Innovation by Prof. Vijay Tandon, Director - PGDM, Universal Business School

InnovationDisrupt or be disrupted

Vijay Tandon on Innovation @ UBS. course CMBA

Prof. Vijay TandonDirector - PGDM/PGCM/PGPMUniversal Business SchoolSubject - Innovation

The only thing that is constant is changeThe only thing that is certain is uncertainty.

Change is driving the corporate to InnovateWhen everything is changing change everything!!!

Vijay Tandon on Innovation @ UBS

What is Innovation???

The process of translating an idea or invention into products/services/process that creates value or for which customers will pay


Defining Innovation - Customers perspective

How much change an Innovation causes in customers existing habits

Defining Innovation – Customers perspective

DYNAMICALLY CONTINOUS

CONTINOUS INNOVATION

DISCONTINOUS INNOVATION

Innovation - Customers perspective

Dynamically continuousFalls between Discont… & Contin….. Change in habits not as large as Discont & not

as negligible as continuous innovation

Continuous InnovationExisting product - Marginal change Doesn’t change customers habit in a big

way

Discontinuous InnovationNew to the world products Reshape market/competition

Mobile phones drastically changed the way people Communicate

New to the world productsNew products are fundamentally different from existing products


Discontinuous Innovation

MANUAL TYPEWRITER ELECTRIC TYPEWRITER

DYNAMICALLY CONTINOUS INNOVATION

Progression from Manual to an electronic typewriter


How to keep creativity going????

“ELIMINATE CREATIVE STOPPERS”


Building an Innovative culture

Create a corporate culture - Promotes & rewards innovationWhat is the surest way to kill innovative spirit?Punish creators & pursuers of idea when they fail & reward - status quoCompanies encourage employees - take risks & have tolerant attitude - Innovate successfullyEmployees - allowed to meet people outside their industries, attend conferences & visit labsOrganization design processes to make itself receptive to new ideas

Organization wide support

To be Innovative - Organizations must change or die


Senior management participation - Innovation

Culture builder

Personal involvement

Facilitating cross functional communication

Provide strategic direction

Commitment to investment in R&D

Facilitate formal & informal interactions between R&D & Marketing

34

26

5

1

How to keep creativity going??

A

CB

Vision

Enthusiasm

Commitment

Commitments Decision Action

The most Innovative company in the world

• Makes more than 55,000 products• Employs - 88,000 people• $ 30 billion in annual sales• Invests 20% of total revenues in developing new products, moved to 30% and 40%• Staff of more than 6,000 scientists worldwide• Company's policy - Allows employees to spend 15% of their time working on PP• Launches more than 200 new products annually• 3M’s Golden step award program


INNOVATION - Disrupt or be disrupted..

Incremental/MarginalRadical

DISRUPT OR BE

DISRUPTED

Creating breakthrough

products

Product improvement Focus – Existing product

10% True Innovations

90 % Efforts

A disruptive innovation is an innovation that creates a new market.

Disrupts an existing market displacing established market leaders.

What is Disruptive Innovation?

Clayton Christensen

Category Disruptive Innovation

Market Disrupted by Innovation

Academia Wikipedia Traditional encyclopaedias

Communication Telephony Telegraphy

Computing hardware Minicomputers Mainframes

Personal computers Minicomputers, Workstations. Word processors, Lisp machines


VENTURESOMENESS

DELIBERATE/CAUTIOUS

TRADITIONAL

KOL

Diffusion of InnovationThe spread of an Innovation is called diffusion

2.5%

13.5%

34 %

16 %

34 %

Imp to target Innovators & adoptersRadical technology difficult to understandDiffusion may be slow initially


Diffusion of Innovation

Willing to buy a new product

Key word is venturesome

Ability to take risk is higher than the rest of the target market

Comprise more than 2/3rd of the market

More cautious & skeptical about the New product

Social pressure move them to purchase

Cannot take the risk of buying first

Feel assured someone before them has bought & used the product

Follow the lead

Comprise more than 2/3rd of the market

Deliberate & cautious

Innovators (2.5%)

