Capstone Innovation Sessions 1, 2 and 3 · PDF file5. Repositionings 6. ... in Porter’s 5 Forces Model. Capstone: Innovation – Sessions 1, 2 and 3 ... instead of the iPod uses

Capstone: Innovation – Sessions 1, 2 and 3 – © Prof. Dr. Holger Ernst – Slide 1

© Prof. Dr. Holger Ernst

Chair of Technology and Innovation ManagementWissenschaftliche Hochschule für Unternehmensführung (WHU)

- Otto Beisheim School of Management -Burgplatz 2

D- 56179 Vallendar

Tel: +49-(0)261-6509-241Fax: +49-(0)261-6509-249e-mail: [email protected]://www.whu.edu/tim

Sessions 1, 2 and 3: Innovation Fundamentals, Strategy and Sustainable Competitive Advantage


Agenda

I. Innovation: Definition

II. Innovation Strategies (Innovation Radar)

III. Innovation and Sustainable Competitive Advantage


Innovation?


Innovation?


„Innovation is relevant only if it creates value for customers — andtherefore for the firm. Thus creating “new things” is neither necessary norsufficient for business innovation. Customers are the ones who decide theworth of an innovation by voting with their wallets. It makes nodifference how innovative a company thinks it is.

What matters is whether customers will pay.“

(Sawhney et al., 2006, pp. 76-77)

Business Innovation is About New Value, Not New Things.


Definition of an Innovation – The managers’ view

“Great new ideas that are turned into hard cash.”


Source: “View from the Top”, The Economic Times Bangalore, August 17th, 2003

Technology vs. Innovation –View from the CEOs of Leading High Tech Firms


How „new“ is an innovation – A common classification

1. New-to-the-world products or really-new products

2. New-to-the-firm products or new product lines

3. Additions to existing product lines

4. Improvements and revisions to existing products

5. Repositionings

6. Cost reductions


Some examples of „new-to-the-world“ innovations


How „new“ is an innovation – A common classification

1. New-to-the-world products or really-new products

2. New-to-the-firm products or new product lines

3. Additions to existing product lines

4. Improvements and revisions to existing products

5. Repositionings

6. Cost reductions


Agenda





Successful Innovations Come in Different Ways


Source: Sawhney et al Sloan Mgmt Review Spring 2006

Dimensions of Innovations


Dimensions of Innovation - Examples


Successful Innovations – The Nespresso Case


Dimensions of Innovation – The Nespresso Case

Offering(WHAT)

Platforms

Solution

Customers(WHO)

Customer Experience

Value Capture

Process(HOW)

Organization

Supply Chain

Presence(WHERE)

Networking

Brand


Nespresso Revenues in Euro (billion)

Source: Euromonitor

0,14

0,72

1,52

2,32

2,90

3,603,47

0,00

1,00

2,00

3,00

4,00

2000 2006 2008 2010 2011 2012 2013

Nes

pres

so re

venu

e (w

orld

wid

e, in

bill

ion

EUR

)

Years



Dimensions of Innovation – The Vapiano Case

Offering(WHAT)

Platforms

Solution

Customers(WHO)

Customer Experience

Value Capture

Process(HOW)

Organization

Supply Chain

Presence(WHERE)

Networking

Brand


Example of Business Model Innovations


Source: Boston Consulting Group (2014)

The 50 Most Innovative Companies In The World 2014 (BCG)

2005 to 2014


Five Sources of Innovation Strength (BCG 2013)

I. Top Management Commitment to Innovation

II. Leveraging Intellectual Property

III. Managing the Portfolio of Innovation Activities

IV. Strong Customer Focus

V. Insisting on Strong Processes


Agenda





(1) Innovations give companies the opportunity to obtain significantand sustainable competitive advantages.

(2) Missed innovations can lead to life-threatening crises in companies or missed growth opportunities.

(3) Decreasing product life cycles (due to changes in customer needs,technological changes, global competition); target for growth can only be reached by continuous implementation of innovations (strategic gap).

