adversaries resources that set the company’s offer apart Compatible Means Coalition CooperationIncompatible Means Conflict Competition Companies within an industry compete Situations become against each other for increasingly polarized, customers yet share resulting in zero-sum, the need to educate the win-lose outcomes public about their collective value 63 proposition
  • 64. Design for InnovationHow to Create the Future The sub-processes (second-level processes) supporting the first-level processes are as follows: 1. Understand markets and customers: i. Understand the market environment ii. Understand customers‟ wants and needs iii. Segment customers 2. Involve customers in the design of products and services: i. Develop new concepts and plans for products and services ii. Design, build, and evaluate prototypes iii. Refine and customize products or services, then test their effectiveness 3. Market and sell products and services: i. Secure channels of distribution ii. Establish pricing iii. Develop advertising and promotion strategies iv. Develop and deploy a sales force v. Process orders vi. Develop customers 64
  • 65. Design for InnovationHow to Create the Future The sub-processes (second-level processes) supporting the first-level processes are as follows (continued): 4. Involve customers in the delivery of products and services: i. Offer broad delivery options to become the „supplier of choice‟ ii. Use delivery customization to attract and retain core customers iii. Identify customers‟ delivery needs iv. Develop distribution capability 5. Provide customer service: i. Establish „points-of-contact‟ excellence ii. Build cross-functional „points-of-contact‟ cooperation iii. Train employees to improve customers‟ expectations for products and services 6. Manage customer information: i. Build customer profiles ii. Establish service information iii. Measure customer performance and satisfaction 65
  • 66. Design for InnovationHow to Create the Future customers:1. Best-practice agenda for understanding markets and  Understand that the market is more than just the customer. In its broadest sense, the market environment includes the company‟s supply chain and merchant partners as well as intermediary customers and end users. A company‟s understanding of government regulations, trends in consumer purchasing, and unpredictable events can dramatically affect its production and relationship with customers  Systematically create an image of the company‟s value chain, from suppliers to end users. Prominently displayed, this diagram serves to inform all employees how they fit into the market environment as well as how other stakeholders with whom they deal (customers, suppliers, and so forth) also fit into the market environment  Survey your customers frequently, systematically, directly, and personally. Review the surveys and then share them with the people in our organization who need to know what those customers have to say. Responding personally to every survey, for example, should provide the norm for executive behavior. If you don‟t have time to respond personally, make sure someone in your company does  Revise your products or services as customers request or tell them why they can‟t have it their way. Promote the new version and resurvey customers to assess their satisfaction. Survey every customer, for example, and require every employee linked to that customer to read and respond to those comments. Requests for new products and services can lead to expanded offerings and even new companies being launched  Segment customers so that you can meet demands more directly and profitably. Establish the criteria by which customers should be grouped (by age, income, credit history, purchases, demographic factors, and so forth), then offer products and services tailored to those segments. When appropriate, partner with merchants and suppliers to create greater value for customers 66
  • 67. Design for InnovationHow to Create the Future1. Top ten best-practice diagnostic questions for understanding markets and customers: 1. Can you describe in detail all the major suppliers in your company‟s value chain and list substitute suppliers who could provide raw materials and component parts in an emergency? Do you need a week‟s review to do so? (You won‟t have a week if a fire destroys a supplier‟s production plant.) 2. How often do you survey your customers? Once a month? Once a year? Once a millennium? 3. Which customers do you choose to survey? Only those who call you first? 4. How good is your process for responding to customer concerns expressed in surveys? 5. What quick, tangible rewards do you offer customers who take the time to complete one of your surveys or requests for information? 6. What external sources other than surveys do you typically use to gather information about your customers? About competitors? About suppliers? About trends in the marketplace? 7. What other internal sources do you use to collect this information? 8. List five (or more) segmentations that your company currently uses. Can you explain succinctly the benefits it realizes from grouping customers as it does? 9. Name a product or service your company provides that has come about as a result of a customer request or survey and has since improved your overall profitability. 10. Does your company have a process for customers to evaluate your employees and departments? Is it similar to the Net Satisfaction Index that Dickens Data Systems has developed? Do you support cross-functional teams to analyze customer needs and fulfill them? 67
