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Innovation Primer
Corporate IRR Withers
Source: Business Week Online, Special Report: “Get Creative!” August 1, 2005
Superior Returns of Risk Capitol
Dialing Down: Venture Capital Returns to Smaller Size Funds, Silicon Valley Bank, 5/2010
Complacency Breeds…
Innovation Dominates
Time
$
$$
$$$
0
t
Revenue
expenses
revenue
losses
profits
break-
even
round 1 round 2 round 3
Path to Promised Land
Risks Are High
Time
$
$$
$$$
0
t
Revenue
Living Dead
FizzlerDudd
expenses
Time
$
$$
$$$
0
t
Revenue
expenses
Acquisition
break-
even
round 1 round 2 round 3
IPO
m
ostly
Rewards are Large
Adoption of New Innovations
Sources: Diffusion of innovations, Rogers, E. M. (1962), New York: Free Press
innovation
introduced
Technology Adoption Lifecycle
number of
customers
Innovators
2.5%
Early
Adopters
13.5%
Early
Majority
34%
Late
Majority
34%
Laggards
16%
Crossing the Chasm
Source: Crossing the Chasm, Geoffrey Moore, 1991 (ISBN 0-06-051712-3)
Early
Adopters
Early
Majority
Late
Majority
innovation
introduced
“The Chasm”
Innovators Laggards
Technology Adoption Lifecycle
Reality Adjustment
Source: adapted from Lou Mazzucchelli, Cadre Technologies/Cutter Consortium
Business
Reality
Media
Hype
innovation
introduced
Innovators Early
Adopters
Early
Majority
Late
Majority
Laggards
Technology Adoption Lifecycle
Internal vs. External
• Entrepreneurship
– Entrepreneur(s)
– Creates businesses
– New products/services
– Creates a new structure
• Intrapreneurship
– Intrapreneur(s)
– Creates opportunities
– New or existing products/services
– Operates within an existing structure
Entrepreneurial Characteristics
• Visionary/Dreamer • Opportunistic
• Self-Confident • Competitive
• Innovative • Accept Risk
• Passionate • Rebellious
• Driven • Tenacious
“There’s only a fine line between entrepreneurship and insubordination.”
Home Depot (former) CEO Robert Nardelli
Sources of Innovation
Build
Partner
Buy
Internal
External
Key Definitions
InventionInvention
InnovationInnovation
ImitationImitation
Innovation
• Incremental Innovation
– Incremental improvements in performance
– Improvements in process over time
• Disruptive (Radical) Innovation
– Disrupt or redefine performance trajectories
– New-Market Disruptions
– Low-End Disruptions
Disruptive Technologies redefine existing markets or
establish completely new ones and can usher in a new
world order and the spoils of victory that come with it.
Disruptive Innovation (Dynamics)
Source: The Innovators Solution, Clayton Christensen (Paul Paetz @ http://www.disrupt-this.com)
Conquer Emerging S Curves
• Willingness of mangers and employees to get out of their comfort zone
(current tech, knowledge, systems, investments and processes) and
jump into new unfamiliar system is the major enabler for radical product
innovations[12]
• Companies have to invest @ A
The problem is “who knows
when time A is”. Are you willing
to abandon customers, suppliers,
assets, investments?
