Appunti di Innovation Management

Innovation management

Nespresso: a case of success

Nespresso produces high quality coffee capsules. Innovation features include:

• Variety: First company to differentiate product tastes
• Customer experience: Very elegant stores that seem to be jewelry stores and located in strategic places. Through this way they create a sort of community. But there is also a negative point: they are reducing the market share.

The source of revenues is the online store, they spent a huge amount of money for the web platform. Finally, they outsource a lot of things of the value chain.

The lesson to be learnt is that innovation is not only about technology, but is also the creation of a new market, a new business model, a new business strategy and so on. The goal of an Innovation Manager is to take an idea and make it a big success.

Product lifecycle in innovative companies

The classical product lifecycle doesn’t fit with innovative companies because they are very uncertain.

• Discovery phase: it’s the phase of the idea
• Development phase: how to transform ideas in something that works
• Deployment phase: when you enter the market

Managing innovation: preliminary issues

What is innovation?

Innovation is not equal to invention, because invention is to create something that doesn’t exist already, while innovation is an invention that has value and for which there are customers available to pay in order to have it.

Innovation = Novelty + Market Success

That’s because we need something new but in a particular context, and this is the market success. Without success, it’s just an invention. The goal of an Innovation Manager is to check if the product/service can have an added value and if can have success in the market.

In order to create value, it is important to understand which kind of value is and for who. The kind of value depends on who is the best customer available to pay for it. So, if we don’t understand the target market, we are not creating value. An important thing to consider is that people, during a purchasing process, consider the potential value of the product balanced with its price. If these two features fit together this customer is available to pay for the product.

Time to Market = time that passes from the idea to when the product is put in store. The aim of innovation is not to be the first one but to catch the right time. Sometimes just changing the target transforms a project from a failure to a success.

Different types of innovation

• Object Innovation
• Magnitude Innovation

Object Innovation

1. Product Innovation: Innovation in the offering of the company to the market
2. Process Innovation: The innovation is not in the product but in the process in order to obtain it
3. Customer experience Innovation: Something new in the purchasing journey of the customers. The best example in this field is Amazon
4. Marketing Innovation: Different solutions of doing marketing
5. Business Model Innovation: Examples are SmartBox and Southwest Airlines for traveling

Magnitude Innovation

1. Radical VS Incremental
2. Sustaining VS Disruptive

Radical: Radical change, a big step forward, for example smartphones. Incremental: Just an improvement, for example from iPhone 6s to iPhone 7. Sustaining: Small or medium step forward. Disruptive: Something that is a real big change.

Radical VS Incremental in general is about the technology jump, but is not a right way to think about innovation. We have to think about the jump in terms of value added, and that’s a disruptive innovation.

Examples: Better camera for smartphone → A, Brand new mobile phone → D, 3D TV → C

The innovation strategy

The key issue is to build and maintain an innovation capacity. If you build up innovation in just one project, you are not an innovative company.

Need for innovation strategy

A coherent set of processes and structures that dictates how the company searches for novel problems and solutions, synthesizes ideas into business concepts and product design, and selects which projects get funded. For a traditional company the only goal is to sell, while for an innovative one there is also the goal to collect feedback from customers in order to improve its product or service.

Key management practices & processes

• Strategic planning
• Idea Portfolio Management: Have particular tools in order to track ideas and find out the most promising
• Communication Strategy (Inside-Outside)
• HR Processes / Incentive system
• Knowledge Management: To find out if there are best practices to be shared
• Project Management
• (inter) Coordination mechanisms
• Budgeting
• Test handling
• Key Performance Indicators: How you measure the performance of each department

Key players

• Entrepreneur
• Innovation Manager
• Project Manager
• Mentor / Coach
• Researcher
• Business Developers: Tries to find out the best market
• Gatekeeper: People on the edge of different department
• Cool Hunter: Especially in the design, fashion sectors. They are in charge to identify emerging trends
• Sponsors (financial/rational): Top managers who offer you a support (not financial) that is crucial

Innovation at different levels

Innovation occurs at many different levels.

• Evolution of the business/sector
• Evolution of the firm
• Project

Evolution of the business

The Abernathy and Utterback’s model:

• Fluid phase: Is the phase when a new product enters the market. It’s characterized by product innovation, “trial and error” process and margin often negative because there is uncertainty.
• Transitional phase: The company sets up a standard, the number of features to be able to bring the market. Once the standard is defined, the company stops being something new and starts to improve the product that is on the market or they try to produce it more efficiently. In this phase, companies that aren’t profitable enough, exit the market.
• Specific phase: No product innovation and no process innovation are available anymore, so products of different companies are basically equal. When products become too standardized, companies try to find brand new technologies or to create new markets in order to return to stage 1.

Dominant design

A basic configuration/set of features that becomes the accepted market standard. Dominant Design over time: A basic configuration/set of features that becomes the accepted market standard which may evolve.