  • 68. Design for InnovationHow to Create the Future2. Best-practice agenda for involving customers in the design of products and services:  Survey customers for their opinions, ideas, feelings, likes, and dislikes about products or services. Whenever possible, meet them face-to-face to discuss their views. Most important, listen closely to what they have to say  From these surveys and other customer interactions, collect, categorize, and deliver information about product use to the people in our organization who need it  Describe to your customers how they can help you understand their needs, then create products and services that meet those demands. Define the values that this step of the process has for them: more precisely customized products and services, speedier development, increased opportunities to participate in the design stages, and greater savings in production and use  Make refinements in existing products and services, partnering with your customers either on their premises or yours when possible. Share information both at home and at the customer‟s site  Test the refinement in a controlled environment with targeted segments of customers  Market the successfully refined product, but keep the doors open to further improvements as you receive suggestions from your customers and as their needs change 68
  • 69. Design for InnovationHow to Create the Future2. Top ten best-practice diagnostic questions for involving customers in the design of products and services: 1. How do you gather customer input about product design and use? Telephone or mail surveys? Internet bulletin boards? Focus groups? Feasibility studies? 2. Do you have a team comprising representatives from various groups – manufacturing, engineering, marketing, sales, and so forth – that goes out to meet with customers? 3. Have you ever allowed your customers to decide whether or not you should implement a change, as Disney did in creating Mickey‟s Starland and character breakfasts? 4. To what extent do you involve customers in the design of prototypes? What about their customers? 5. Do you look for customer insights before making refinements or customization changes to existing products, as Black & Decker did in creating its VersaPak line? 6. Do you get wisdom and insights from customers at each step of development? Do you have a customer advisory board? 7. Do you partner with customers so that they allow your employees to visit their sites? If so, how many of these relationships do you have? 8. Do you have space reserved in your plant for your best clients (or suppliers) to collaborate with you in design, production, and other areas? (A mailbox slot or coffee mug doesn‟t count.) 9. How much do you share information with clients? Do you give them the right to attend design and engineering meetings? Get input on upcoming advertising and sales campaigns? 10. How easy is it for clients to reach someone at your company with a proposed change or refinement? How long does it take your company to respond? How many people get to see and discuss the proposal? 69
  • 70. Design for InnovationHow to Create the Future3. Best-practice agenda for marketing and selling products and services:  Make sure you know all links in your value chain – all suppliers, distributors, advertisers, marketers, salespeople, and customers. By its thorough understanding of its value chain, Lexus was able to overcome potential distribution problems  Establish a competitive pricing strategy, as Southwest Airlines has done by looking outside its industry (namely, to automobile rentals and other modes of transportation) to determine pricing policies  Develop strong advertising strategies, seeking input from all levels of your company to develop an appropriate image that can distinguish your company from others in the industry. As Nike has proven, developing a good product is only half the battle. You also have to get the message to your customers  Train your employees, especially those who will sell your products and services, to know everything they need to know about the market, the item they are selling, and the customers to whom they are selling. As Cutler-Hammer illustrates with its team-selling approach, this melding of individuals with different talents and degrees of expertise makes good business sense  Develop an integrated system for processing orders tailored to customers‟ needs. Through its ValueLink program, Allegiance Healthcare serves over 150 acute-care hospitals in the United States with 98 percent fill-rate accuracy  Do business with the customers you choose and in the ways you choose – by surveys, interviews, point-of-sale contacts, repair calls, and the like. As Peapod, Inc., and American Airlines have demonstrated, it is possible to partner with customers, establishing key drivers of greater value and lower prices 70
  • 71. Design for InnovationHow to Create the Future3. Top ten best-practice diagnostic questions for marketing and selling products and services: 1. The foundation of a successful sales effort is knowledge of customer needs and an ability to communicate how your products and services best fit those needs. What training systems does your company use to educate your salespeople and service technicians on: (i) identifying customers‟ key needs; and, (ii) differentiating your products and services from those of the competition? 2. How often do you retrain your employees in these and other areas? What tests do you give them? 3. When was the last time you critically evaluated your channels of distribution? Have you considered emerging channels such as the Internet? 4. Do you monitor your price performance and that of your competitors? How do you determine what customers are willing to pay? 5. Does your advertising strategy address current and developing trends in your market? 6. Have you studied non-customers and your lost customers to identify their needs? Have you responded to them appropriately? 7. How do you go about building a positive image for your company and its products? How do you help potential customers understand that they need your products and services 8. What degree of integration (such as EDI) do you have in place for processing orders? 9. What special offers or incentives do you offer selected segments of your customers? 10. Do you know what differentiates your products and services from your competitors‟ products and services? How do you communicate those differences? 71