Performance
Time
Swarm of
New Entry
Performance
Time
Swarm of
New Entry
Swarm of New Technologies
After an industry standard is established, process innovations become more important
Product vs. Process Innovation
Top 20 Innovative
Companies in the
World
2005 poll of 940 senior
executives in 68 countries
by Boston Consulting
Group
Source: Business Week Online, Special Report:
“Get Creative!” August 1, 2005
Obstacles to Radical Innovation
Organizational Inertia
Organizational Culture
• Radical innovation rejects order
• Growth requires structure & control
• Structure & control frighten entrepreneurs
• Success rate in venture capital 1:10
• Large firms must maintain momentum
• Find the next “game changer” at same time
• Established firms have more to lose
• Odds must be more than 1:10
Obstacles to Radical Innovation
Obstacles to Radical Innovation
Risk Aversion
• Requires risk
– Operational risk
– Execution risk
– Career risk
• Requires resources
– Compete for funds
– Investing for future
– Near-term results required
• Requires executive support
– Support from top critical
– Invisible from bottom
Obstacles to Radical Innovation
Organizational Structure
• Emerging businesses lack hard data and often rely on
intuition or SWAG’s
• New businesses require innovation, innovation requires
fresh ideas, fresh ideas require “mavericks”
• Established business systems favor existing
businesses over riskier new ventures
• Business must establish a balance between de-
centralized and centralized efforts
Types of Innovation
Source: Idris Mootee, 2007 (http://mootee.typepad.com/)
Obstacles to Radical Innovation
Customer
Perceived
Value
Technological Product Change
Company Related Innovation
New Technology – Same Perceived Value
Radical Product Innovation
New Technology – High Perceived
Value
Incremental Product Innovation
Minimal change Technology/Value
Customer Related Innovation
Current Technology – Better Satisfaction
Source: Herrman, Tomczak, & Befurt
highlow
high
low
Obstacles to Radical Innovation
• Schumpeter “creative destruction”: radical product
innovation will jeopardize market positions of
those who concentrate on old technology[1]
• Bigger companies are better suited for radical
innovation than smaller companies based on
access to resources.
• Smaller firms are fearless and nimble
• Venture Capital may be the great equalizer!
and the debate rages on…
Get in the GAME!
Selected References
[01] Herrmann, A., Tomczak, T., Befurt, R. (2006), “Determinants of Radical Product Innovations” (2006), European Journal of
Management, Vol. 9, pp. 20-43.
[02] Christensen, Clayton M.; The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail; Harvard Business
School Press; 1997
[03] Christensen, Clayton M.; The Innovators Solution (Paul Paetz @ http://www.disrupt-this.com)
[04] Rebecca Henderson, "Underinvestment and Incompetence as Responses to Radical Innovation: Evidence from the
Photolithographic Alignment Equipment Industry," Rand Journal of Economics 24, no. 2 (Summer 1993): 248-270
[05] De Jong, J., Vermeulen, P. (2006), “Determinants of Product Innovation in Small Firms”, International Small Business
Journal, Vol. 24, pp. 587-609.
[06] Business Week Online, Special Report: “Get Creative!” August 1, 2005
[07] Silicon Valley Bank; Dialing Down: Venture Capital Returns to Smaller Size Funds, Silicon Valley Bank, 5/2010
[08] Frog Design, Innovation by 10, 2010 (http://www.slideshare.net/frogdesign/innovation-by-10)
[09] Garvin and Levesque, Meeting the Challenge of Corporate Entrepreneurship, Harvard Business Review 10/06
[10] Types of Innovation; Idris Mootee, 2007 (http://mootee.typepad.com/)
