Leadership and Innovation condensed - Appunti

Innovation

What is an innovation? An innovation is the “implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations”. (Oslo Manual 2005)

“It is accomplished only with the first commercial transaction involving the new product, process” (Freeman). It's important to know that when you change the solution, you don’t have to change the meaning necessarily, but if you change the meaning you must change the solution.

Incremental vs radical innovation

Incremental innovation → We are not completely changing the basic architecture of the product; we just slightly change what we already have. The marginal gain in performance is decreasing along time and the more the innovation increases, the less the marginal advantage is. In order to go on, companies need to invest a certain amount of money to make the system perfect.

Radical innovation → We completely change the technology we are using, restarting from scratch to do things in a completely different way. In this case, the product is affected by incremental innovation, too.

Architectural vs component innovation

Another classification of innovation is based on the idea of architecture because the large majority of the products that we see around us have been assembled. This is important because companies can create a product architecture, which is the list of the main components of a product and how they work together. In other terms (Ulrich, 1993), product architecture is:

• The arrangement of functional elements.
• The mapping from functional elements to physical components.
• The specification of the interfaces among interacting physical components.

In this case, we can have different innovations for the different types of components. You can change one or more components radically or incrementally. We can make a distinction between a product composed by components and → the product architecture, and we can change the components or/and the architecture to innovate the products.

Service categories

• Linear services → They are a décor of why people buy the service.
• Delighter → They are not necessary services, but if presented to customers, they will be delighted. Clients do not expect them, so if we perform bad they won’t be mad, instead if we perform good they will be really happy about them.
• Must have → If we perform it well (or overperform), people don’t care about it, but if we perform badly, people will get extremely mad. (Kano Model)

Competence enhancing vs competence destroying

The last big distinction is about competences. There is a study conducted by Tushman and Henderson (1986) about technology in the companies in which they made a difference between a technology that is competence destroying and one that is competence enhancing. As human beings, we have some competences and knowledge, but the new technology may ask us to completely delete that knowledge in order to build a new one.

• Competence enhancing → We need to adapt ourselves a little bit in order to leverage the competences that we already have and, in this case, the technology will be somehow an “amplifier”. Competence-enhancing discontinuities are "order-of-magnitude improvements in price-performance that build on existing know-how within a product class". These discontinuities tend to consolidate industry leadership.
• Competence destroying → We need to learn new skills and knowledge to use the new technology. In fact, they require new skills, abilities and knowledge in either process or product design. The skills needed for the core technology shift can cause structure shifts in organizations. They are much more difficult to be developed by companies, because they are riskier and require totally new internal environments to be developed and, in fact, they are usually initiated by new firms and it looks like competence-destroying innovations are more long lasting.

Types of innovation

Technology push → When the process is driven by scientific or technological competencies. It is a product or process innovation that typically revolves around the physical attributes of the product. When we have a technology push innovation, we want to do something new and the kind of innovation we are thinking about is that we want to use technology to answer to some needs and then we adapt the language to the technology.

Market-pull → These are innovations that typically involve the way in which the product is commercialized in terms of organization, distribution and/or advertising (product presentation, distribution channel innovations, incremental product performance innovations, sales process innovations...). We focus on the market, trying to understand its needs and its language. Remember that there are some products that we buy just because they are cool, or to communicate something, or to fulfill a hedonistic kind of need.

Design-push → Process driven by socio-cultural and semantic competencies. Product or process innovation that typically revolves around intangible attributes of the product. In this case, we are proposing new solutions to customers, even if you don’t know if they are going to work or not. We can even not know the customers to innovate.

Technology push

Technology epiphany → When a technology adopts uses that are different from the initial ones. In this case, we have often a radical change.

Technology substitution → When a technology is used instead of another. In this case, we have often an incremental change. Every technology has its own technical limits (L), so we can’t improve it forever (S-shaped curve).