  • 72. Design for InnovationHow to Create the Future4. Best-practice agenda for involving customers in the delivery of products and services:  Become the „supplier of choice‟ by using out-of-box thinking to generate customer delivery solutions not bound by conventional wisdom, as New Pig Corporation, Norrell Corporation, and Holy Cross Hospital have done  Customize delivery systems to fit the needs of core customers, in particular by creating channels of communication and service offerings to meet their demands. Establish a program similar to the CERRFS initiative undertaken by SARCOM  Identify customer delivery requirements through a complete understanding of the impact that distribution has on a customer‟s business. As Granite Rock and Cemex show, often a best-practice company builds extensive lines of communication within its own system before streamlining its delivery services to customers  Develop distribution capability as exemplified by Campbell‟s, paying close attention to small details – such as pallet size – that combine to solidify the customer-supplier relationship 72
  • 73. Design for InnovationHow to Create the Future customers in the4. Top ten best-practice diagnostic questions for involving delivery of products and services: 1. How do you respond to customer delivery needs in emergency situations? 2. How do you identify the delivery service needs of individual customers? Do you use these needs as a method of customer segmentation? 3. Do you have just-in-time supply and continuous replenishment services? 4. What steps have you taken to ensure reliability in your delivery process? How do you communicate this process to your customers? 5. Do you have in-plant reps at customer sites? If so, what do you consider the biggest advantages of these relationships? 6. What is your delivery channel strategy? Do you align your delivery strategies to service specific customer needs? 7. Can you continuously track products from the production line to the customer‟s door? 8. Do you offer special delivery deals for large-scale purchases such as same-day shipping? Twenty- four-hour delivery? Any other customization features in packaging and delivery? 9. How do you differentiate your delivery strategy from competitors‟ trying to become the supplier of choice? 10. What methods of feedback (other than a payment) do you get from customers regarding delivery and repair information? How do you elicit this input – via phone surveys, the Internet, or other means? 73
  • 74. Design for InnovationHow to Create the Future5. Best-practice agenda for providing customer service:  Establish primary „points of contact‟ between your employees and customers, instilling in customers the feeling that their needs are being met personally and promptly. At the same time, information can be used to alter company-wide business processes  Build cross-functional cooperation by training employees to understand and enhance the entire customer experience, then holding them responsible for customer satisfaction. This training could come via improving lines of communication between management and frontline employees – much as Coldwell Banker Relocation Services does – or by instructing employees how to treat customers from the first point of contact, such as Hyatt and Disney  Create a database to identify customer service failures and embrace their identification, recalling the principle that drives customer satisfaction at IBM and FedEx: Your customers know best what they don‟t like and what they can‟t understand  Raise customer expectations for products and services by giving them high-quality treatment each step of the way. Whether it is greeting guests at the front door, as the Red jackets do at East Jefferson General Hospital, or helping guests locate keys to their locked cars, as Disney World attendants do, the best-practice company personalizes its customer service at every point of contact  Make sure each employee has at hand all information needed to process a customer‟s request promptly and efficiently. Providing this information may require sophisticated databases such as those used by Hyatt Hotels to identify specific guests‟ needs and FedEx has in place to help customers track shipments. Or the organization may assemble data from customer surveys and distribute it as needed to appropriate personnel, much as East Jefferson General Hospital has done by collecting information from groups such as senior citizens to better prepare employees associated with its Elder Advantage program 74
  • 75. Design for InnovationHow to Create the Future5. Top ten best-practice diagnostic questions for providing customer service: 1. What is your customer retention rate? Does it indicate any trends you can act upon? 2. What is the level of cross-functional communication between your company and its customers? 3. Do you train employees throughout the organization in various tasks so that any of them can handle any problem that arises during the customer cycle? 4. What financial empowerment do you provide to your frontline employees to solve customer problems? Do you give them additional authority to make decisions on the spot? 5. Do those frontline employees have access to executive groups such as IBM‟s customer action councils where they can receive additional assistance and powers of authority? 6. Do you have in place a cross-functional database to track and analyze customer service highlights and lowlights? 7. How do you explicitly gauge your customers‟ satisfaction? Do focus groups play a role? 8. Is any portion of your company‟s merit system based on customer service? 9. Do you have a client advisory board? How often does it meet? What does it accomplish? 10. Do you surprise your customers with great customer service as East Jefferson general Hospital does with its red-jacketed representatives who accompany visitors to their destinations? 75
