On the interplay between people-driven innovation and technology-driven innovation Visiting lecture Copenhagen Business School April 2008 Dr. Steven MacGregor Total fitness for business SL Sennse innovation consultants

Preamble

A simple product close to the Danish peoples’ hearts: The Bicycle (Steven MacGregor, Reinventing the Wheel: Pushing the Limits in High Performance Bike Design, Business Week Online, January 2006: http://www.businessweek.com/innovate/content/jan2006/id20060126_768347.htm )

The bicycle as we know it today is around 120 years old From Da Vinci to Armstrong – more than 500 years in development!

However, large changes have taken place in the last 30 years In fact, so many changes that the UCI have changed the rules for the hour record

However, the man who affected the most change was the Italian Moser – at times crazy but he forced the cycling world to think in more depth about weight, position, aerodynamics etc. In their attempt to break the hour record some professional cyclists produced innovations – the scot Obree had a very unique approach…

The bicycle is not just a product, it is a system It is similar to a computer in the number of components, level of complexity, and variety of companies who produce each part For the processor we have the wheels The operating system could be the gearing mechanism The frame could be the computer (housing) in itself

Improvements

Innovation in bicycles: summary The design principle has remained the same for 120 years, though large changes have taken place in the past 30 The source of most of the innovations is mechanical and material Professional riders are instrumental in the impact and diffusion of change The environment (here the UCI regulations) is key in the evolution and rate of change The bicycle, like many other products, has a level of complexity greater than the common perception

The design principle has remained the same for 120 years, though large changes have taken place in the past 30

The source of most of the innovations is mechanical and material

Professional riders are instrumental in the impact and diffusion of change

The environment (here the UCI regulations) is key in the evolution and rate of change

The bicycle, like many other products, has a level of complexity greater than the common perception

Is this a primarily technological case on innovation or a people case?

Kicking off with TDI...

Kicking off with TDI...

Maturity is a critical concept for TDI [industry, technology, product]

Maturity is a critical concept for TDI

[industry, technology, product]

Industry life-cycle Industries are made up of firms with some activity in common Experiments, Disruption/Discontinuity Incremental innovation Dominant design emerges/standards Maturity

Diversity of pioneering designs: experiments, design improvements Initially a few firms commercialise inventions Early experimental period New products crude and expensive Successful products attract imitators Experiments, Disruption/Discontinuity Incremental innovation Dominant design emerges/standards Maturity

Diversity of pioneering designs: experiments, design improvements

Initially a few firms commercialise inventions

Dominant design Introduced by Abernathy & Utterback (1978) to describe emergence of a broadly accepted core design principle from a number of competing principles Once a dominant design emerges, innovative activity is directed to improving the process by which it is delivered Examples: QWERTY keyboard, IBM PC May exist for some time, even if it does not represent the best technical solution (VHS v Betamax) Experiments, Disruption/Discontinuity Incremental innovation Dominant design emerges/standards Maturity

To understand fully the dominant design we look at some theory regarding standards

Sources of value With strong network effects, market share itself creates value. If network effects are important, value may have two roots: Great product value : Consumer values the product because it is intrinsically valuable to them. Key question: What would this be worth to me if i were the only buyer in the world? Network value : Consumer values the product because of the size of the network. Key question: How many other people are likely to buy this product?

Sources of value

Tipping Will all markets eventually converge to a single standard? Markets ‘tip’ when one standard becomes the preferred choice of nearly every consumer Examples: Windows, VHS Not all markets ‘tip’, that is, multiple standards exist Examples: UNIX v Windows servers, Nintendo v Sony video games If network effects are important, markets may ‘tip’

Tipping

How are standards established? Standards ‘win’ when a critical mass of consumers have adopted them or when a critical mass of key players believe that the standards will be adopted Or by: The shear power of the concept, design or delivery of the product, Coming to market ahead of competition, Building expectations Very aggressive pricing “giving the product away” Developing, or encouraging the development of complementary products and services

How are standards established?