(4) Increasing commoditization and continued downward pressure on profit margins can only be avoided by differentiation through innovation.

- Simple "me-too" strategies are unsuccessful.- Cost cutting works only short-term- Differentiation of products occurs only through innovative

product characteristics (fights commoditization and decreasingprofit margins).

Why does Innovation Impact Company Performance?


„The other approach to competitive strategy formulation is to use strategyto change industry structure (the rules of competition) in firm‘s favor.When the strategies of highly successful firms are examined, a strikingnumber have succeeded in changing the competitive rules in theirindustries in ways that are defensible. What makes technology uniqueas a strategic variable is its considerable power to change thecompetitive rules of the game. Technological change can be a greatequalizer that nullifies the advantages of incumbents and createsopportunities for newcomers and followers. Technological change isperhaps the most important source of major market share changesamong competitors for this reason, and is probably the most frequentcause of the demise or entrenched dominant firms.“

(Porter, 1983, pp. 213-214)

The Impact of Technology (Innovation) on Competition


Quelle, Otto, Borders, Media Markt,vs Amazon, Ebay, ZalandoMotorola, Nokia, RIM vs. Apple, Samsung, GoogleDaimler vs Toyota vs BYD vs TeslaBig Pharma vs GenentechYahoo vs Google, FacebookDt. Telekom vs. SkypeIntel vs ARM, QualcommSony vs Nintendo, Sharp, AppleTaxis vs UberHotels vs AirBnB

CNC, CDs, DVDs, PCs, CRT/LC/OLEDDigital Photography, Digitalization,

Streaming, Cloud Technologies

„Lead Users“,Internet: Pricing; Medical ServicesBrand (Apple)

Bosch,Continental Biotechs (Big Pharma)

Apple, Google, IBM, Roche, Toyota, Bosch,Merck, Otto Bock, Hidden Championsetc.

The Impact of Technology (Innovation) in Porter’s 5 Forces Model


Source: Simon (1996) , (2007) and (2009)

Innovation Leadership is the Key to Success of Hidden Champions


Source: Simon, Hidden Champions, 2009 p. 187

The Importance of Innovation for Hidden Champions

“Innovation is one of the key pillars on which the market leadership of the hidden champions is based.

….At the start of the twenty-first century, the hidden

Champions have embarked on a phase of massive innovations.Innovations are the main reason for the increase in their relative

market shares.”


Disruptive Business Models come often fromother Industries or Start-Ups

Incumbent Newcomer



Incumbent Newcomer



Incumbent Newcomer



(2) Missed innovations can lead to life-threatening crises in companiesor missed growth opportunities.



- Simple "me-too" strategies are unsuccessful.- Cost cutting works only short-term- Differentiation of products occurs only through innovative product characteristics (fights commoditization and decreasingprofit margins).



Model: Nokia N95*

Manufacturer Nokia

Year 2007

Usage Buttons +Keyboard

Today Bought byMicrosoft

Platform Closed

Model: iPhone***

Manufacturer Apple

Year 2007

Usage Touch

Today iPhone 5s/c

Platform Open, AppStore

Model: BlackBerry8800**

Manufacturer RIM

Year 2007

Usage Buttons + Keyboard

Today Fighting tosurvive

Platform Closed

* Source: Nokia, Link: http://nds1.nokia.com/phones/files/guides/Nokia_N95-1_UG_en.pdf, ** Source: RIM, Link: http://press.rim.com/release.jsp?id=1184*** Source: Apple, Link: http://www.apple.com/pr/library/2007/01/09Apple-Reinvents-the-Phone-with-iPhone.html

Disruptive change in the mobile telecommunication market


NOKIA - From Market Leader to Follower in Record Time

Sources: Nokia, Garner, Der SPIEGEL

* Without mobile sales (mobile business sold to MicroSoft)

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013*

Sale

s (in

bill

ion

Euro

)

Years

Nokia sales (worldwide, 2007-2013)

Smartphones sold worldwide by OS

Num

bero

funi

tsso

ld(in

mill

ions

)