  • 76. Design for InnovationHow to Create the Future6. Best-practice agenda for managing customer information:  Design and build profiles using a common database to track customer information. As American Express demonstrates, a complete and flexible database allows a company to capture significant information about customers and merchants, thereby controlling this three-way relationship by virtue of its involvement in each transaction  Collect observations about customer preferences from point-of-contact employees who serve as „listening posts‟, as the Ritz-Carlton does  Communicate customer satisfaction throughout the company. By using the chain‟s extensive database, each Ritz-Carlton hotel can combine its own employees‟ observations with those from employees who encountered the same guests on visits to other Ritz-Carlton hotels. This process helps the company prepare for guests‟ visits and secure long-term relationships  Establish service information by studying how customers use (or misuse) products and services. Black & Decker discovered that it could actually instruct customers how best to use its VersaPak product, thereby altering customers‟ perceptions and ensuring sales. Peapod, Inc., on the other hand, finds that by understanding customers‟ buying patterns and preferences, it can capture present and future sales  Gauge customer performance and satisfaction through both internal measures such as sales growth and revenues, and external ones such as industry analyses and customer surveys. As the Orange County Teachers FCU shows, it is possible to preserve customers‟ privacy while simultaneously establishing acceptable levels of risk and tracking how the company ranks against its competitors in terms of customer satisfaction 76
  • 77. Design for InnovationHow to Create the Future6. Top ten best-practice diagnostic questions for managing customer information: 1. Do you know your customers‟ purchasing patterns s o well that you can pinpoint when they will likely make their next purchase of one of your products? Are you holding your breath, or are you taking a jar of Skippy off the shelf as Peapod is doing? 2. Do you study customer profiles to determine how much individuals are willing or likely to spend for products or services? 3. Where will customers make their next purchase of one of your products? At a discount store, through a catalog, over the Internet? Will you be there to make the sale wherever the order occurs? 4. Can you track customer preferences and how they change over time? If so, what do you do with this information? 5. What means do you have for collecting, organizing, and sharing customer data with people throughout your company? Why do you want to keep your people in the dark? 6. Are you constantly surprising and delighting customers with your products and services? How do you know? 7. How do you build long-tern loyalty? (See „Building Customer Loyalty‟ below) 8. Does our organization have the capability for identifying customers to target with promotions specific to their needs? Can you find fans of a particular merchant or product as adeptly as American Express? 9. Can you deal with „ugly guests‟ as effectively as the Ritz-Carlton does? 10. Does your company try to educate customers in the proper use of products and services as Black & Decker does, or do you pray they‟ll educate themselves? 77
  • 78. Design for InnovationEstablish Current Position• What is the current position of the business? 1. What does the business do & why? 2. How long has the business been operating? 3. What stage of growth is the business at? 4. What is the form of the business? (Limited Company etc.) 5. Is the current form of business appropriate for future operations? 6. What makes the business different? 7. What are the major accomplishments of the business? 8. What major setbacks have you met? 9. What are the major challenges facing the business in the future? 10.Who are your business partners or who do you have important relationships with? 11.Are there well-defined business agreements & levels of service drawn up with business partners? 12.Why is the business attractive to you & potential investors? 13.How stable is the business financial performance? 14.Does the business have a good reputation in its industry? 78
  • 79. Design for InnovationEstablish Current Position• FIVE STAGES OF GROWTH 1. EXISTENCE 2. SURVIVAL 3. SUCCESS 4. EXPANSION 5. MATURITY 79
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  • 81. Design for InnovationAssess Business Environment• What is happening in the business environment & what are the implications for the business? 1. POLITICAL FACTORS: What is the Government doing? - still the major influence in the economy, consider pending elections, de-regulation, tax policy, & public confidence 2. ECONOMIC FACTORS: What is the economy doing? - Inflation, leading indicators, interest rates, exchange rates, employment levels etc. 3. ENVIRONMENTAL FACTORS: What is happening in the general environment? - Controls on business activity, regulations, availability of resources, climatic events 4. SOCIAL FACTORS: What are the factors affecting society? - Population drift, immigration, wage rises, unemployment, mortgage rates, racial & cultural issues 5. TECHNICAL FACTORS: What is happening in your particular industry or sector? - New products & services, organizational trends, market trends? 81
  • 82. Design for InnovationAssess Business Environment• ENVIRONMENTAL FOCUS – External Focus • Identify the 7 most significant factors in the business environment – A. Impact on Business – B. Action Required – Internal Focus • SWOT Analysis: List as many factors about our organization that you can think of 82
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  • 85. Design for InnovationIdentify Critical Success Factors• What does the business need to be good at to succeed? 1. Critical Success Factors (CSFs): List between 5-7 factors that are essential to the future success of the business 2. How often are the CSFs reported on? • Weekly? • Monthly? • Quarterly? • Six Monthly? • Annually? 3. Does the management information system provide the necessary information to monitor CSF performance at the appropriate level of detail?• TYPES OF CRITICAL SUCCESS FACTORS 1. INDUSTRY FACTORS 2. BUSINESS CAPABILITY 3. FUNCTIONAL 4. ENVIRONMENT 85
  • 86. Design for InnovationIdentify Critical Success Factors• IDENTIFY CRITICAL SUCCESS FACTORS – Identify 7 Critical Success Factors for your business, how they impact, & how they should be measured, examining: A.Critical Success Factor B.Impact on Business C.How Measured 86
