Module 6 - Services innovation Closed Vs Open Innovation in the Information and Services driven Economy
Classic linear model of innovation <ul><li>Powerful, simple conceptualization; useful but not the whole story </li></ul><u...
Example of new drug <ul><li>Basic research: microbiology </li></ul><ul><li>Applied research: screening compounds, testing ...
Linear model of innovation <ul><ul><li>Science base=> basic research=> applied research=> invention=> prototype=> developm...
Limits of linear model <ul><li>Feedback loops & backward linkages  </li></ul><ul><ul><li>Applied research/innovation=> sci...
Uncertainty and chance <ul><li>Many examples in history of technology of innovations under-appreciated at the time </li></...
Linear model and organization <ul><li>Linear model => Closed industrial model of innovation: Focused internal R&D, clear f...
Open innovation <ul><li>Open innovation:   combine external and internal R&D into architectures and systems whose requirem...
Closed v. open innovation <ul><li>All smart people in the field work for us </li></ul><ul><li>To profit from R&D must disc...
Democratizing innovation <ul><li>User-centered innovation offers advantages over traditional producer-centered innovation,...
User and producer-centered  <ul><li>Economies of scale v. economies of scope (heterogeneous info & resources among users) ...
Democratization of design <ul><li>Increasingly capable & cheaper tools that require less skill and training to use  </li><...
Service innovation: new markets <ul><li>Market-creating service innovations v. incrementally improved services </li></ul><...
Market-creating service innovations <ul><li>Flexible solutions </li></ul><ul><ul><li>FedEx </li></ul></ul><ul><ul><li>eBay...
Market-creating service innovations <ul><li>3. Comfortable gains </li></ul><ul><ul><li>Starbucks </li></ul></ul><ul><ul><l...
Typology of service innovation <ul><li>Business model innovation: </li></ul><ul><ul><li>Substantial change how revenues an...
Creation networks <ul><li>“ Networks of creation:” hundreds or thousands of participants from diverse institutions collabo...
Coordination challenges <ul><li>Three primary challenges in creation process: </li></ul><ul><li>Access and develop highly ...
Product development <ul><li>An iterative problem-solving (trial and error) process </li></ul>DESIGN BUILD RUN ANALYZE
Product development in new era <ul><li>Rapid movement from concept to prototype (rapid prototyping) </li></ul><ul><li>Defi...
What is Web 2.0? (Tim O’Reilly) <ul><li>Strategic positioning </li></ul><ul><ul><li>The web as a platform (Google v. Netsc...
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Topic 2 Innovation Models In The Services Driven Economy

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ACPS 2010, Module 6, Services Innovation
Topic 2
Innovation Models in the Services Economy
Linear Vs Open/Collaborative/Dynamic Models of innovation

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Topic 2 Innovation Models In The Services Driven Economy

  1. 1. Module 6 - Services innovation Closed Vs Open Innovation in the Information and Services driven Economy
  2. 2. Classic linear model of innovation <ul><li>Powerful, simple conceptualization; useful but not the whole story </li></ul><ul><li>Science base => basic research => applied research => invention => prototype => development => commercialization => diffusion => technical progress => economic growth </li></ul>
  3. 3. Example of new drug <ul><li>Basic research: microbiology </li></ul><ul><li>Applied research: screening compounds, testing on animals </li></ul><ul><li>Invention: lab success </li></ul><ul><li>Development: clinical trials </li></ul><ul><li>Commercialization: package, market </li></ul><ul><li>Diffusion: spreads to doctors and patient populations </li></ul>
  4. 4. Linear model of innovation <ul><ul><li>Science base=> basic research=> applied research=> invention=> prototype=> development=> commercialization=> diffusion=> technical progress=> econ growth </li></ul></ul><ul><li>Which segments are “innovation”? </li></ul><ul><li>What purposes served by this model? </li></ul>
