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Basic Concepts ofInnovation andInnovation Management-Student MaterialManuel Lorenzo HernándezHead of Technology & Innovation, Ericsson España S.A.E-mail: [email protected] updated: 25 March 2010With a big ThankYou to Dr.Tony Davila and Dr. Rob Cooper

Contents Introduction15’ Key Concepts30’ Innovation Management45’ Outlook & Trends10’ Q&A15’Basic Concepts of Innovation and Innovation Mgmt2M.Lorenzo2010-03-25

IntroductionWhat is Innovation? Innovation is typically understood as the introduction of something newand useful Innovation is the embodiment, combination, or synthesis of knowledge inoriginal, relevant, valued new products, processes, or services Invention is the first occurrence of an idea for a new product or process,while innovation is the first attempt to carry it out into practice All innovation begins with creative ideas . . . We define innovation as thesuccessful implementation of creative ideas within an organization. In thisview, creativity by individuals and teams is a starting point for innovation;the first is necessary but not sufficient condition for the secondInnovation is the lifeblood of any organization. Without it, not only is thereno growth, but, inevitably, a slow death.Innovation, like many business functions, is a management processthat requires specific tools, rules, and discipline.Basic Concepts of Innovation and Innovation Mgmt3M.Lorenzo2010-03-25

IntroductionWhat is Innovation?An Innovation is anInvention that becomes Implemented and taken to the ketingKey Decision Making PointsThe challenge is to cultivate and leverage innovation capabilitiesthat allow to continuously deliver innovationsBasic Concepts of Innovation and Innovation Mgmt4M.Lorenzo2010-03-25

IntroductionWhy is Innovation so important? Basic Concepts of Innovation and Innovation Mgmt5M.Lorenzo2010-03-25

IntroductionWhy is Innovation so important?New BusinessRevenueNew Productsin DevelopmentIncremental GrowthCore BusinessTodayBasic Concepts of Innovation and Innovation Mgmt3-year65-yearM.LorenzoTime2010-03-25

IntroductionWhy is Innovation so important NOW?Increased Rate of Changein the environment Globalization ofthe Economy Big opportunities for innovating firms Big threats for established firmsSo, what side are you on?Basic Concepts of Innovation and Innovation Mgmt7M.Lorenzo2010-03-25

Key ConceptsTechnological Innovation Can you give some examples of technologicalinnovation?–––––Basic Concepts of Innovation and Innovation Mgmt8M.Lorenzo2010-03-25

Key ConceptsBusiness Model Innovation Can you give some examples of business modelinnovation?–––––Basic Concepts of Innovation and Innovation Mgmt9M.Lorenzo2010-03-25

Key ConceptsProcess & Organizational Innovation Can you give some examples of process andorganizational innovation?–––––Basic Concepts of Innovation and Innovation Mgmt10M.Lorenzo2010-03-25

Key ConceptsRadically NewClose to ExistingTechnology Developed Technologies Process Technologies Enabling TechnologiesInnovation InnovationIncrementalInnovationBusiness Model basedSemi-RadicalInnovationClose to ExistingRadically NewBusiness Model Value Created Target Market Supply Chain RoleSource: Davila et al (2005) – Making Innovation WorkBasic Concepts of Innovation and Innovation Mgmt11M.Lorenzo2010-03-25

Key ConceptsInnovation Matrix: Types of InnovationsINCREMENTALINNOVATION Small improvements Problem-solving skills, constrained creativity Dominant form of innovation in established companies Fights commoditizationTECHNOLOGYINNOVATION Significant technological changes delivering quantum leaps inperformance or important architectural changes Deep knowledge and specialized capabilities required Intellectual Property (Patent) is a key toolBUSINESSMODELINNOVATION Significant change in the business model dimension Leverages existing or slightly change technology in a new way Deep understanding of market dynamics and competition andout-of-the-box thinking requiredRADICALINNOVATION Significant changes in both technology and business modeldimensions “Game changers”Source: Davila et al (2005) – Making Innovation WorkBasic Concepts of Innovation and Innovation Mgmt12M.Lorenzo2010-03-25

Key ConceptsInnovation Matrix Formulate improvements and changes to a mainstreamproduct:–––– How many can be thought of?Basic Concepts of Innovation and Innovation Mgmt13M.Lorenzo2010-03-25

