Leadership and Innovation, prof. Verganti

Disruptive technologies

MAKERS• Overtime, the 8” drives developed all the storage capacity of 14” drives, and drove them out of the market

5.25” drives: story repeats• the 8” players miss the transition• 5.25” drives lacked the capacity of 8”• drives, viewed as inferior (in terms of storage) because minicomputer makers were• not interested in buying these, the established disk drive suppliers were not interested in making them however, there WAS a market: the new• PC makers wanted 5.25” disk drives because they were smaller and new suppliers entered to fill the• needs of that market

Eventually, the 5.25” drives improved enough so that their capacity matched and surpassed 8” drives ©Disruptive technologies

Not necessarily the companies creating the dominant design are those inventing the product, and the next generation can be composed of new companies entering the market. Typically, companies ahead of the competition serve

The high end of the market, where customers' needs are sophisticated requiring high performance products. Usually, new innovations start off with worse performances and thus do not qualify to serve the most profitable part of the market. Because of this, leaders tend to disregard this kind of innovation and investments, due to a focus on short term results, and instead engage in incremental/sustaining innovation on the current technology.

Newcomers however, can enter the market by addressing the low-end of the market (also avoiding retaliation by incumbents) where the new technology is good enough to serve the needs of customers. Newcomers can reinvest their profits into the technology, achieving massive improvements since the new technology is not yet saturated.

Over time, since the rate of progress of these disruptive innovations is higher than the rate of progress of sustained innovations, newcomers will be capable to serve and win the high-end of the market.

(Christensen and Rosembloom,

(1995) The market, by providing a good enough product in terms of performance but at a cheaper price.© 69

Resource-Based Perspective

You can have disruptive and sustaining in core concepts or linkages.

Modular > innovation that goes and touches the core concepts, so the components

Architectural > you can innovate and disrupts the architecture

Disruptive ModularCoreConcepts Sustaining ArchitecturalDisruptiveSustainingLinkages

From Knowledge to Innovation

FROM KNOWLEDGE TO INNOVATION

“An innovation in the economic sense is accomplished only with the first commercial transaction” (C. Freeman, 1974: 22)

There is a big difference between idea and innovation, of course you need idea but the idea is not an innovation, then of course you need creativity but also sense making, so if the idea you had has sense or not.

Launch and Research Creativity Sense Making Development Diffusion

Vision/Knowledge Idea Invention Innovation

Concept/Design © 73

Knowledge

Knowledge is the

The output of research, and research itself can be classified according to two parameters:

• Whether it is a quest for fundamental understanding
• Whether it is a quest for application purposes

So, we have three different kinds of research:

1. Pure basic research: I want to better understand a phenomenon and create new knowledge, I am not driven by utility
2. Pure applied research: I want to understand if existing theories (ex electricity) are useful for real applications (ex. Lightbulb).
3. Use-inspired basic: I'm driven both by knowledge and utility, creating new knowledge useful to solve problems (Pasteur with penicillin and new drugs).

Research UNDERSTANDING?

• Yes (Bohr) (Pasteur)

FOR Source: Donald Stoke 1997

QUEST FUNDAMENTAL ---

• No (Edison)
• Yes

CONSIDERATION OF USE?

Idea

After research, we have the generation of ideas, they are not innovations but just ideas.

E.g. how many of these ideas become real? Funnel of innovation, you have a lot of ideas and then

Creativity: An idea is not

An innovation is when an invention becomes a marketable product that brings value to people. It requires resources and complementary assets to be successful.

An invention, on the other hand, is just an idea that is technically developed but has not yet reached the market.

The difference between invention and innovation can be illustrated with the example of Meucci's phone and Bell's phone.

Rogers' diffusion of innovation theory explains that once an innovation reaches the market, the diffusion process begins, starting with innovators.

Innovators are willing to take risks, have the highest social status, 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. Financial resources help absorb these failures.