Roger diffusion of innovation model

• Innovators → Innovators have the highest social status, are willing to take risks, have financial liquidity, are social and have closest contact to scientific sources and interaction with other innovators. Their risk tolerance allows them to adopt technologies that may ultimately fail, because financial resources help them absorb these failures.
• Early adopters → These individuals have the highest degree of opinion leadership among the adopter categories. Early adopters have a high social status, financial liquidity, advanced education and are more socially forward than late adopters. They are more discreet in adoption choices than innovators. They use judicious choice of adoption to help maintaining a central communication position.
• Early majority → They adopt an innovation after a varying degree of time that is significantly longer than the innovators and early adopters. Early Majority have above average social status, seldom contact with early adopters and hold positions of opinion leadership in a system.
• Late majority → They adopt an innovation after the average participant and approach an innovation with a high degree of scepticism and after the majority of society has adopted it. Late Majority are typically sceptical about an innovation, have below average social status, little financial liquidity, are in contact with others in late majority and early majority, and little opinion leadership.
• Laggards → They are the last to adopt an innovation. Unlike some of the previous categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion to change.

Dominant design

The architecture that is winning on the market (remember that the market decides the dominant design). Dominant designs may not be better than other designs.

• It is the architecture winning on the market.
• Able to summarize innovations introduced by previous products.
• It’s the winning architecture of the product in both the designer and the user imagination.
• It’s the archetype that gives an answer to the need of a large number of people.
• It reduces the number of requirements to be satisfied!
• It may imply constraints → These are the characteristics of the previous dominant designs.
• It normally freezes the socio-economic context.

How does the dominant design emerge?

There are 4 main drivers:

• Complementary assets → We need some specific assets to create a winning innovation: these are assets, infrastructures and capabilities needed to support the successful commercialization and marketing of an innovation (distribution, brand, services, capacity...). They are useful not to do innovation, but to let your innovation win on the market.
• Strategic manoeuvring → It means to understand how things are working, taking decisions in that direction. It is basically critical mass-bandwagon effect and lock-in effect.
• Better understanding of customer needs → For example, in terms of pushing the government to promote a technology instead of another.
• Rules and laws → For example, in terms of pushing the government to promote a technology instead of another.

Abernathy-Utterback model

There are 3 main phases in a technology-based market with technological discontinuities.

• Fluid phase → Very high rate of product innovation: different companies propose different architectures on the market and they all want to be the DD.
• Transition phase → The degree of innovation of the products is lower than the previous phase, because companies don’t try to change continuously, but start developing more or less the same products, respecting what the market is asking for.
• Specific phase → In this phase, products are all the same, like gasoline. In fact, the most important innovation introduced in petrol stations was fidelity cards and these affected customers’ choice. With airplanes is the same: now, there is a dominant design, but before getting to this point there was a huge discussion.

Technological discontinuities can affect established companies that are often not able to manage the situation: in fact, once there is a technological discontinuity, companies should restart again. So, they became incumbent (that means trying to obstacle other companies, called new entrants, to enter on its specific market) but, anyway, they can be overcome by new incumbents. These established companies didn’t identify that this cycle can be repeated ad infinitum.

The normal technology progress is due to sustaining innovations and it grows fast enough to maintain itself within the boundaries of the market demand or to improve faster than the demand, but sometimes we can find a new technology, called disruptive technology, which is not able to satisfy the market demand at the beginning (or they are not fitted for the main market), so we would never invest in it, but this technology could find a parallel market, maybe not as interesting as the main one, with slightly different needs. According to this market, this technology may be suitable: if we are able to find a market where it is more important what our technology gains than what it loses, we should be interested in it, investing in this technology and growing along the curve thanks to disruptive innovations, probably discovering that this technology grows faster than the others of the main market and it is also able to disrupt them.

We need to consider that companies, seeing what happened to other companies, can learn how to manage the phenomena and incumbent curse. It is not always true that incumbents “die” every time there is a change in technology.

Design push

When we talk about “innovation of meaning”, we talk about its purpose, but still, the concept of meaning is more complex. There are at least 3 types of meaning:

• Utilitarian → The dimension from a practical perspective related to the product (for example, “I light a candle because I want to cover a bad smell”).
• Symbolic → When we want to show something (for example, “I light a candle because I want to show that I care for visitors”).
• Emotional → When we want to elicit a feeling (for example, “I light a candle because it reminds me of Christmas”).