[11] Chandy, R., Telles, G.; Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Canibalize; Journal
of Marketing Research; Vol. XXXV, 11/1998 pp. 474-487
[12] Hitt, Michael A./Ireland, R. Duane/Hoskisson, Robert E. (2009) Strategic Management – Competitiveness and Globalization
(Concepts), 8th
edition; Mason, OH: South–Western (ISBN 13: 978-0-324-65559-9)
[13] Skarzynski , P., Gibson, R.,& Rowan; Innovating Across the Business Model,, Harvard Business Press, 2008, ISBN13: 978-
1-4221-5122-8
[14] Kolk, A.; Four levels of innovation: business model, product & service, process, technology (www.alarkolk.com)
[15] Van de Ven, A.; Central Problems in the Management of Innovation; Management Science, Vol. 32, No. 5, Organization
Design (May, 1986), pp. 590-607 Published by: INFORMS Stable URL: http://www.jstor.org/stable/2631848 Accessed:
21/08/2009 14:48
[16] Zehr, Wilson (2006), Cube Management; Strategic Marketing: How to Crush the Competition and Boost Sales,
http://www.cendix.com/resources.html (June 21, 2006)
[17] Zehr, Wilson (2009), School of Management, Concordia University, SOM 451 (April 3, 2009)

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BA 495: Innovation Primer

  • 2. Corporate IRR Withers Source: Business Week Online, Special Report: “Get Creative!” August 1, 2005
  • 3. Superior Returns of Risk Capitol Dialing Down: Venture Capital Returns to Smaller Size Funds, Silicon Valley Bank, 5/2010
  • 9. Adoption of New Innovations Sources: Diffusion of innovations, Rogers, E. M. (1962), New York: Free Press innovation introduced Technology Adoption Lifecycle number of customers Innovators 2.5% Early Adopters 13.5% Early Majority 34% Late Majority 34% Laggards 16%
  • 10. Crossing the Chasm Source: Crossing the Chasm, Geoffrey Moore, 1991 (ISBN 0-06-051712-3) Early Adopters Early Majority Late Majority innovation introduced “The Chasm” Innovators Laggards Technology Adoption Lifecycle
  • 11. Reality Adjustment Source: adapted from Lou Mazzucchelli, Cadre Technologies/Cutter Consortium Business Reality Media Hype innovation introduced Innovators Early Adopters Early Majority Late Majority Laggards Technology Adoption Lifecycle
  • 12. Internal vs. External • Entrepreneurship – Entrepreneur(s) – Creates businesses – New products/services – Creates a new structure • Intrapreneurship – Intrapreneur(s) – Creates opportunities – New or existing products/services – Operates within an existing structure
  • 13. Entrepreneurial Characteristics • Visionary/Dreamer • Opportunistic • Self-Confident • Competitive • Innovative • Accept Risk • Passionate • Rebellious • Driven • Tenacious “There’s only a fine line between entrepreneurship and insubordination.” Home Depot (former) CEO Robert Nardelli
  • 16. Innovation • Incremental Innovation – Incremental improvements in performance – Improvements in process over time • Disruptive (Radical) Innovation – Disrupt or redefine performance trajectories – New-Market Disruptions – Low-End Disruptions Disruptive Technologies redefine existing markets or establish completely new ones and can usher in a new world order and the spoils of victory that come with it.
  • 17. Disruptive Innovation (Dynamics) Source: The Innovators Solution, Clayton Christensen (Paul Paetz @ http://www.disrupt-this.com)
  • 18. Conquer Emerging S Curves • Willingness of mangers and employees to get out of their comfort zone (current tech, knowledge, systems, investments and processes) and jump into new unfamiliar system is the major enabler for radical product innovations[12] • Companies have to invest @ A The problem is “who knows when time A is”. Are you willing to abandon customers, suppliers, assets, investments?