Key ConceptsInnovation Matrix: Change LeversTECHNOLOGY Developed TechnologyTECHNOLOGYCHANGELEVERSExpected ChangeChange Lever Process Technologies Enabling esProcessTechnologiesEnablingTechnologiesBUSINESS MODEL Value CreatedBUSINESSMODELCHANGELEVERS Target Market Supply ChainExpected ChangeChange LeverModerateValueCreatedTargetMarketSupplyChainA given Innovation is normally characterized by changes inboth technology and business model dimensionsSource: Davila et al (2005) – Making Innovation WorkBasic Concepts of Innovation and Innovation Mgmt14M.Lorenzo2010-03-25Significant

Key ConceptsRadically NewInnovation AInnovation A BClose to ExistingTechnologyInnovation Matrix: Connected Innovations (II)Innovation BClose to ExistingThe timely combination of: A business-model dominantsemi-radical innovation (A), with a technology-dominant semiradical innovation (B),results inan (Ersatz A B ) radicalinnovation with much highervalue than its parts.Radically NewBusiness ModelSource: Davila et al (2005) – Making Innovation WorkBasic Concepts of Innovation and Innovation Mgmt15M.Lorenzo2010-03-25

Key ConceptsInnovation FunnelExternalUniversity CellNew ArchitecturesFirst ReleasesOngoing ProjectsSalesFinished E2E ProjectsFinished ProjectsOngoing PLEMENTATIONVALUECREATIONThe innovation funnel shows the progress and filtering, inside aninnovating firm, across the path from Idea to InnovationBasic Concepts of Innovation and Innovation Mgmt16M.Lorenzo2010-03-25

Innovation ManagementThe Challenge It is not only aboutwinning (Roland Garros) once it is aboutwinning Roland Garros for the second time,and for the third time,and for the fourth time, For a established firm the challengeis leveraging and cultivatinginnovation capabilities that allowfor continued business growthBasic Concepts of Innovation and Innovation Mgmt17M.Lorenzo2010-03-25

Innovation ManagementThe Questions Is it possible to manage innovation? Can innovation be measured? How do leading companies manage their innovation?Basic Concepts of Innovation and Innovation Mgmt18M.Lorenzo2010-03-25

Innovation ManagementThe Scope of Innovation Mgmt Changes Products,Solutionsand ServicesInnovationManagementFrom Idea to CommercializationBasic Concepts of Innovation and Innovation Mgmt19M.Lorenzo2010-03-25

Innovation ManagementThe framework for Innovation Mgmt What are the elements of an innovation framework?––––––Basic Concepts of Innovation and Innovation Mgmt20M.Lorenzo2010-03-25

Innovation ManagementThe Framework for Innovation Mgmta. Innovation Strategyb. Innovation Organizationc. Innovation Systems (Processes, Teams & Networks)d. Innovation Metricse. Innovation Learningf. Innovation CultureBasic Concepts of Innovation and Innovation Mgmt21M.Lorenzo2010-03-25

Innovation ManagementInnovation Strategy How would you define and formulate an InnovationStrategy?Basic Concepts of Innovation and Innovation Mgmt22M.Lorenzo2010-03-25

Innovation ManagementInnovation Strategy: Key Strategic DecisionsRadically NewClose to ExistingTechnologyInnovation Matrix Strategy15% ?5% ?How muchinnovation isneeded of eachtype ?70% ?Close to Existing10% ?Balances & LeversSetting an Innovation Strategyrequires defining the soughtbalances between these levers:Value rnalInnovationExternalInnovationRadically NewBusiness ModelRecommended Reading: Davila et al – Making Innovation Work 2005Basic Concepts of Innovation and Innovation Mgmt23M.Lorenzo2010-03-25

Innovation ManagementInnovation Organization: Organizational rSystemicInnovationWhere is Innovation generated?Where could innovation be generated?Where could each type of innovation be generated?How can Innovations find the higher chances to get through?Basic Concepts of Innovation and Innovation Mgmt24M.Lorenzo2010-03-25

Innovation ManagementInnovation Systems: Processes, Teams & Networks Innovation Systems must be designed and tuned inorder to execute the Innovation Strategy Innovation Systems require both Processes and Teams Innovation Systems leverage and expand theInnovation CultureBasic Concepts of Innovation and Innovation Mgmt25M.Lorenzo2010-03-25