YearsNokia

0

10

20

30

40

50

2007 2008 2009 2010 2011 2012 2013Mar

ket s

hare

wor

ldw

ide

(in

%)

Years

Nokia market share of smartphones sold(worldwide, 2007-2013)


Sony's problemby Patrick Welter

Sony’s quarterly earnings press conferences are becoming boring. For years the company has been promising to generate profits with its “Playstation 3” gaming console. A lasting turnaround has not been achieved despite some minor successful restructuring efforts. For a long time, Sony has been promising to make profits in its important flat screen television business. Here, only a reduction of losses is presently in sight. President Howard Stringer has the will to restructure the company and to reduce cost. However, this does not solve Sony’s core problems: the company, which thrilled its customers with products like the Walkman and brilliant design, has lost its gloss despite sound technology. Why else does Nintendo succeed in the gaming console business and not Sony? Sony’s products lack the ‘kick’, and the lackluster design mirrors the strategic confusion with Sony’s forays into the Networld, Film and Music business. This dilemma can be observed in the Tokyo underground: Even that minority which uses a Sony Walkman instead of the iPod uses Apple’s trademark white headphones to keep up with the latter’s brand image.

Source: Frankfurter Allgemeine Zeitung (FAZ) 15.05.2009 (translated)


SONY – The innovation legacy that built the great brand


SONY has missed major innovations. Other brands are dominating the markets SONY once created.


Example of a Missed Opportunity: Xerox

Source: International Herald Tribune, April 7, 2003


“Xerox's focus on its current business seems to have caused Xerox management to discount

revenues and financial gains in new areas.”

“And at the end of the day, even if things do go well for the spin-off,with the right incentives and the company survives and makes it,you get a $20 million company. This is a rounding error for Xerox.Moreover, Xerox doesn’t benefit directly by the market cap of thecompany, they really only benefit from revenues and earnings, sothey even play by a different set of financial rules from the VCs[venture capitalists]. So for Xerox, the key has to be how to leveragethe Big House, the printing engine, vs. seeding the next 3Com.”

“Xerox chief technology officer Mark Myers agreed, noting that, asa $20 billion company Xerox needs “to add $2-3 billion innew revenues every year.” He commented that the typical payout of$10-$50 million from a successful spinout wouldn't “make a dent,”and he concluded: ‘We just can't meet our growth goals using thesespinout mechanisms’.”

Source: Chesbrough (2002), p. 834


Source: Chesbrough (2002); Chesbrough (2003)

top ten spin-offs

Mar

ket c

apita

lizat

ion

Xerox's Technology Spin-Offs: Graceful Exits and Missed Opportunities?


Comparison: Adobe Systems Inc. and Xerox Corporation (Stock Prices 1986 to 2014)

(Yahoo Finance, 2014)


Reinventing the Firm: The Example of IBM


Reinventing the Firm: The Example of IBM

Source: IBM annual report 2013

“We are innovators. In 1981 the PCwas an innovation. 20 Years later ithas lost much of its differentiation. Itwas time to move on – into thefuture”.

Its computer business was soldcompletely emotionless in 2005 tothe Chinese company Lenovo,despite the regret of the Think Paduser community.

“It was by all means the mostfamous Brand we had – andprobably the only one that reallytouched consumers”, saysPalmisano.


Reinventing the Firm: The Example of McDonalds


Re-inventing the Firm – The Case of Axel Springer

Sources: Axel Springer



(2) Missed innovations can lead to life-threatening crises in companies.






TimePresent Planning

Strategic Sales Gap

Target ValueSales

EstablishedProducts ("Firm Base")

The Concept of a Strategic Gap


The Example of Intel

Source: FAZ, 1.3.2001, p. 20.

Increase R&D investment from US$ 3,9 Bio.

to US$ 4,3 Bio.

Not a solution tosave ourselves

out of a recession.

A great time to invest into the growth of our firm.

Only new products can create new demand.