Standards ‘win’ when a critical mass of consumers have adopted them or when a critical mass of key players believe that the standards will be adopted

Or by:

The shear power of the concept, design or delivery of the product,

Coming to market ahead of competition,

Building expectations

Very aggressive pricing “giving the product away”

Developing, or encouraging the development of complementary products and services

Displacing an established standard Overcoming switching costs Raise the benefits: introduce an incredible product build network effects – invest in complementary goods and services, build market share Reduce the costs: make your standard ‘backwards compatible’ lower product cost

Displacing an established standard

Raise the benefits:

introduce an incredible product

build network effects – invest in complementary goods and services, build market share

Reduce the costs:

make your standard ‘backwards compatible’

lower product cost

Innovation profile/path Effort shifts from product to process innovation Competition increases, pressure to reduce costs and improve production processes Many failures and mergers Increasing efforts to streamline production Production process innovation increase Experiments, Disruption/Discontinuity Incremental innovation Dominant design emerges/standards Maturity

Innovation profile/path

Innovation profile/path Utterback, 1994

Industry decline Costs fall, but competition and declining demand erode profits Dominant firms become inflexible and vulnerable to new competition If core technology and/or dominant product are displaced, industry may be in terminal decline (Rustbelt phenomena) Experiments, Disruption/Discontinuity Incremental innovation Dominant design emerges/standards Maturity

Utterback, 1994

What are key developments as industry matures? Demand Lower relative growth of new demand Supply Productivity reach limits, reduced rate of innovation Competition Intensifies, becomes more international Profit margins fall

Demand

Lower relative growth of new demand

Supply

Productivity reach limits, reduced rate of innovation

Competition

Intensifies, becomes more international

Profit margins fall

READY FOR A BIG !!* DISRUPTION @@!!

Technology offers more clues to this disruption – how does it behave over time?

Technology S Curves Introduced by Foster (1986) to describe how the performance of a technology varies over time (more strictly how it varies with increased R&D effort or investment) Tech performance increases with effort but eventually hits an upper limit or plateau where further improvement would either be impossible or prohibitively expensive To achieve higher performance requires a discontinuous switch to a different technology, in turn following its own S curve New S curve may start at a performance level below the old one but has potential to overtake its predecessor

Introduced by Foster (1986) to describe how the performance of a technology varies over time (more strictly how it varies with increased R&D effort or investment)

Tech performance increases with effort but eventually hits an upper limit or plateau where further improvement would either be impossible or prohibitively expensive

To achieve higher performance requires a discontinuous switch to a different technology, in turn following its own S curve

New S curve may start at a performance level below the old one but has potential to overtake its predecessor

Emerging Take-off Maturity Incremental and radical change Shape influenced by: Market demand Scientific knowledge Investment/innovation Disruption occurs when an innovation emerges which offers superior performance along a new dimension, even if performance on conventional measures is initially poor. Incumbents will tend to dismiss the new innovation as no importance, yet it may create a new market which eventually supersedes existing one Discontinuity Time Performance MAJOR TRANSITIONS: provide extreme challenges and major opportunities e.g. Music: LP’s, CD’s, Internet?

Functional challenges across time… Ferment Takeoff Maturity Discontinuity Technical work Will it work? Exploration, fun, creativity key Can we make 100, 000? And service them? We need to be responsive & flexible but controlled Will it work? Exploration, fun, creativity key Marketing challenge Who needs this? Do we have any reference customers? Stay close to your customer – really close Who needs this? Capturing value Speed, IP, Differentiation, Frontier performance key We can sell it, make it, service it, ship it. Most of the time We may not be leading edge but you’d rather buy from us because. . . Speed, IP, Differentiation, Frontier performance key Organisational challenge “ Entrepreneurial Energy” critical “ Co-ordination & Control” critical “ Entrepreneurial Energy” critical

Can you think of any industries, products that represent discontinuities? Can you sketch the relevant S curve? Disruption/Discontinuities: Exercise

Can you think of any industries, products that represent discontinuities?

