Innovation Cycle

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Heavy content. Phasing theory of product evolution. A unifying view on innovation phenomena, techniques and instruments.

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Innovation Cycle

  1. 1. theInnovation Cycle a continuous growth theory Draft August 2011 IDEA
  2. 2. content Innovation cycle theoretical background organizational chaining constrains characterizations Product Phasing Skill Innovative taxonomy conditions sets background innovation instrumentsGeoffrey Clayton Chris Malcolm Gary Moore Christensen Argyris Gladwell Hamel Bill Leif Angela ? SteveGates Edvinsson Merkel Blank
  3. 3. Organizational constrains theory
  4. 4. Two organizational formsas a Fn of product complexity Market exchange is more efficient Coase’s firm theory In-house production is better than procuring the product
  5. 5. Two ownership formsas a Fn of asset building costs Property is more Implementation costs valuable than are higher than the implementation costs value of property that controls an opportunity Demsetz’s property theory
  6. 6. Organizational forms as a function of relative costs Value > property Costs > costs property value Cheaper goods exchange Markets Commons to build in-house Property Cheaper Firms regimesCoase’s firm theory + Demsetz’s property theory
  7. 7. Efficient production formsas a Fn of product attributes Value > Costs > property Costs property value Abundance Commodity of market product that exchange Goods players, serves universal significant product need Hygienic Complex, product in an in-house unique Build inapt product in providers’ monopoly market
  8. 8. ∑Constrains summaryOptimal production formDepends on:• market ubiquity• production costsMay require an operation within a social and economic paradigmwhich isn’t widely tolerable.
  9. 9. Chaining theory
  10. 10. Efficient production formsas a Fn of product life-cycle Value > property Costs > Costs property value exchange Goods in-house Build Spasokukotskiy’s phasing theory
  11. 11. Any product drifts Cheaper and adjustable replicas of the editorthe cycle over time The idea is picked up. Mass product 2 3 A text editor is created as custom built code 1 4 The editor’s functionality is integrated in other products as a component
  12. 12. maturing all the wayincreasing market penetration pervasion inception
  13. 13. upon market saturationthe product can make a quality leap pervasion actual maturity limit >> integration cycle quality leap inception components cycle
  14. 14. …becoming a standard componentdue to an integration pervasion inceptionText editor’s life cycle as a product component Text editor’s life cycle as a stand-alone product
  15. 15. …over and over again quality leaps
  16. 16. ∑Chaining summaryOptimal production formDepends on:• market maturity• product ubiquityIs chained:• the forms change each over in a strict sequence• the transformative process is one-way street• repeats in a loop over and over again
  17. 17. ∑Chaining corollariesFollowing theories are necessarily to consider:• skills phasing• business objectives phasing• economic regime phasing• phase timing• organizational forms phasing One solution doesn’t fit all
  18. 18. Innovation cycle characterization
  19. 19. Product parametersdefine dots in the cycle product phasing skill taxonomy + conditions + sets = cycle
  20. 20. Two scales are commonfor all products in the cycle buying entities costs/profit
  21. 21. Break-through productspop share non-consumption entities coverage price New product projects costs/profit
  22. 22. Mass market productspop share entities coverage price costs/profit
  23. 23. Saturation productscommon base standards pop share entities coverage priceThis phase deliversflavors to any taste.The number of buyers forevery variant reduces.The core functionalitythough becomes a commongood and knowledge costs/profit
  24. 24. Next-level productspop share non-consumption entities coverage price next level infrastructure phase the tipping point “final touch” phase costs/profit
  25. 25. product-market-costs-time optimizationcycle overview Product A buying entities Product B costs/profit
  26. 26. Product parametersdefine dots in the cycle product phasing skill taxonomy + conditions + sets = cycle
  27. 27. Phasing of product typeis due to changes in costs and profits price potential price profit costs
  28. 28. Labor divisionis the main theme in progress Vendor 3All new products satisfy the same existingneed/want. Typically new products areimproving a subset of the wholetechnological stack that serves to the Value stack Vendor 2need. Many industry playerssimultaneously control the value stack. Vendor 1
  29. 29. If there is a market niche, wherepotential price is much larger than costs Vendor 3 technology Value profit costs Vendor 1
  30. 30. enterprises and build-to–order venturestake the chance profit costs project
  31. 31. If a known and available product has apotential price up to profit standards Vendor 3 technology Value profit costs Vendor 1