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  • 88. Design for Innovation Outline Business Processes• What activities need to occur to achieve the business objectives? 1. What are our major business processes? How many are there? 2. What are our Units of Competitive Advantage (UCA) - those things that distinguish us from competitors & create an advantage in the market? 3. What is our Value-added Support Work (VA) that facilitates the accomplishment of UCA work? 4. What is our Essential Support Work (ES) that does not directly create an advantage of facilities that work, but which must be done if we are to continue to operate? 5. What is our Non-essential Work (NE) - work that has lost its usefulness but continues to be done because of tradition? 6. Which areas of our work could be regarded as industry best practice? 7. Which areas of our work could benefit from comparison & improvement to meet industry best practice? 8. Is taking risks accepted & used as a learning experience? 9. Is creativity & innovation rewarded? 10.Are all key business processes well under control? 88
  • 89. Design for Innovation Outline Business Processes• OUTLINE BUSINESS PROCESSES 1. INPUTS: Time & resources you require for yourself & others to perform key activities 2. ACTIVITIES / PROCESSES: Tasks you perform to add value to inputs you have received 3. OUTPUTS: Your work product or services that meet your customers requirements• BUSINESS PROCESS – Select one of your main business processes, then: 1. Start at the first step, & note (for each step) the activity that takes place 2. Work through each step in the process until you reach the end result 3. Categorize each activity I - IV ranging from: (I) UCA - unit of competitive advantage (II)VA - value-added support work (III)ES - essential support work (IV)NE - non-essential support work 4. Identify possible process improvements 89
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  • 91. Design for Innovation3. Create New Possibilities. Gate-Check Focus: Benefits Quantification 91
  • 92. Portfolio Analysis Matrix: Non-existent Symbiotic Mutual Value Mutual Value Excellent Business Maintain Grow Quality Poor Business Adjust Exit Quality or Limit 92
  • 93. Portfolio Analysis Matrix: Non-existent Symbiotic Mutual Value Mutual Value It is profitable, growing, and Worth doing for the strategically well money but contributes matched, representing little to long-term a virtuous cycle of strategic development learning, growth, and profitability Excellent Business Maintain Grow Quality Poor Business Adjust Exit Quality or Limit This type of client These assignments are relationship is strategically well unsupportable and aligned, but they are should be renegotiated not profitable and may or stopped as soon as not be generating legally and morally additional work possible 93
  • 94. Design for InnovationIdentifying Opportunities1. Unexpected Successes2. Unexpected Failures3. Unexpected External Events4. Process Weaknesses5. Industry / Market Structure Changes6. High-Growth Areas7. Converging Technologies8. Demographic Changes9. Perception Changes10.New Knowledge 94
  • 95. Unexpected Successes1. What unexpected product success have you had recently?2. In which geographic areas have you had unexpected success recently?3. In which market / industry segments have you experienced unexpected success recently?4. What customer segments have provided unexpected success recently?5. What unexpected successes have your suppliers had recently?6. What unexpected successes have your competitors had recently?7. Which of your technologies has had unexpected success recently?8. What unexpected customer / user groups have bought from you recently?9. What unexpected sources have asked to sample, distribute, or represent your product recently? 95
  • 96. Unexpected Failures1. What unexpected product failures have you had recently?2. In which geographic areas have you had unexpected failures recently?3. In which market / industry segments have you experienced unexpected failures recently?4. What customer segments have provided unexpected failures recently?5. What unexpected failures have your suppliers had recently?6. What unexpected failures have your competitors had recently?7. Which of your technologies has had unexpected failures recently?8. Which customer / user groups have had unexpected failures recently?9. Which distributors, dealers, & / or agents have had unexpected failures recently? 96
  • 97. Design for InnovationUnexpected External Events 1. What unexpected external events have occurred recently? 2. What unexpected internal events have occurred recently? 3. Have any expected external & internal events combined in an unexpected way recently? 97
  • 98. Process Weaknesses• Every process or system in existence has one of three things wrong with it: 1.A bottleneck 2.A weak link 3.A missing link• Checklist 1.What self-contained processes exist in the organization? 2.What process weaknesses exist in our customers organization? 3.What weakness or "missing link" prevents better process performance? 4.Why do some processes perform better at some times than at others? 5.What bottlenecks do each of these processes have? 6.What process weaknesses among our competitors might we be able to improve on? 98
  • 99. Design for InnovationIndustry / Market Structure Change1. What major structural changes are occurring among your customers?2. What major structural changes are occurring in your geographic markets?3. What major structural changes are occurring within your market / industry structure or in the conduct of your business?4. What major structural changes are occurring among your competitors?5. What major structural changes are happening in your customers businesses?6. What major structural changes are occurring within your regulatory environment?7. What major structural changes are occurring in your supplier relationships? 99
  • 100. Design for InnovationHigh-Growth Areas1. What parts of the business are growing faster than economic or population growth?2. What other businesses are growing faster than economic or population growth?3. What potentially high-growth businesses related to yours are dominated by only one or two companies?4. What parts of your competitors businesses are growing faster than economic or population growth?5. What parts of your customers or suppliers businesses are growing faster than economic or population growth? 100