Can you sketch the relevant S curve?

Some examples Propeller based planes to. . . Carbon copying to. . . Vinyl/audio cassettes to. . . JETS PHOTOCOPYING CDs Industry Discontinuities Typewriters Manual to electric; to dedicated word processors; to personal computers Lighting Oil lamps to gas; to incandescent lamps; to fluorescent lamps Refrigeration Harvested natural ice to mechanically made ice; to refrigeration; to asceptic packaging Imaging Daguerreotype to tintype; to wet plate photography; to dry plate; to roll film; to electronic imaging; to digital electronic imaging

Uniqueness and complimentary assets: exploitation & protection Uniqueness: controlling the knowledge generated by an innovation – sources: IP protection, secrecy, speed Complimentary assets: controlling the assets necessary to exploit the knowledge generated by innovation. high uniqueness, low comp assets low uniqueness, high comp assets If our innovations were instantly available to our competitors would we still make money? Why? Competencies and resources: manufacturing exp., brand name, relationships Capturing innovation value Time Performance

Finally, maturity @ the product level DIFFUSION

From Rogers (1962) examination of how innovations spread through social systems 5 way classification for describing types of adopter Based on the normal distribution (bell curve) Plotted cumulatively, looks like an S curve Diffusion

From Rogers (1962) examination of how innovations spread through social systems

5 way classification for describing types of adopter

Based on the normal distribution (bell curve)

Plotted cumulatively, looks like an S curve

Market dynamics: Adopter groups Adopters differ by, for example, social, economic status – particularly resources, affinity for risk, knowledge, complementary assets, interest in the product. Roger’s characterisation of adopters includes: Innovators: Venturesome Early adopters: Respectable Early majority: Deliberate Late majority: Sceptical Laggards: Traditional

Market dynamics: Adopter groups

Adopters differ by, for example, social, economic status – particularly

resources, affinity for risk, knowledge, complementary assets, interest

in the product. Roger’s characterisation of adopters includes:

Innovators: Venturesome

Early adopters: Respectable

Early majority: Deliberate

Late majority: Sceptical

Laggards: Traditional

Managing the market: Who buys a technology as it evolves? Units Bought Time Innovators Early Adopters Early Majority Late Majority Laggards 2% 13.5% 34% 34% 16% Diffusion

Managing the market: Who buys a technology as it evolves?

Developed by Moore (1991): Crossing the chasm Units Bought Time Innovators Early Adopters Early Majority Laggards Late Majority

Developed by Moore (1991): Crossing the chasm

With lots of success…

Without success

Will it be a success?

Units Bought Time Innovators Early Adopters Early Majority Late Majority Laggards

Crossing the chasm (Moore 1991) Los primeros clientes para un nuevo producto o servicio (innovadores o adoptadores iniciales) puede proporcionar ventas prometadoras, pero solo representan el 16% de la población Para éxito comercial real es necesario alcanzar la mayoría de quienes representan el 68% de la población Este grupo puede tener una perspectiva muy distinta del producto - por eso no hay garantia de más ventas Ejemplos : Apple Newton y Zoomer cayeron en el hueco (chasm). Tenian éxito en los primeros segmentos pero no alcanzaron el mass market Palm Pilot cruzó con éxito - más sencillo y robusto

Crossing the chasm (Moore 1991)

Rounding off TDI: Re-visiting the diffusion curve with Moore (2006)

Rounding off TDI: Re-visiting the diffusion curve with Moore (2006)

A technological ecosystem of innovation The i-Pod is 5

A technological ecosystem of innovation

Finishing off with PDI... (experiences from sennse, Barcelona)

Finishing off with PDI...

(experiences from sennse, Barcelona)

PDI is an innovation management approach centered on satisfying people’s needs P eople* D riven I nnovation ( PDI ) is an innovation management approach where the satisfacti on of people’s needs is a central force that guides a company’s strategy , capabilities and culture to create new products & services. *People refer to main innovation stakeholders from demand-side (buyer, user, etc.) and supply-side (Marketing, R&D, Sales, etc.)

