Social innovation

ENTREPRENEURSHIP & INNOVATION MANAGEMENT January, 2012

Marcello Tonelli

DAY _1 : 6hrs

SUMMARY OF CONCEPTS 1. Innovation – Entrepreneurship – Economic Development 2. Innovation Concepts  Collaboration Strategies

3. Strategic Management of Innovation 4. Organizing for Innovation 5. Managing New Product Development Process 6. Managing New Product Development Teams 7. Conclusions 8. Social Innovation

Implementing Innovation Strategies

ENTREPRENEURSHIP AND INNOVATION

Innovation

Economic Development GEM Study Australia

ENTREPRENEURSHIP 1. What is Entrepreneurship?

ENTREPRENEURSHIP DEFINITIONS Entrepreneurship is... •

Starting a business

•

Being self-employed

•

Undertake an effort to transform innovations into economic goods

•

The catalyst to growth

•

Creating new opportunities

•

Any activity that adds value to a business, an organization, supply chain, value chain, .... anything where there is commerce... or not

 Value, success: TBL

THE FIELD OF ENTREPRENEURSHIP •

High growth entrepreneurship

•

Social entrepreneurship: organize, create and manage a venture with the emphasis towards social change.

•

Corporate entrepreneurship: the process whereby an individual or a group of individuals, in association with an existing organisation, create a new organisation or instigate renewal or innovation within that organisation (Sharma and Chrisman 1999)

•

Indigenous entrepreneurship

•

Women entrepreneurship

•

Immigrant entrepreneurship

•

Technopreneurship: university spinouts

•

Youth entrepreneurship

•

Necessity/survival entrepreneurship

•

Entrepreneurship education/training

•

Family business

ENTREPRENEURSHIP NEXUS

CREATOR(S)

 Individuals

CREATING PROCESS

 Teams

 Opportunity discovery and assessment

 Organizations

 Exploitation decisions  Resource accumulation and gestation

NEW VALUE CREATION  New venture creation (and subsequent development)  Innovations

Close Environment

Remote Environment

INNOVATION

Economic Development GEM Study Australia

ENTREPRENEURSHIP & INNOVATION

Creative destruction: economic change revolves around innovation (Schumpeter 1942) The essence of entrepreneurship is innovation (Drucker, 1985) leading to ‘value’ creation (Khandwalla, 1987). Entrepreneurship is about new value creation in the form of innovation (Gartner 1985; Zahra et al. 1999).

DEFINING INNOVATION 2. What is Innovation?

INNOVATION Innovation is not invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself. Innovation is the creation of better or more effective products, processes, services, or ideas [technologies] that are accepted by users [desirability], and proposed at the right time according to governments and society [viability].

What is desirable to users

Innovation

What is possible with technology

What is viable in the marketplace

INNOVATION

I invented nothing new. I simply assembled into a car the discoveries of other men behind whom were centuries of work... Had I worked fifty or ten or even five years before, I would have failed. So it is with every new thing. Progress happens when all the factors that make for it are ready, and then it is inevitable. To teach that a comparatively few men are responsible for the greatest forward steps of mankind is the worst sort of nonsense – Henry Ford

INNOVATION Al Bundy in ‘Married with Children; God’s Shoes Episode – November 3, 1991

Vibram FiveFingers – 2005

Viktor & Rolf Sock Boots - 2009

ECONOMIC DEVELOPMENT

GEM Study Australia

ECONOMIC DEVELOPMENT It is widely acknowledged that entrepreneurship is a key driver for economic development. New businesses often introduce innovations into the market, create jobs and help to secure the competitiveness of the national economy (Acs & Szerb, 2009).

Job Creation

Entrepreneurship

Economic Development

Innovation

Productivity Growth Entrepreneurship (attitudes, activity and aspirations) is affected by national conditions.  Entrepreneurs with high aspirations materialize better in countries with a stable economic and political climate and well-developed institutions (in fact they may migrate to other countries to pursue their ideas).