We talk about design driven innovation because this kind of insights is mainly related to designers, because they are a huge support to explore innovation of meaning. Fostering an innovation of meaning means going through a process driven by socio-cultural and semantic competencies.

The two traditional views of innovation are technology push and market pull, but dealing with innovation of meaning means dealing with a sociological dimension. If we change the perspective, what triggers the innovation process is not the business need or what the market is asking for, but it is people! We need to study how the society is changing, how the behaviours of people are changing. We are not asking customers what they want (market pull innovation), but we study people (as human beings) in order to understand what they need.

When we deal with innovation of meaning, we have to be prepared to criticism. When we read the critique of a book or of a movie, in the vast majority of cases we are reading a judgement of something without any explanation of possible improvement. We talk about a kind of criticism with a clear purpose, which is to make the direction better. It comes from the Greek word that refers to the Greek “krino”, which means “I judge”, “I value”, “I interpret”.

We interpret others’ ideas in order to make them stronger.

It is an inside-out process. Innovators never work alone and, in the vast majority of cases, behind great innovations there are at least two people that are able to create an intimate situation, a safe space where it is possible to foster criticism. Radical circle: the pair enlarges to another set of people (usually coming from different perspective) that are going to do the same.

Interpreters → The moment in which we shift from the inside out is related to the moment in which we ask people that are looking at the same human being we’re looking at, but in a different moment of life. Interpreters are people that we tend to involve in the process, but do not enter in the implementation process: they just give their opinion and criticism. We usually search for people coming from completely different industries, because the idea of the interpreter is to leverage as much as possible on the idea of criticism. A new meaning is a gift to people, for them it is going to be faster to see the solution, but if we are good in transforming that meaning and embedding it within the solution, we will be able to change how the market perceives the product.

Arrow paradox → We can’t work on an idea if we are not sharing it with investors.

Technological epiphany

When we search for new meanings in a technological evolution and we see a new meaning in a new technology brought to the market.

Technological substitution

In general, when we change/remove the hardware, but still offer the same thing.

Market pull innovation

It is an approach that aims to start from customers, their wants and needs. We focus on the perspectives of the users and explore their needs. It regards typically incremental innovation. We need to understand what are the expectations, the feelings of people. The nut it is not just asking people what they want, but it is also trying to extract this information from their behaviours. User needs analysis will be fundamental in order to understand how to interact with customers and understand their needs. It is a synonym to a user-centered approach to innovation.

User needs analysis (we have to gather data and information through it) is fundamental because, within the market pull approach, it can be needed for both internal and external reasons:

• To better understand the current underlying context.
• To reduce the uncertainties inherent in the NPD (New Product Development) process.
• To better satisfy the explicit and latent needs of our consumer.
• To streamline and optimize the costs, duration and quality of the NPD process.
• To generate knowledge that will allow the company to survive in tomorrow’s markets.

There are different techniques (we can mix or use them separately) that allow to extract and understand which are the current needs.

• Explicit needs → Are something that customers can tell we and we can extract them just by asking people. People can lie because maybe they have a different image in their mind that they would like to propose to the researcher or because they already have a mindset and they are stuck into it: when researchers ask them what they want, they will probably say what is already on the market.
• Observable needs → We can understand them by watching the customers interact with the product.
• Tacit needs → They are implicit in the mind of customers and they arise when they experience a product or service, interacting with it.
• Latent needs → They are the hardest to find, because users are not aware that they have these needs. They are aware of them in the moment they see the product and find a “match” between their dreams and aspirations and the product itself.

Questionnaire

It’s a list of questions (personal, email, telephone interviews) that the user just needs to fill in. We can rely on statistical data in the sense that the more info we gain, the more reliable our research is, so minimizing the biased information. It is really important to understand what is the right sample to interact with and start with defining the sections of the questionnaire in order to:

• Make rational trade-offs between the length and necessity of various sections.
• Ensure all necessary information is collected.
• Eliminate redundancy in the questionnaire.
• Construct a smooth flow of responses throughout the questionnaire.
• Check ordering requirements.