PDI is an innovation management approach centered on satisfying people’s needs

PDI companies are those pursuing pull and lead strategies, as they have a high capability to understand people’s needs Apple Nike BMW HP Intel PDI companies lead pull follow push low high high low capability to understand people’s needs capability to develop technology

PDI companies are those pursuing pull and lead strategies, as they have a high capability to understand people’s needs

PDI requires an innovation value chain that focuses on the front-end of the new product process lead pull follow push low high high low capability to understand people’s needs capability to develop technology PDI company new product process focuses on front-end follower company new product process focuses on efficiency

PDI requires an innovation value chain that focuses on the front-end of the new product process

PDI companies invest in building advanced capabilities to gain deep people understanding

PDI companies invest in building advanced capabilities to gain deep people understanding

The traditional process centers on execution and is based on generic knowledge Idea generation is based on generic knowledge generated separately from the innovation process Execution is the main focus of the process. ideas execution process of a traditional innovation project generic knowledge-base research & expertise markets technology etc. test test test

The traditional process centers on execution and is based on generic knowledge

Idea generation is based on generic knowledge generated separately from the innovation process

Execution is the main focus of the process.

research & expertise

markets

technology

etc.

The PDI process integrates need research, fostering creativity and execution efficiency Extensive need research of people is integrated into the specific innovation project Solution generation is based upon said specific research, and complemented with generic knowledge. This increases creativity and improves the efficiency of innovation. execution process of a PDI project generic knowledge-base solutions generation understanding needs of demand + supply research & expertise markets technology etc.

The PDI process integrates need research, fostering creativity and execution efficiency

Extensive need research of people is integrated into the specific innovation project

Solution generation is based upon said specific research, and complemented with generic knowledge.

This increases creativity and improves the efficiency of innovation.

research & expertise

markets

technology

etc.

To achieve a high degree innovation, PDI methods aim for deep people understanding which cannot be achieved through traditional methods source: Gerald Zaltman, Harvard Business School 95% conscious activity represents 5% of cognition* 5% traditional people research: research of past & conscious memories of a product >> low degree of innovation PDI methods: research of subconscious experience(s) of an activity area >> high degree of innovation

To achieve a high degree innovation, PDI methods aim for deep people understanding which cannot be achieved through traditional methods

PDI methods differ significantly from traditional ones, which is why they require important structural transformation traditional methods PDI methods where is people research conducted? real context laboratory what is the primary data type ? audio video numbers texts time dedicated to study one person? + 4 hours from 1 to 120 min. who conducts people research ? the core innovation team (internal or external) a research team separated from core innovation team

PDI methods differ significantly from traditional ones, which is why they require important structural transformation

People Driven Innovation methods are classified in 3 groups: data capture, analysis & decision, solution generation shadowing guerilla observation experience diary etc. cultural flow cultural inventory etc. scenarios experience matrix etc. role playing etc. experience workshops metaphor elicitation life style collage etc. participatory innovation body-storming etc. PDI - methods (partial list) PDI methods (People Driven Innovation) Directed people activity Natural people activity Data capture methods Analysis & decision methods In - context Out - context Out - context In - context No direct peop le involvement People observation Observation of cultural environments Solution generation methods

People Driven Innovation methods are classified in 3 groups: data capture, analysis & decision, solution generation

shadowing

guerilla observation

experience diary

etc.

cultural flow

cultural inventory

etc.

scenarios

experience matrix

etc.

role playing

etc.

experience workshops

metaphor elicitation

life style collage

etc.

participatory innovation

body-storming

etc.