The Example of Intel

Source: FAZ, 3.2.2004, p. 20.

Key message: Prescott is 30% cheaper than the

old chips. Intel reduced productioncosts by 1 Bio. US$: Process Innovation!

Huge success on the market: Higher revenues and margins: business people

happy and computer freaks unhappy(not faster than the old chip;

performance unchanged)


The Growth Story of Porsche…

Source: Porsche Annual Reports

SUV

Type

sports car(mid engine)

sports car(front engine)

sports car(rear engine)

Super sports car

large executive car


… and its Impact on Financial Performance

Source: Porsche Annual Reports; Statista

Sale

s/EB

IT (i

n bi

llion

EUR

)

Uni

ts s

old

Number of units sold Sales EBIT

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

200.000

1995 2000 2005 2010 2013 2014

0

2

4

6

8

10

12

14

16

18

20


Growth and Value Creation through Innovation – The Apple Case

Source: Apple annual reports; * In 2015 only Q1 to Q2, Note: There was a stock split (1:7) in June 2014

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

100

200

300

400

500

600

700

Jan 2008MacBook Airlaunched

Mar 2011iPad2launched

Jun 2007iPhonelaunched

Sep 2005iPod nanolaunch

Jan 2001iTunesintroduced

Oct 2001iPodlaunch

Jan 2002iMac 4Glaunch

Apr 2003iTuneslaunched

Jan 2004iPod mini‚click wheel‘

Jan 2005iPod sufflelaunch

Jan 2006MacBookPro

Sep 2006Apple TVannounced

Apr 2010iPadlaunched

Jan 2008iPod salesweeker thanexpected

Jun 2009iPhone 3GSlaunched

June 2010iPhone 4launched

Sep 2007iPod touchlaunched

Oct 2013iPad Airlaunched

Sep 2012iPhone 5launched

Mar 2012Apple TV 3launched

Rev

enue

s(in

bill

ion

USD

)

Year

Stoc

k Pr

ice

in U

SD

Sep 2014iPhone 6 and 6Plus launched

Apr 2015Apple Watchlaunched

20

200


How Apple fills the Strategic Gap

Sales figures in US$ Mio; Source: Apple Quarterly Reports

0

10

20

30

40

50

60

70

80

Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015

iPhone iPad Mac iPod iTunes/Software/Services

Rev

enue

s(in

bill

ion

USD

)


Apple Up-Date:

Revenues 2015: 234 billion US$

Revenues 1Q. 2016:75,9 billion US$

Profit 1Q. 2016: 18,4 billion US$

Quelle: Stock prices, Apple Annual Report: http://www.apple.com/pr/library/2014/07/22Apple-Reports-Third-Quarter-Results.html

Apple: from a niche player to the mostvaluable technology company!

45,7

15,20,5

115,1129,3

281,2

53,4

28,47

116,29134,57

257,56

144,36

281,09

457,47

0

50

100

150

200

250

300

350

400

450

500

Yahoo Amazon Facebook Google IBM Microsoft Apple

mar

ket c

apita

lizat

ion

(in b

illio

n Eu

ro)

Companies

March 2006 Aug 14



(2) Missed innovations can lead to life-threatening crises in companies.






Sustainable Differentiation through Research and Development:

Source: FAZ

"Less Money for Marketing, more for Research and Development"

„Marketing is increasingly unable to create differentiatedand unique brands.“


Successful Differentiation through Integrated R&D, Patenting and Branding

Unique – Unique selling proposition (USP)– Experienced customer/user value– Bases on core competences – Protected by patents and know-how

Branded– Market communication– Positioning– Recall– Orientation towards target segments

Source: Kilian Hochrein; W.L. Gore & Ass.

R&D focuses on the USP with experienced customer value which is protected by patents and which is in the focus of the moreefficient branding campaign (“unique branded products”).