Innovation ManagementInnovation Systems: Processes, Teams & NetworksCompany Vision & StrategyInnovation ProcessChanges in: Technology Market Industry Economy Society Analysis& StrategyRealization& ValidationIdeation& tion & Deal-MakingCrossFunctionalTeams InternalInnovationEcosystems Extended Teamswith Partnersand CustomersInnovation TeamsInnovation CultureInnovation Systems must be designed and tuned in order to execute theInnovation Strategy, leveraging and expanding the Innovation CultureBasic Concepts of Innovation and Innovation Mgmt26M.Lorenzo2010-03-25

Innovation ManagementInnovation Systems: ProcessesChanges inCustomers,Industry,Technology,Economy, SocietyResearchE2E InnovationManagement ionNewProducts,Solutionsand ServicesRealization& ValidationFeedback & LearningInnovation Processes enable effective and efficient management of innovationinitiatives and allow for a continuous improvement cycleBasic Concepts of Innovation and Innovation Mgmt27M.Lorenzo2010-03-25

Innovation ManagementInnovation Systems: Processes (Example)Changes inCustomers,Industry,Technology,Economy, eAnalysisAnalysisActivelyActivelyscanscanchanges inchanges omy,SocietySocietyIdentifyIdentifyTrends &Trends &CriticalCriticalUncertaintiesUncertaintiesand foreseeand foreseeOpportunitiesOpportunitiesand Threatsand ThreatsNewProducts,Solutionsand ServicesE2E InnovationManagement ectionFind newFind newIdeas/PathsIdeas/Pathsforforinnovation ininnovation inthe analyzedthe analyzedscenariosscenariosRecord,Record,organize andorganize andmake easilymake easilyaccessible allaccessible ectSolution CreationSolution CreationSSEELLEECCTTFigure out andFigure out andprove innovativeprove innovativeSolutionSolutionConcepts forConcepts forthose new pathsthose new Help newHelp newinnovationsinnovationsgrow and landgrow and landin the targetin the targetindustry/industry/marketmarketLearningBasic Concepts of Innovation and Innovation Mgmt28M.Lorenzo2010-03-25

Innovation ManagementInnovation Systems: ProcessesIdea Management How would you organize for collecting, evaluating andsteering on new ideas?Basic Concepts of Innovation and Innovation Mgmt29M.Lorenzo2010-03-25

Innovation ManagementInnovation Systems: ProcessesIdea Management How would you organize for collecting, evaluating andsteering on new ideas?– Case Study 1: Innovation Steering at Ericsson Spain’sTechnology&Innovation Unit– Case Study 2: Technology Leadership Program at EricssonBU Networks– Case Study 3: IdeaBoxes, an Ericsson-wide initiativeBasic Concepts of Innovation and Innovation Mgmt30M.Lorenzo2010-03-25

Innovation MgmtInnovation Systems: ProcessesInnovation Portfolio ManagementPortfolio management for new products is a dynamic decisionprocess wherein the list of active new products and R&D projectsis constantly revised.In this process, new projects are evaluated, selected and prioritized.Existing projects may be accelerated, killed, or de-prioritized andresources are allocated and reallocated to the active projects.The portfolio decision process is characterized by uncertain andchanging information, dynamic opportunities, multiple goalsand strategic considerations, interdependence among projects,and multiple decision makers and locations.Source: Cooper (2001) – Portfolio Management for New ProductsBasic Concepts of Innovation and Innovation Mgmt31M.Lorenzo2010-03-25

Innovation MgmtInnovation Systems: ProcessesInnovation Portfolio Management What goals have leaders in innovation in mind whenthey set up and use methods for portfoliomanagement?Source: Cooper (2001) – Portfolio Management for New ProductsBasic Concepts of Innovation and Innovation Mgmt32M.Lorenzo2010-03-25

Innovation MgmtInnovation Systems: ProcessesInnovation Portfolio ManagementMaximize the Value of the PortfolioAchieve a Balanced PortfolioBuild Strategy into the PortfolioSource: Cooper (2001) – Portfolio Management for New ProductsBasic Concepts of Innovation and Innovation Mgmt33M.Lorenzo2010-03-25

Innovation MgmtInnovation Systems: ProcessesInnovation Portfolio Management Financial Methods Scoring Models Portfolio Maps / Bubble Diagrams Road-mapping Strategic Buckets Model Project Selection with Built-in Strategic Criteria Mixed Strategic ApproachesSource: Cooper (2001) – Portfolio Management for New ProductsBasic Concepts of Innovation and Innovation Mgmt34M.Lorenzo2010-03-25