PDI case

PDI case

To spark transformation towards PDI, sennse applied PDI methods to product area X, identifying 2 new product opportunities established long term innovation strategies for product area X delivered 5 new product innovation opportunities , which enabled new business models & revenue streams >> 2 opportunities were approved for further development in innovation funnel top management decided to start substantial transformation of current innovation system towards PDI main results understand client research market and products of area X (area X accounts for 15% of total revenue) analyze client’s innovation system interview client’s innovation stakeholders innovate product area X define goals & requirements define innovation methods & plan conduct PDI research lead user research visual diaries with children experience workshops with children define innovation strategy build innovation framework discover solutions transform project room into innovation show-room video tape all project activities main activities

To spark transformation towards PDI, sennse applied PDI methods to product area X, identifying 2 new product opportunities

established long term innovation strategies for product area X

delivered 5 new product innovation opportunities , which enabled new business models & revenue streams

>> 2 opportunities were approved for further development in innovation funnel

top management decided to start substantial transformation of current innovation system towards PDI

understand client

research market and products of area X (area X accounts for 15% of total revenue)

analyze client’s innovation system

interview client’s innovation stakeholders

innovate product area X

define goals & requirements

define innovation methods & plan

conduct PDI research

lead user research

visual diaries with children

experience workshops with children

define innovation strategy

build innovation framework

discover solutions

transform project room into innovation show-room

video tape all project activities

The project focused on applying PDI methods to the idea phase of our client’s innovation process Generation and selection of ideas Phase A Ideas Generation Analysis and detection of product opportunities Organization R&D&i Handbook PDI applied to idea phase end-user need identification end-user idea generation Generation and selection of ideas Analysis and detection of product opportunities Phase B Evaluation and selection of the ideas Phase A Ideas Generation source: clien t’s “R&D&i” process documentation Tools

The project focused on applying PDI methods to the idea phase of our client’s innovation process

In this project, sennse applied a mix of PDI methods for capture and analysis of need data shadowing guerilla observation experience diary etc. cultural flow cultural inventory etc. scenarios experience matrix etc. role playing etc. experience workshops metaphor elicitation life style collage etc. participatory innovation body-storming etc. PDI - methods (partial list) PDI methods (People Driven Innovation) Directed people activity Natural people activity Data capture methods Analysis & decision methods In - context Out - context Out - context In - context No direct peop le involvement People observation Observation of cultural environments Solution generation methods applied methods more explanation

In this project, sennse applied a mix of PDI methods for capture and analysis of need data

shadowing

guerilla observation

experience diary

etc.

cultural flow

cultural inventory

etc.

scenarios

experience matrix

etc.

role playing

etc.

experience workshops

metaphor elicitation

life style collage

etc.

participatory innovation

body-storming

etc.

applied methods

more explanation

To identify needs relevant for product area X in 2020, we studied lead users and children using PDI methods* PDI methods applied key research question # and user type * In addition to PDI methods, sennse conducted traditional research, such as in-depth expert interviews, quantitative market research, competitive research, etc. what is today’s experience with the product area to innovate? shadowing 5 lead users how are 2020 new drivers interacting with technology today? 1. visual diary 2. experience workshop with role playing 6 children (age 10-13)

To identify needs relevant for product area X in 2020, we studied lead users and children using PDI methods*

Shadowing of lead users helped capture today’s needs regarding experiences related to the innovation objective Video camera Lead user Research set-up for shadowing of lead users 2 Researchers

Shadowing of lead users helped capture today’s needs regarding experiences related to the innovation objective

The visual diary for children generated a first understanding of future needs relevant for the project Contents / games of diary 1. Everything at home… 2. I like to use, I don’t like to use… 3. My favorite object is… 4. Let’s go to the future… The visual diary kit The visual diary and its content is custom-designed depending on the project objectives. The graphic design has to be attractive, to foster user participation.

The visual diary for children generated a first understanding of future needs relevant for the project

The experience workshop with role-playing complemented user understanding achieved from the visual diary How they interact with an electronic product today, i.e., a cell phone. How they would interact with an electronic product in 2020. etc. Experience workshop children - role playing exercises

The experience workshop with role-playing complemented user understanding achieved from the visual diary

How they interact with an electronic product today, i.e., a cell phone.

How they would interact with an electronic product in 2020.

etc.

On the interplay between people-driven innovation and technology-driven innovation Thanks! Steven MacGregor