  32. 32. There is no risk toscale the production as along as it goes mass profit production costs
  33. 33. If the value stack is gainful but asubset’s costs are higher than price Vendor 3 technology Value costs Vendor 1
  34. 34. The losses are covered by stakeholdersfrom profits through a cooperation cooperation costs
  35. 35. partners or commons cover excess costs Vendor 3 producing consumers technology Value• the value stack partners costs (value stack is clearly defined, high entry barriers)• commons (3rd party) Vendor 1 (value stack is blurry, covers too many bases, low entry barriers)
  36. 36. there is no profit in the entire value stackbut the product is a must-have costs technology Value costs costs
  37. 37. Hygienic products are protected by societythrough regulations costs Government enterprise
  38. 38. This phase isn’t always evidentit could be short, or disguised costs technology Value Governmental preferences, easy tax regime, grant support, etc. all cover costs in a costs distressed value stack. costs
  39. 39. An innovation reduces costs of the entirevalue stack, then the cycle begins anew Value > Costs > property Costs property value exchange mass Goods production cooperation in-house government Build project enterprise innovation
  40. 40. True innovation redesigns industries andvalue chains across multiple stakeholders beneficiary Value stack inventor beneficiaryOther product transformations along thecycle are various forms of continuousimprovement process
  41. 41. But if you stretch the term, there arevarious types of innovation process innovation | effectiveness application innovation experiential innovation product innovation business model innovations process innovation | efficiency sustaining innovation structural innovation marketing innovation disruptive innovation
  42. 42. Innovation comparisoninnovation internal customer side structure capability practice structure capability practicedisruptive new, cheaper and better new market low-endsustaining Improves improves product valueapplication existing technology to new markets, serve new purposeproduct improves established offersprocess optimizes for established marketsexperiential cosmetics modificationsmarketing tweak touchingBusiness change change reframes value propositionmodel company role focusstructural restructure major gains industry
  43. 43. Product parametersdefine dots in the cycle product phasing skill taxonomy + conditions + sets = cycle
  44. 44. Every phase answers different questionand uses different governance principles1. Hierarchy – search for product fit and production method buying entities2. Process chain – search for common market 2 denominator and scalable production output3. Network - search for 1 3 true market fit and inexpensive supply4. Dictatorship – search for supply security and working ideas 4 costs/profit
  45. 45. Innovation cycle instruments
  46. 46. Why is a product maturity cycle calleda cycle of innovation? huge problem minor problemThere are systemic hurdles onthe road. Lateral ideas arerequired to pass through. significant problem
  47. 47. innovation theorieschallenges overview Christensen’s dilemma learning Moore’s chasm leap discipline leap Argyris’ single-loop learning & double-loop learning
  48. 48. Double-loop learning learning leap discipline leap Argyris’ single-loop learning & double-loop learning
  49. 49. Single-loop mindsetsof successful executives Product A•Defensiveness•Hiding and denyinguncomfortable information•Avoiding negativity•A need to win at all costs•Worshipping rationalbehavior, decrying anythingthat doesn’t conform•“I’m right” attitude by Chris Argyris
  50. 50. Double-loop mindsetof successful executives•Dialogue•Sharing tasks and information•Free choice based on vividinformation•Questioning the assumptions by Chris Argyris Product B
  51. 51. The business development chasm Moore’s chasm
  52. 52. Startups face a market gap (the chasm)expanding from cheering crowd to mainstream sales time
  53. 53. Innovator’s dilemma Christensen’s dilemma
  54. 54. Companies overshoot market demandnot willing to give up profitable position Product performance time
  55. 55. innovation theoriessolutions Christensen’s modularization, Hamel’s agents provocateurs non-consumption Gate’s success principles paradigm shift product adoption Gladwell’s tipping points Merkel’s subsidy targets idea buy-in Edvinsson’s corporate longitude new idea Blank’s pivot stepsMoore’s components-to-platforms Siegel’s IDEA
  56. 56. Are there other innovation theories?provide your input ?
  57. 57. AuthorKonstantyn Spasokukotskiyyour gateway to technology and innovationwww.spasokukotskiy.infoReferencesYochai Benkler - The Wealth of Networks, 2006Clayton Christensen – The Innovator’s Dilemma, 2003Geoffrey Moore – Crossing the Chasm, 1991Chris Argyris – Organizational Learning, 1978 free to copy and reuse with proper attribution

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