2014 Ranking of the Top 21 Brands

Source: Interbrand


Source: Interbrand

2014 Ranking of the Remaining Top 50 Brands


The Story of Audi – Up-Grading the Brand through Innovations…

Source: Audi Annual Reports

Small car

Compact car

Mid-rangecar

mid-size executive car

Top-of-the-range car

Coupés

Sports cars

SUV

NameType


0

10

20

30

40

50

60

… and its Impact on Financial Performance

Source: Audi Annual Reports

Rev

enue

s/EB

IT in

bill

ion

EUR

Num

bero

funi

tsso

ld

Number of units sold Revenues EBIT

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1.600.000

1.800.000

2.000.000

1995 2000 2005 2010 2013 2014


Key Patents Expired, Competition Moving in with Cheaper Products and Full Marketing Power: The Future of Nespresso?10. August 2013 - Nespresso is getting some competition: Senseoand Mondelez are about to stage a dramatic entry into the coffee capsule market – with cheaper products and broad distribution. Will the brand Nespresso withstand this attack?

The economic media are using drastic language: they see a „Krieg im Kapselmarkt“ (War in the Capsule Market) approaching. Understandable, because Senseo and Mondelez are gearing up to conquer the highly profitable coffee capsule market, which is worth 8 billion US dollars worldwide and grew by a whopping 16 percentin Germany alone in 2012.

To date, this attractive market was dominated by Nestlé and its brand Nespresso. The Swissconcern created and built the entire coffee capsule business. Their famous „Lock-in“ systemcinched their success: along with the Nespresso capsules they sell their own, relatively lowpriced coffee machines that were designed exclusively for these capsules.

Using any other capsule was nearly impossible. But since one of Nestlé’s important patents hasrun out, the competition may now also produce coffee capsules that fit into the Nespressomachines. And, what’s more: » they are allowed to advertise it (Appellate Court Düsseldorf).

Source: Lux-Arenz, Brand Trust, 2013


Nespresso has been able to maintain this claim of highest quality, so it had time to develop into an important brand value: perfection, which is also repeated in the brand positioning „perfect espresso indulgence“. This prized value gives the brand an edge over the competition - and will protect it into the future if it is properly nurtured.

Conclusion: Nespresso‘s brand reservoir is filled to the brim

The brand Nespresso is currently holding a strong position: it was continuously focused over the past 12 years thanks to very consistentbrand management. It benefits from peak performances and extremelyhigh stylistic integrity. Nespresso is the „original“ and appears to be the standard by which all competitors will be measured. The brand reservoir – much like a battery – is fully charged.

Building a Successful Brand through Innovations to Fight-Off Competition Long-Term with a Strong Brand

Source: Lux-Arenz, Brand Trust, 2013


Integrated Intellectual Property Strategies toProtect Innovation and to Create a Strong Brand

Source: Conley, Bican and Ernst (2013)


The Patent War is Heating Up


Source: WIPO Economics & Statistics Series: 2011 World Intellectual Property Indicators

Global Intellectual Property Trends


Trends in patent filings at selected patent offices

Source: WIPO Economics & Statistics Series: 2011 World Intellectual Property Indicators


Five Sources of Innovation Strength (BCG 2013)

I. Top Management Commitment to Innovation

II. Leveraging Intellectual Property

III. Managing the Portfolio of Innovation Activities

IV. Strong Customer Focus

V. Insisting on Strong Processes


Some Key Take-Away’s

“There are all kinds of alternatives to innovation. In the short term you can cut costs, you can make acquisitions, you can buy back your own

shares. But in the medium to long-term there is no alternative.” (Gary Hamel, FT, 2005, p. 2)

“Yet all too often we think of innovation as something practiced by engineers rather than the unsung heroes of sales, marketing,

finance or administration” (Simon London, FT, 2005, p. 4)

“Like quality, innovation doesn’t just happen. It needs to be actively managed”

(Simon London, FT, 2005, p. 8)

Documents

Capstone Innovation Sessions 1, 2 and 3 · PDF file5. Repositionings 6. ... in Porter’s 5 Forces Model. Capstone: Innovation – Sessions 1, 2 and 3 ... instead of the iPod uses