  • 19. Performance Time Swarm of New Entry Performance Time Swarm of New Entry Swarm of New Technologies
  • 20. After an industry standard is established, process innovations become more important Product vs. Process Innovation
  • 21. Top 20 Innovative Companies in the World 2005 poll of 940 senior executives in 68 countries by Boston Consulting Group Source: Business Week Online, Special Report: “Get Creative!” August 1, 2005
  • 22. Obstacles to Radical Innovation Organizational Inertia
  • 23. Organizational Culture • Radical innovation rejects order • Growth requires structure & control • Structure & control frighten entrepreneurs • Success rate in venture capital 1:10 • Large firms must maintain momentum • Find the next “game changer” at same time • Established firms have more to lose • Odds must be more than 1:10 Obstacles to Radical Innovation
  • 24. Obstacles to Radical Innovation Risk Aversion • Requires risk – Operational risk – Execution risk – Career risk • Requires resources – Compete for funds – Investing for future – Near-term results required • Requires executive support – Support from top critical – Invisible from bottom
  • 25. Obstacles to Radical Innovation Organizational Structure • Emerging businesses lack hard data and often rely on intuition or SWAG’s • New businesses require innovation, innovation requires fresh ideas, fresh ideas require “mavericks” • Established business systems favor existing businesses over riskier new ventures • Business must establish a balance between de- centralized and centralized efforts
  • 26. Types of Innovation Source: Idris Mootee, 2007 (http://mootee.typepad.com/)
  • 27. Obstacles to Radical Innovation Customer Perceived Value Technological Product Change Company Related Innovation New Technology – Same Perceived Value Radical Product Innovation New Technology – High Perceived Value Incremental Product Innovation Minimal change Technology/Value Customer Related Innovation Current Technology – Better Satisfaction Source: Herrman, Tomczak, & Befurt highlow high low
  • 28. Obstacles to Radical Innovation • Schumpeter “creative destruction”: radical product innovation will jeopardize market positions of those who concentrate on old technology[1] • Bigger companies are better suited for radical innovation than smaller companies based on access to resources. • Smaller firms are fearless and nimble • Venture Capital may be the great equalizer! and the debate rages on…
  • 29. Get in the GAME!
  • 30. Selected References [01] Herrmann, A., Tomczak, T., Befurt, R. (2006), “Determinants of Radical Product Innovations” (2006), European Journal of Management, Vol. 9, pp. 20-43. [02] Christensen, Clayton M.; The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail; Harvard Business School Press; 1997 [03] Christensen, Clayton M.; The Innovators Solution (Paul Paetz @ http://www.disrupt-this.com) [04] Rebecca Henderson, "Underinvestment and Incompetence as Responses to Radical Innovation: Evidence from the Photolithographic Alignment Equipment Industry," Rand Journal of Economics 24, no. 2 (Summer 1993): 248-270 [05] De Jong, J., Vermeulen, P. (2006), “Determinants of Product Innovation in Small Firms”, International Small Business Journal, Vol. 24, pp. 587-609. [06] Business Week Online, Special Report: “Get Creative!” August 1, 2005 [07] Silicon Valley Bank; Dialing Down: Venture Capital Returns to Smaller Size Funds, Silicon Valley Bank, 5/2010 [08] Frog Design, Innovation by 10, 2010 (http://www.slideshare.net/frogdesign/innovation-by-10) [09] Garvin and Levesque, Meeting the Challenge of Corporate Entrepreneurship, Harvard Business Review 10/06 [10] Types of Innovation; Idris Mootee, 2007 (http://mootee.typepad.com/) [11] Chandy, R., Telles, G.; Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Canibalize; Journal of Marketing Research; Vol. XXXV, 11/1998 pp. 474-487 [12] Hitt, Michael A./Ireland, R. Duane/Hoskisson, Robert E. (2009) Strategic Management – Competitiveness and Globalization (Concepts), 8th edition; Mason, OH: South–Western (ISBN 13: 978-0-324-65559-9) [13] Skarzynski , P., Gibson, R.,& Rowan; Innovating Across the Business Model,, Harvard Business Press, 2008, ISBN13: 978- 1-4221-5122-8 [14] Kolk, A.; Four levels of innovation: business model, product & service, process, technology (www.alarkolk.com) [15] Van de Ven, A.; Central Problems in the Management of Innovation; Management Science, Vol. 32, No. 5, Organization Design (May, 1986), pp. 590-607 Published by: INFORMS Stable URL: http://www.jstor.org/stable/2631848 Accessed: 21/08/2009 14:48 [16] Zehr, Wilson (2006), Cube Management; Strategic Marketing: How to Crush the Competition and Boost Sales, http://www.cendix.com/resources.html (June 21, 2006) [17] Zehr, Wilson (2009), School of Management, Concordia University, SOM 451 (April 3, 2009)