  • 101. Design for InnovationConverging Technologies1. What technologies in your business are converging or merging?2. Which of your technologies is now being joined to outside technologies?3. Which of your technologies can be more effective if deliberately converged?4. What would be the ideal convergence of technologies in your business? 101
  • 102. Demographic Changes• 4 categories of demographic changes need to be monitored in a firms end customers: 1. Income 2. Age 3. Education 4. Mix Checklist 1. How is the age distribution of your customers & users changing? 2. How will the educational level of your customers & users change in the next few years? 3. How will the income distribution of your customers & users change in the next few years? 4. How will the geographic distribution of your customers & users change in the years ahead? 5. How might the buying habits of your customers & users change in the years ahead? 6. What are the customer demographics that might change over the years ahead? 7. How will the mix of your users & customers change in the next few years? 102
  • 103. Perception Changes1. What changes are occurring in how your products & services are perceived?2. What changes are occurring in the values of your customers?3. What changes are occurring in the lifestyle, image, & status of your customers?4. How will changes in perception affect your customers & suppliers?5. For what new purposes have customers purchased your products & services recently?6. What intangible reasons are customers developing to support your products & services?7. What societal, peer, & normative pressures will affect your products & services in the future? 103
  • 104. Design for InnovationNew Knowledge1. What new knowledge has recently become known about your business?2. What combinations of knowledge have created new insights into your business?3. What new sources of information about your business have recently been tapped?4. What new patents or discoveries have been announced relating to your business? 104
  • 105. Design for Innovation Determine Business Capability• How is the business organized, who are the key people involved, & is it capable of high performance?• A. BUSINESS CAPABILITY 1. What is this business really good at? 2. What skills does this business currently have that are better than those of competitors? 3. What capabilities are needed with this strategy? 4. Where do customers say we need to improve? 5. What is the gap between current capabilities & those capabilities needed to give the company an advantage? 6. How easy is it to acquire or build the needed capabilities? 7. How much time & money will be needed to develop these skills? 8. What clients or contracts have been lost & to whom were they lost? 9. Where & how is the competition beating this company? 10.What programs does the company need or have in place that are designed to improve capabilities? 105
  • 106. Determine Business Capability How is the business organized, who are the key people involved, & is it capable of high performance? B. BUSINESS STRUCTURE 1. What parts of the business are well aligned to delivered our business strategy? 2. What current beliefs, policies, procedures, systems, or other elements are not aligned to deliver our business strategy? 3. What business initiatives are going well? 4. What are the things that get in the way of the business achieving its objectives? 5. What are the things in the business that are working well to support the business strategy? 6. What does the business need to do better to execute the business strategy effectively? 7. What gets in the way of people doing their work? Are there areas where effort is wasted? 8. How do people spend their time? 9. Where should efforts be focused to ensure competitive advantage? 10. Where are the opportunity areas for improving efficiency & effectiveness? 106
  • 107. Design for InnovationDetermine Business Capability• Determine Business Capability – Governance – Structure – Organization – Management – Capability• Organization Capability – Identify key individuals in our organization and for each specify:1. Name 2. Area of responsibility3. Length of service in industry (years) 4. Length of service in this office / area5. Key strengths 6. Weaknesses7. Key areas for specialization 8. Development actions required9. Successor if person left 107
  • 108. Strategic Alignment of BusinessPriorities with Opportunities 2. What can we use? (Relevant Context: Customer Needs) 1. Where are we going? (External Perspective: Market Scenarios) 3. How do we use it? (Formulate Strategy: Identify & Evaluate Opportunities) 108
  • 109. Dimensions to Opportunities IdentifiedDimension Definition Examples Develop innovative new products or services • Gillette Mach3Turbo razorOfferings • Apple iPod music player & iTunes music service Use common components or building blocks to • General Motors OnStar telematics platformPlatform create derivative offerings • Disney animated movies Create integrated and customized offerings • UPS logistics services Supply Chain SolutionsSolutions that solve end-to-end customer problems • DuPont Building Innovations for construction Discover unmet customer needs or identify • Enterprise Rent-A-Car focus on replacement car rentersCustomers underserved customer segments • Green Mountain Energy focus on “green power” Redesign customer interactions across all • Washington Mutual Occasio retail banking conceptCustomer touch points and all moments of contact • Cabela’s “store as entertainment experience” conceptExperience Redefine how company gets paid or create • Google paid searchValue Capture innovative new revenue streams • Blockbuster revenue-sharing with movie distributors Redesign core operating processes to improve • Toyota Production System for operationsProcesses efficiency and effectiveness • General Electric Design for Six Sigma (DFSS) Change form, function or activity scope of the • Cisco partner-centric networked virtual organizationOrganization firm • Procter & Gamble front-back hybrid organization for customer focus Think differently about sourcing and fulfillment • Moen ProjectNet for collaborative design with suppliersSupply Chain • General Motors Celta use of integrated supply and online sales Create new distribution channels or innovative • Starbucks music CD sales in coffee storesPresence points of presence, including the places where • Diebold RemoteTeller System for banking offerings can be bought or used by customers Create network-centric intelligent and • Otis Remote Elevator Monitoring serviceNetworking integrated offerings • Department of Defense Network Centric Warfare Leverage a brand into new domains • Virgin Group “branded venture capital”Brand • Yahoo! as a lifestyle brand 109