Early adopters (13.5%)

Early majority (34%)

Late majority (34%)

Last category of consumers

Key word is traditional

Comprise of older, less educated

Wait till NP becomes part of accepted tradition

Laggards (16%)


How to commercialize an innovation?Whether to go all alone in the entire process of Innovation

Involve other organizations in performing some functions

License - Innovation

Approaches to Commercialize InnovationApproach - One of the Important factor in deciding success or failure of new product

• Company manages all stages of Innovation process

• Uses of the assets & unique capabilities of its partners

• Reduce its time to market/reduce investments

• Profit from Innovations that are not linked directly to company's core strategies

Integrators approach

Orchestrator approach

Licensing approach

Reasons for high failure rate of InnovationsGaps between the NPD team & prospective customers

Gap - Developers fail to understand customers perspective in adopting Innovations

Customer bias to - Overvalue the benefits of existing alternatives to a new alternative

Psychological gains

Energy efficient

Lower cost of operations

Doesn’t pollute the environment

Give up size

Convenience

Cruising range


Reasons for high failure rate of Innovations

Development team likely to develop products they themselves believe inReference point of the customer & development teams do not matchDevelopment team is involved with the NPD - considerable period of timeDuring this period – Extremely familiar & comfortable - Idea of using new productMentally developed strategies to overcome any usage obstaclesNew product itself becomes the reference pointDevelopment team credits customers - more knowledge than customer actually posses


Reasons for high failure rate of Innovations


Disruptive Innovation

Lead players are focussed on improving features & benefitsStage comes - Avg. Customer doesn’t need such advanced features of a product – Unnecessarily payingDisruptive Innovator - Launches a product

Slowly product gets better

Eventually vast majority of users adopt the new product

The goal of disruptive companies is to challenge the conventional market and create a new one


Product Adoption

Diffusion theory - At least Six factors have a bearing on the Adoption Process

Relative advantage

Compatibility

Trialability/divisibility

Observability

Complexity

Price


INNOVATION - OPEN OR CLOSE?

OPEN INNOVATION

CLOSED INNOVATION

What is the future

Open-Market Innovations

Licensing

Joint ventures

Strategic alliances

Customers

Vendors

Competitors

Objective is to increase output from – Innovation processVijay Tandon on Innovation @ UBS

Open Market Innovations

Tetrapak collaborated with outsiders - Created breakthrough product - Tetra Recart

Sterilized paperboard containers - soups, sauces, fruits & vegetables

Tetra Pak collaborated - polymer & paper suppliers - capable of withstanding high temperatures & humidity

Worked - another company with expertise in sterilizing hospital equipment

Learned how to sterilize the food inside the package


Open Market Innovations

IBM - earns a huge amount of revenues in royalties from the patent

Creative people motivated

Bellsouth – A telecommunications company - sells its technologies - Competitors

Competitors are going to develop any way


Evolutionary (continuous or dynamic evolutionary innovation) - Incremental advances in technology or processes

Revolutionary innovations (also called discontinuous innovations) - often disruptive & new.

Innovation is synonymous with risk-taking & organizations - Revolutionary products/technologies take on the greatest risk- create new markets.Imitators take less risk because they will start with an innovator's product & take a more effective approach.

Innovations are divided into two broad categories

EVOLUTIONARY REVOLUTIONARY


When you Innovate?To be a Pioneer or a follower


Pioneer

Defines the rules of the game

High switching costs for early adopters

Distribution advantages

Influence on consumer choice criteria & attitudesPossibility of positive network effectsEconomies of scale & experience

Follower

Positioning mistakes

Product mistakes

Marketing mistakes

Take advantage of latest technologyAdvantage of pioneers limited resources


Holds leading share – Office application software categories

Developed & Improved product - Better performance

Superior financial resources - Aggressively promoted

Commanding share - Operating systems market

Pioneers

Lotus 123 - Leading spreadsheet, Word-perfect

Financial difficulties

Acquired by IBM


Education

Innovation by Prof. Vijay Tandon, Director - PGDM, Universal Business School