Early Adopters. These individuals have the highest degree of opinion leadership among the adopter categories. Early adopters have a higher 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 them maintain 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, contact with early adopters and seldom hold positions of opinion leadership.

The different categories of adopters in the diffusion of innovations are:

Innovators. They are the first to adopt an innovation. Innovators are typically adventurous, risk-takers, and have a high social status.

Early Adopters. They adopt an innovation after the innovators. Early adopters are opinion leaders, have a high social status, and are more integrated into the social system compared to innovators.

Early Majority. They adopt an innovation after the early adopters. The early majority represents the average participant in the diffusion process. They approach an innovation with a moderate degree of skepticism.

Late Majority. They adopt an innovation after the average participant. These individuals approach an innovation with a high degree of skepticism and after the majority of society has adopted the innovation. Late Majority are typically skeptical about an innovation, have below-average social status, little financial liquidity, in contact with others in the 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-agents. Laggards typically tend to be focused on "traditions", have the lowest social status, lowest financial liquidity, are the oldest among adopters, and are in contact with only family and close friends.

However, nowadays the diffusion of innovations is more like this:

Big Bang Disruption. Big bang disruption examples are TomTom, Garmin, and Waze. (Downes and Nunes,

(2015) © 80Big Bang Disruption(Downes and Nunes, 2015) © 82

WHY TO INNOVATE

The drivers of innovation

The company should innovate for 2 reasons:

• perspective of the user
• perspective of the customer

By definition is something new that creates value for the users and for the manufacturer > we innovate because there is a value.

Value Novelty

• Problems (Innovation as problem solving)
• New possibilities
• Solutions to unsolved problem
• Technologies
• Better solutions to already solved problems
• Ideas
• Interpretations

Meaning (innovation as sense making) ©

An innovation can happen also because it provides a different value to the chain of users/stakeholders and/or to the manufacturer of the innovation.

Value creation for:

• Users - Stakeholders
• Business (if different than the user)
• Example: Nordisk Insulin, typically insulin was sold to final consumers through the recommendation of doctors and so the typical products were designed to appeal to those decision makers.

Nordisk created a simple to use Insulin Syringe which provided more value to the final consumers making them ask for the product to the doctors.

Value for business

Companies can be classified according to the past innovation and orientation for innovation for the future.

Past results ©

Innovators > companies that did innovation in the past and are still doing it

Aspiring > they are planning to do innovation in the future, but in the past they didn't do it

Inactive > they do not plan to do innovation. Some of them did innovation but then they got lost in some way. They have a plan to compete through other levers.

There is a correlation between being inactive, aspiring or innovators and the % of exports. Those who innovate are going abroad more intensively.

This means innovating is the only way to compete better than the others.

50% 45,7%

40% 42,9% Growing Revenues

Imprese con fatturato

33,3% in aumento

30% Imprese con Growing Exports

20% 20,2% esportazioni in aumento

10% 13,3% 13,5%

0% Inactive Aspiring Innovators

Inerti Aspiranti Innovatori

Fonte: R. Verganti et al., Studio della domanda e dei bisogni

Differentiation

If we are different from the others, customers will buy our product because it is different.

So, in order to innovate we have to make the difference. By creating something new, companies can differentiate themselves from competition. The existence of competition is a big driver of innovation, as monopolies have less incentives to innovate (mostly related just to increasing entry barriers). The more there are competitors, the more innovations appear. On the contrary, if there is no competition, innovation goes down. So, innovation comes from competition.

This differentiation, creates value and a temporary monopoly (first mover advantage),

which is translated to either higher prices, volumes or lower costs. Therefore, a big reason for innovation is to achieve higher profitability.

When companies innovate they have a little period of temporary monopoly (think about iPhone and subsequently Samsung that follows). Monopolistic situation doesn't stimulate innovation.

During the 90's Microsoft was quite alone in computer industry. They did innovation anyway: to protect from new entrances, to convince people to buy every time new products that substitute the previous one.