Innovation MgmtInnovation Systems: ProcessesInnovation Portfolio ManagementKEY FACTORQUESTIONBUSINESS STRATEGYFITIs the project aligned with the business strategy,and is it strategically important?COMPETITIVEADVANTAGEDoes the product offer unique customer benefits,meet customer needs better than competitors,provide good value for money?MARKETATTRACTIVENESSIs the target market attractive – size, growth,margins, competition?SINERGIES (LEVERAGES Does the project build on strengths, experiences,CORE COMPETENCIES)and competencies in marketing, technology andoperations?TECHNICAL FEASIBILITYWhat is the likelihood of technical feasibility –sizeof gap, complexity, uncertainty?FINANCIAL REWARDCan this project make money? How certain arewe? Is it worth the risk?Source: Cooper (2001) – Portfolio Management for New ProductsBasic Concepts of Innovation and Innovation Mgmt35M.Lorenzo2010-03-25

BusinessBusiness AInnovation MgmtInnovation Systems: ProcessesFunding (year)Business BBusiness C5M5 M 1M1 M StateOngoing ProjectProject ProposalInnovation Portfolio ManagementTechnology / Market RiskHigherLower2008Basic Concepts of Innovation and Innovation Mgmt2010Project Time Limit2009362011M.Lorenzo20122010-03-25

Innovation ManagementInnovation Systems: ProcessesInnovation Portfolio Management : Portfolio for Focus Area A (Example)Knowledge TransfersTechnologyExternalInternalPast ProjectsOngoing ProjectsProject proposalRESEARCHEXPLORATIONIMPLEMENTATION431Close to ExistingVALUECREATION25Close to ExistingProject ProposalINNOVATION MATRIXRadically NewINNOVATION FUNNELRadically NewBusiness ModelINNOVATION OPPORTUNITIESABC901Innovation Opportunity -A1902Innovation Opportunity -A2903Innovation Opportunity -A304Innovation Opportunity -A405Innovation Opportunity -A5Basic Concepts of Innovation and Innovation Mgmt3799999M.Lorenzo2010-03-2599

Innovation ManagementInnovation Systems: ProcessesInnovation Strategy Follow-UpRadically NewClose to ExistingTechnologyInnovation Matrix Follow-upBalances & LeversChecking the expected balancesbetween these levers:15% ?5% ?How much innovationof each type am Iactually creating?70% ?Close to Existing10% ?Value rnalInnovationExternalInnovationRadically NewBusiness ModelBasic Concepts of Innovation and Innovation Mgmt38M.Lorenzo2010-03-25

Innovation ManagementInnovation Systems: Teams & NetworksINNOVATIONPROCESSTEAMS Management & Steering Teams defining, enforcing andfollowing up the Innovation Strategy Teams executing the process (surveillance, idea mgmt,steering, portfolio mgmt, ) and improving itINNOVATIONPROJECTSTEAMS Cross-functional teams executing innovation projects External Partners Project Steering asic Concepts of Innovation and Innovation Mgmt Internal Organizations & Processes that promote and fundinnovation activities Also known as internal innovation market-places orCorporate Venture programs Universities and Research Institutions Technology and Business Partners Partner Customers Private and Public Organizations39M.Lorenzo2010-03-25

Innovation ManagementInnovation Metrics How would you measure Innovation?–––––––Basic Concepts of Innovation and Innovation Mgmt40M.Lorenzo2010-03-25

Innovation ManagementInnovation Metrics FrameworkRESOURCES(INPUTS)Basic Concepts of Innovation and Innovation zoOUTCOME(VALUE-ADDED)2010-03-25

Innovation ManagementInnovation Metrics FrameworkRESOURCES(INPUTS) FundingEXECUTION(PROCESS) Effective Project Exec. Innovation Strategy Access to Talent &Knowledge Motivation–EmployeeCommitment toInnovation–Incentives &recognitionSchemes Quality of Pipeline(expected impact of newideas) Innovation StrategyFollow-up & Enforcement Technology Leadership–Patents–Standards–Papers– OUTCOME(VALUE-ADDED) Residual Income Sales Growth Profit Growth Technology Performance(Benchmarkingvs.Competitors) New Product Introduction Process Improvements–On-time Delivery–Cost Reductions– Tools–Idea Mgmt–Know. Mgmt– Market Performance–Increased Sales–New Customers External NetworkBasic Concepts of Innovation and Innovation MgmtOUTPUT(PERFORMANCE)42M.Lorenzo2010-03-25