  • 110. Dimensions to Opportunities Identified Opportunities Identified Vs. Dimensions Available 1. Unexpected Successes 1. Offerings 2. Unexpected Failures 2. Platform 3. Unexpected External Events 3. Solutions 4. Process Weaknesses 4. Customers 5. Industry / Market Structure 5. Customer Experience Changes 6. Value Capture 6. High-Growth Areas 7. Processes 7. Converging Technologies 8. Organization 8. Demographic Changes 9. Supply Chain 9. Perception Changes 10. Presence 10. New Knowledge 11. Networking 12. Brand 110
  • 111. Generating Product Concepts fromOpportunities Identified • The Product Sacrifice Tool – Apply the “Product Part Removal” process • The Product Parasite Tool – Apply the “Product Part Replacement” process • The Product Unification Tool – Apply the “External Product Functionality” process • The Product Multiplication Tool – Apply the “More Of The Same” process • The Product Division Tool – Apply the “Divide And Reorganize” process • The Product Breaking Symmetry Tool – Apply the “Dimension-Values Distinction” process 111
  • 112. Applying New Product Concepts Six Stages of the Buyer Experience Cycle 1. 2. 3. 4. 5. 6. Purchase Delivery Use Supplements Maintenance Disposal Customer productivitySix Utility Levers Simplicity Convenience Risk Fun & Image Environment Friendliness 112
  • 113. Design for Innovation 4. Select Best Possibilities. Gate-Check Focus: BenefitsQualification and Quantification 113
  • 114. Design for InnovationTest Your Assumptions First! (Or pay for the consequences of not doing so later) 114
  • 115. Evaluation Criteria Supporting Questions Can you elaborate on that point? Can you express that point in anotherCLARIFY: way? Can you give an illustration? Can you give an example? Can youCan you elaborate? restate / rephrase to clarify the meaning? Is that really true? How can we check to see if that is accurate? How canACCURACY: we find out if that is true? How can we verify or test that?Is that true? Can you give more details? Can you be more specific? Can you be morePRECISION: exact?Can you give details? How does that relate to the problem? How does that bear on the question?RELEVANCE: How does that help us with the issue? How is this idea connected to theHow does that effect the issue? question / issue? How does this idea relate to this “other” idea? How does your question relate to the issue we are dealing with? What factors make this a difficult problem? What are some of theDEPTH: complexities of this problem? What are some of the difficulties we need toWhat are the complexities? deal with? Are we dealing with the most significant problems / factors? What is the most significant information we need to address this issue?SIGNIFICANCE: How is that fact important in this context? Which of these questions is mostWhat ideas are important? significant? Which of these ideas / concepts is most important to focus? Does this all make sense together? Does what you say follow from theLOGIC: evidence? Does all this fit together logically? Does this really make sense?Does this make sense together? Does that follow from what you said? From the evidence? Is our thinking justified given the evidence / context? Are we taking intoFAIR: account the weight of evidence that others might advance in the situation?Are these assumptions justified? Are these assumptions justified / supported by the evidence? Is our purpose fair given the situation / implications of our behaviour? Are we using concepts justifiably or are we distorting them? Are we addressing the problem fairly? Do we need to look at this from another perspective? / point of view? DoBREADTH: we need to look at this in other ways? Is there another way to look at thisWhat other perspectives are there? question? What would this look like from a… view point? 115
  • 116. Assessing Concepts• COST-BENEFIT RELATIONSHIP 1.What is the cost of this new product or market opportunity? 2.What is the benefit of this new product or market opportunity? Costs Benefits• CHECKLIST People Market Share Materials Return / Profit Equipment Prestige / Image Research Service / Satisfaction Marketing Earnings / Dividends Legal Fallout / Residuals Promotion Safety / Security Time Quality Pilot Morale / Motivation 116 Contingency Growth / Size
  • 117. Design for InnovationAssessing Concepts• Strategic Fit / Difficulty of Implementation Relationship – Strategic Driving Force – What is Driving the Business? – What Should be Driving the Business? – Identify Strategic Fit – Assess Difficulty of Implementation 117
  • 118. Strategic Fit / Difficulty ofImplementation Relationship• Strategic Driving Force 1. Product Concept-Driven Company: e.g. automobile industry 2. Market category-Driven Company: e.g. American Hospital Supply 3. User Class-Driven Company: e.g. Johnson & Johnsons strategy of making products for "doctors, nurses, patients, & mothers" 4. Production Capacity / Capability-Driven Company: e.g. paper companies because of enormous capital tied up in their mills 5. Technology / Know-How-Driven Company: e.g. Du Pont & 3M 6. Sales / Marketing Method-Driven Company: e.g. Mary Kay, Tupperware, Amway 7. Distribution Method-Driven Company: e.g. telephone operating companies, department stores 8. Natural Resources-Driven Company: e.g. Exxon 9. Size / Growth-Driven Company: e.g. conglomerates 10.Return / Profit-Driven Company: e.g. Virgin 118
  • 119. Design for InnovationStrategic Fit / Difficulty ofImplementation Relationship What is Driving the Business? 1. Which strategic driving force is currently acting as the heartbeat of your business & driving your strategy? 2. Which driving force do you think each of your key subordinates would say drives your company & acts as the strategic heartbeat of the business? 119