  5. 5. Limits of linear model <ul><li>Feedback loops & backward linkages </li></ul><ul><ul><li>Applied research/innovation=> science </li></ul></ul><ul><ul><li>Commercialization=> new innovation </li></ul></ul><ul><ul><li>Invention/innovation=> science base via improvements in instrumentation </li></ul></ul><ul><li>“ Learning by doing” in manufacturing </li></ul><ul><ul><li>Chemicals, airframes, semiconductors </li></ul></ul><ul><li>“ Learning by using” user feedback </li></ul><ul><ul><li>Software, skateboards </li></ul></ul>
  6. 6. Uncertainty and chance <ul><li>Many examples in history of technology of innovations under-appreciated at the time </li></ul><ul><ul><li>Laser, radio, computer </li></ul></ul><ul><li>Laser (Light Amplification by Stimulated Emission of Radiation) </li></ul><ul><ul><li>Invented at Bell Labs circa 1960 </li></ul></ul><ul><ul><li>Lawyers didn’t apply for patents, not useful </li></ul></ul><ul><ul><li>Now used in fiber-optic cables as well as navigation, CDs, surgery, navigation etc. </li></ul></ul>
  7. 7. Linear model and organization <ul><li>Linear model => Closed industrial model of innovation: Focused internal R&D, clear firm boundaries, IP rights, virtuous cycles of reinvestment </li></ul><ul><li>Examples: AT&T Bell Labs, Xerox PARC </li></ul>
  8. 8. Open innovation <ul><li>Open innovation: combine external and internal R&D into architectures and systems whose requirements are defined by a business model; blurs boundaries of firm R&D </li></ul><ul><li>Examples: Silicon Valley, Hollywood, P&G </li></ul>
  9. 9. Closed v. open innovation <ul><li>All smart people in the field work for us </li></ul><ul><li>To profit from R&D must discover, develop & ship </li></ul><ul><li>We can get to market first if we innovate </li></ul><ul><li>First company to market will win </li></ul><ul><li>If we create most and best ideas, we’ll win </li></ul><ul><li>We must control our IP </li></ul><ul><li>There are smart people outside & inside </li></ul><ul><li>External R&D can add value alongside internal </li></ul><ul><li>We need not originate research to benefit </li></ul><ul><li>Building better business model more important than first to market </li></ul><ul><li>We win if we make best use internal & external </li></ul><ul><li>We can profit from others’ use of our IP and benefit from theirs when appropriate </li></ul>
  10. 10. Democratizing innovation <ul><li>User-centered innovation offers advantages over traditional producer-centered innovation, which concentrates innovation support resources on just a few pre-selected potential innovators </li></ul><ul><li>Users can develop what they want, enhances motivation </li></ul><ul><li>Users need not develop everything they need; they can benefit from innovations developed and freely shared with others </li></ul>
  11. 11. User and producer-centered <ul><li>Economies of scale v. economies of scope (heterogeneous info & resources among users) </li></ul><ul><li>Producers integrate themselves into user-centric innovation model </li></ul><ul><ul><li>Provide custom production or “foundry” services to users: faster, better, cheaper; </li></ul></ul><ul><ul><li>Produce user-developed innovations commercially; </li></ul></ul><ul><ul><li>Sell product-development platforms or sell other complementary products </li></ul></ul><ul><li>For information products, no manufacturer is required & general distribution occurs mainly through communities </li></ul>
  12. 12. Democratization of design <ul><li>Increasingly capable & cheaper tools that require less skill and training to use </li></ul><ul><li>Tools for communication make it easier for user-innovators to gain access to rich libraries of modifiable innovations and components that have been placed in the public domain </li></ul><ul><ul><li>Today users design sophisticated new products, services, music and art </li></ul></ul><ul><ul><li>Open source software movement as key example </li></ul></ul><ul><ul><li>Web 2.0 explicitly recognizes users add value </li></ul></ul>