Innovation ManagementInnovation LearningPSECLearningTTimeTechnologies A number oftechnologies (most ofthem disruptive)proliferate. Differentcompanies bet ondifferent ones. At the end a particulartechnology (e.g.gasoline engine in thecar industry)dominates and themany companies thatbet on a differenttechnology disappearPerformance EfficiencySegmentationAt this stageperformance ismeasured primarily ona single dimension(e.g. imageresolution).Competition is oftenfocused solely on thatsingle dimensionThe competitiveadvantage goes to thecompany able toexecute the learningcycles fasterComplementarities As productperformanceimproves, certaincustomer segmentsstart valuing differentproduct dimensions –price, availability, As the technologymarket is becomingmature, competingplayers focus moreand more in efficiencyand sustainingtechnologies The focus shifts tomanagecomplementarities:synergies with otherproducts andbusinesses, networkswith partners, The winners are thosecompanies that areable to read themarket andunderstand thedifferences acrossmarket segments Radical innovationsmay appear at thisstage and force thestart of a new lifecycle At this stagecompanies are mostvulnerable to radicalchanges in theirenvironmentSource: Davila et al (2005) – Making Innovation WorkBasic Concepts of Innovation and Innovation Mgmt43M.Lorenzo2010-03-25

Innovation ManagementInnovation Culture What are the elements of a strong innovation culture?––––––Basic Concepts of Innovation and Innovation Mgmt44M.Lorenzo2010-03-25

Innovation ManagementInnovation e–Risk Taking–Knowledge SharingBasic Concepts of Innovation and Innovation Mgmt45M.Lorenzo2010-03-25

Innovation ManagementMoral‘How you innovatedetermineswhat you innovate’Source: Davila et al (2005) – Making Innovation WorkBasic Concepts of Innovation and Innovation Mgmt46M.Lorenzo2010-03-25

Outlook and TrendsOpen Innovation ModelRESEARCHEXPLORATIONIMPLEMENTATIONVALUE CREATIONLicense inSpin inExternal InternalIdeas andTechnologiesAcquireInnovationsCurrentMarketSpin outLicense outDivestNewMarketsOther Firms’Markets More agility and effectiveness of R&D Higher rate of new breakthroughsPicture from: Dr.Henry Chesbrough’s – Researching a New Paradigm 2007Basic Concepts of Innovation and Innovation Mgmt47M.Lorenzo2010-03-25

Outlook and TrendsInnovation Ecosystems Innovation Ecosystems enablecollaborative arrangements throughwhich firms combine their individualoffers into a coherent, customerfacing solutionInterdependenciesNetworked CustomersCooperation & IntegrationRiskIn an Innovation Ecosystem all contributing parties can: Validate their Strategy in advance Create higher value for their customers and customers’ customers Secure the right timing for launching new solutions Focus their efforts on higher probability innovationsInnovation ecosystems allow companies to create value thatno one firm could have created aloneInspired in Adner (2006) – Matching your innovation strategy and your innovation ecosystemBasic Concepts of Innovation and Innovation Mgmt48M.Lorenzo2010-03-25

Outlook and TrendsIncreasing Focus on Systemic Innovation Stronger Innovation Culture company-wide Contribution to innovation from all company’sdisciplines and organizations Each and every employee is key in innovationBasic Concepts of Innovation and Innovation Mgmt49M.Lorenzo2010-03-25

References OECD (2005). Oslo Manual: Guidelines For Collecting And Interpreting InnovationData, OECD Publishing, ISBN 926401308Christensen, C. (1997).The Innovator’s dilemma. Collins Business EssentialsDavila, T. (2003). Making innovation work. Wharton School PublishingCooper, R. (1998, 2001). Portfolio Mgmt for New Products. Basic Books.Cooper, R. (2001). Winning at New Products. Accelerating the process from Ideato Launch. Basic BooksBasic Concepts of Innovation and Innovation Mgmt50M.Lorenzo2010-03-25

Innovation, like many business functions, is a management process that requires specific tools, rules, and di