  • 120. Design for InnovationStrategic Fit / Difficulty ofImplementation Relationship What Should be Driving the Business? 1. What component of the business should drive the strategy of the business in the future? 2. Should we continue to be driven as we have been, or should we explore another driving force? 3. If we explore a new driving force, which one should that be? 4. What implications will that have on the choices that we make on the nature of products, customers, & markets that we do or do not offer? 5. What will our future strategic profile look like if we change the driving force of our company? 120
  • 121. Design for InnovationStrategic Fit / Difficulty ofImplementation Relationship Identify Strategic Fit 1. How similar are the products this opportunity brings compared to the products we currently offer? 2. How similar are the markets (segments or geographic) this opportunity brings compared to the markets we currently serve? 3. How similar are the customers this opportunity brings compared to the customers we currently serve? 4. How similar are the production capabilities & / or processes this opportunity brings compared to the production capabilities we currently have? 5. How similar is the technology this opportunity brings compared to the technology we currently know? 6. How similar are the sales / marketing methods this opportunity requires compared to the ones we currently use? 7. How similar are the distribution / delivery methods this opportunity requires compared to the ones we use currently? 8. How similar are the human resources & skills this opportunity requires compared to those we have currently? 9. How will size / growth & return / profit criteria compare with current levels of achievement? 121
  • 122. Design for InnovationStrategic Fit / Difficulty ofImplementation Relationship Identify Strategic Fit Checklist  PRODUCT / SERVICE  CUSTOMER BASE  MARKET SERVED  TECHNOLOGY / KNOW-HOW  PRODUCTION CAPACITY / CAPABILITY  METHOD OF SALES / MARKETING  DISTRIBUTION METHOD OR SYSTEM  NATURAL RESOURCES  SIZE / GROWTH  RETURN / PROFIT 122
  • 123. Design for InnovationStrategic Fit / Difficulty ofImplementation Relationship Assess Difficulty of Implementation  How much change will be required, in each of the following areas, to implement this new product or market opportunity?  ORGANIZATION STRUCTURE  PROCESSES & / OR SYSTEMS  SKILLS & / OR TALENTS  MANUFACTURING METHODS & CAPABILITIES  SELLING & / OR MARKETING METHODS  DISTRIBUTION OR DELIVERY METHODS  TECHNOLOGIES  CAPITAL & FINANCING  LEGAL & REGULATORY ISSUES  IMAGE, REPUTATION, & QUALITY  COMPENSATION SYSTEMS  RAW MATERIALS  CUSTOMER SERVICES  CORPORATE CULTURE 123
  • 124. Design for InnovationCritical Factors 1. Technical Factors 2. Timing Factors 3. Stability Factors 4. Position Factors 5. Growth Factors 6. Marketability Factors 7. Production Factors 8. Financial Factors 9. Protection Factors 124
  • 125. Design for Innovation1. Technical Factors• Availability or requisite scientific / technical skills• Adequacy of research resources• Quality & quantity of support personnel• Probability of technical success & validation• Government & / or regulatory position 125
  • 126. Design for Innovation2. Timing Factors• Research completion versus market need• Market penetration & development• Known & assumed competitive actions 126
  • 127. Design for Innovation3. Stability Factors• Durability of the market• Chances for a dominant or preeminent position• Probability & impact of down markets• Stability of largest projected users• Volatility of the approach 127
  • 128. Design for Innovation4. Position Factors• Impact on other products & services• Impact on overall credibility• Ability to assume a rapid leadership position• Ability to facilitate other opportunities 128
  • 129. Design for Innovation5. Growth Factors • Diversification • Possibility of substantial future growth in volume, units, & / or revenue • Possibility of a family of products • Possibility of changes or shifts in the industry of which this product & / or service can take advantage • Short-term market potential • Long-term market potential • Impact on market share 129
  • 130. Design for Innovation6. Marketability Factors • Market potential in the immediate future • Market potential in the long-range future • Compatibility with current & long-range marketing objectives • Competitive environment • Promotional requirements to launch • Promotional requirements to sustain • Adequacy of present distribution systems • User view of cost versus value • Applicability to current customers • Servicing requirements • Impact on reputation 130
  • 131. Design for Innovation7. Production Factors• Capabilities of production facilities• Utilization of familiar production processes• Availability of human resources 131
  • 132. Design for Innovation8. Financial Factors• Calculation of DCF• Expected ROI• Expected increase in profits or earnings per share• Expected new capital outlays for equipment• Expected cost to complete the project• Expected cost to complete the development 132
  • 133. Design for Innovation9. Protection Factors• Possibility of a patent• Unique character of the product, process, service 133
  • 134. Design for InnovationWhere are the BusinessOpportunities?• Business Opportunity – Use the critical business development factors to determine whether the ideas / concepts created are worth pursuing. 134
  • 135. Design for Innovation 5. Take Appropriate Action. Gate-Check Focus:Benefits Monitoring and Control, Delivery and Review 135
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  • 137. 137
  • 138. Innovation Benefits Realization Management =Benefits Identification {Phase-Gate-1} +Benefits Qualification {Phase-Gate-2 and -4} +Benefits Quantification {Phase-Gate-3 and -4} +Benefits Monitoring {Phase-Gate-5} +Benefits Control {Phase-Gate-5} +Benefits Delivery {Phase-Gate-5} +Benefits Review {Phase-Gate-5} . 138
  • 139. Thank you. 139
  • 140. For more informationPlease contact:iain@designforinnovation.com 140