  13. 13. Service innovation: new markets <ul><li>Market-creating service innovations v. incrementally improved services </li></ul><ul><ul><li>Examples: Cirque du Soleil, University of Phoenix </li></ul></ul><ul><li>Service v. product innovation </li></ul><ul><ul><li>Service providers part of innovation </li></ul></ul><ul><ul><li>Local delivery capacity required for in-person services </li></ul></ul><ul><ul><li>No physical product to brand </li></ul></ul>
  14. 14. Market-creating service innovations <ul><li>Flexible solutions </li></ul><ul><ul><li>FedEx </li></ul></ul><ul><ul><li>eBay </li></ul></ul><ul><ul><li>CNN </li></ul></ul><ul><li>Controllable convenience </li></ul><ul><ul><li>Google </li></ul></ul><ul><ul><li>Netflix </li></ul></ul><ul><ul><li>Skype </li></ul></ul>
  15. 15. Market-creating service innovations <ul><li>3. Comfortable gains </li></ul><ul><ul><li>Starbucks </li></ul></ul><ul><ul><li>Cirque du Soleil </li></ul></ul><ul><ul><li>Barnes & Noble </li></ul></ul><ul><li>Respectful access </li></ul><ul><ul><li>Ball Memorial Hospital </li></ul></ul><ul><ul><li>Southwest Airlines </li></ul></ul><ul><ul><li>Hertz #1 Club Gold </li></ul></ul>
  16. 16. Typology of service innovation <ul><li>Business model innovation: </li></ul><ul><ul><li>Substantial change how revenues and profits earned (business model); often accompanied by organizational changes </li></ul></ul><ul><li>Process/system innovation: </li></ul><ul><ul><li>Changes in how information exchanged between customer and service provider, bus processes </li></ul></ul><ul><li>Service product innovation: </li></ul><ul><ul><li>Introduction of entirely new services </li></ul></ul><ul><li>In reality all 3 are interrelated; an iterative process </li></ul>
  17. 17. Creation networks <ul><li>“ Networks of creation:” hundreds or thousands of participants from diverse institutions collaborate to create new knowledge, learn from one another, and appropriate and build on one another’s work—under guidance of a network organizer. </li></ul><ul><ul><li>Rather than protecting and hoarding knowledge, offer to others to gain access to broader knowledge flows. </li></ul></ul><ul><ul><li>Opportunity to jointly create new knowledge and deliver innovations to market by collaborating closely; long-term, interactive relationships with networks of suppliers, customers, specialists, even amateurs </li></ul></ul>
  18. 18. Coordination challenges <ul><li>Three primary challenges in creation process: </li></ul><ul><li>Access and develop highly distributed talent </li></ul><ul><li>Provide appropriate contexts for participants to come together, collaborate to experiment, tinker, and innovate (least actively managed) </li></ul><ul><li>Effectively integrate the creations of diverse participants into shared releases (most actively managed) </li></ul><ul><li>Central importance of performance requirements and feedback loops to insure continuous improvement </li></ul>
  19. 19. Product development <ul><li>An iterative problem-solving (trial and error) process </li></ul>DESIGN BUILD RUN ANALYZE
  20. 20. Product development in new era <ul><li>Rapid movement from concept to prototype (rapid prototyping) </li></ul><ul><li>Define early and frequent rounds of performance tests to learn quickly and adapt designs </li></ul><ul><li>Establish broad-based communications mechanisms to share performance data </li></ul><ul><li>“ Managers must move their focus beyond narrow efficiency gains …and embrace the possibilities that uncertainty creates.” J.S. Brown & J. Hagel (2006) </li></ul>
  21. 21. What is Web 2.0? (Tim O’Reilly) <ul><li>Strategic positioning </li></ul><ul><ul><li>The web as a platform (Google v. Netscape) </li></ul></ul><ul><li>User positioning </li></ul><ul><ul><li>You control your own data (Data is the next Intel Inside) </li></ul></ul><ul><li>Core competencies </li></ul><ul><ul><li>Services, not packaged software </li></ul></ul><ul><ul><li>Architecture of participation (RSS) </li></ul></ul><ul><ul><li>Cost-effective scalability </li></ul></ul><ul><ul><li>Re-mixable data source and transformations </li></ul></ul><ul><ul><li>Software above level of single device (iPod/iTunes) </li></ul></ul><ul><ul><li>Collective intelligence (hyperlinks, users as co developers) </li></ul></ul>

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