ECONOMIC DEVELOPMENT Factor-Driven Economies Algeria*, Guatemala*, Jamaica*, Lebanon*, Morocco, Saudi Arabia*, Syria*, Kingdom of Tonga, Uganda, Venezuela*, West Bank and Gaza Strip, Yemen. Efficiency-Driven Economies Argentina, Bosnia and Herzegovina, Brazil, Chile*, China, Colombia, Croatia*, Dominican Republic, Ecuador, Hungary*, Iran, Jordan, Latvia*, Malaysia, Panama, Peru, Romania*, Russia*, Serbia, South Africa, Tunisia, Uruguay*. Innovation-Driven Economies Australia, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Israel, Italy, Japan, Republic of Korea, Netherlands, Norway, Slovenia, Spain, Switzerland, United Kingdom, United Arab Emirates, United States. *Country in transition to a more advanced stage

ECONOMIC DEVELOPMENT Entrepreneurship in Innovation-Driven Economies As an economy matures and its wealth increases, one may expect the emphasis in industrial activity to gradually shift toward an expanding service sector that caters to the needs of an increasingly affluent population and supplies the services normally expected of a high-income society. The industrial sector evolves and experiences improvements in variety and sophistication. Such a development would be typically associated with increasing research & development and knowledge intensity, as knowledge-generating institutions in the economy gain momentum. This development opens the way for the advance of innovative, opportunity-seeking entrepreneurial activity that is not afraid to challenge established incumbents in the economy. Often, small and innovative entrepreneurial firms enjoy an innovation productivity advantage over large incumbents, enabling them to operate as ‘agents of creative destruction.’ To the extent that the economic and financial institutions created during the scale-intensive phase of the economy are able to accommodate and support opportunity-seeking entrepreneurial activity, innovative entrepreneurial firms may emerge as significant drivers of economic growth and wealth creation. In innovation-driven economies, the proportion of opportunity-driven versus necessity-driven entrepreneurship is expected to be higher than in factor- and efficiency-driven economies.

INNOVATION Government Strategies

Given entrepreneurship's potential to support economic growth, it is the policy goal of many governments to develop a culture of entrepreneurial thinking. This can be done in a number of ways: by integrating entrepreneurship into education systems, legislating to encourage risk-taking, and national campaigns.

INNOVATION

Australia

GEM The GEM STUDY (Global Entrepreneurship Monitor) ACE is the Australian partner for the Global Entrepreneurship Monitor (GEM) which measures entrepreneurial activity in more than 80 countries. Each national team conducts a survey of at least 2,000 adult individuals (a representative sample) annually using a proven methodology (see http://www.gemconsortium.org). The main indicator of entrepreneurship is the Total Early-Stage Entrepreneurial Activity rate (TEA) which measures the propensity of a country to be entrepreneurial. (Reynolds 1998)

54 1998

1999

APS: Data Sets per Year Total 2000

2001

2002

2003

2004

2005

180,297 1,233,500

2006

2007

2008

2009

AUSTRALIA

BUT WHERE DOES AUSTRALIA RANK IN ENTREPRENEURSHIP WHEN COMPARED WITH OTHER MAJOR INNOVATION-DRIVEN ECONOMIES?

AUSTRALIA Entrepreneurship is alive and well in Australia

12% 10% 8%

Point Estimates

6% 4% 2%

Innovation-driven economies

Iceland

Australia

Norway

United States

Netherlands

Ireland

Korea

United Kingdom

France

Finland

Israel

Greece

Switzerland

Sweden

Slovenia

Portugal

Spain

Germany

Denmark

Belgium

Japan

0%

Italy

95% Confidence Intervals

Percentage of adult population between 18–64

With 7.8% of the adult population involved in setting up a new business or owning a newly founded business (TEA rate), Australia ranks second only to Iceland among the innovation-driven (developed) economies – GEM Global Report 2010.

AUSTRALIA Quality of entrepreneurial activities The GEM data clearly show that Australia also compares well with other major economies in terms of the “quality” of entrepreneurial activities being pursued. Indeed, not only the quantity of entrepreneurs but also their aspiration and business goals are important drivers for economic growth. On average for each business started in Australia out of the necessity to earn a living due to a lack of alternatives, there are three businesses where the founders want to take advantage of a lucrative business opportunity in order to increase their personal income or enjoy greater independence. With respect to job growth expectations, a respectable 10% of the entrepreneurs aim to grow their businesses larger than 20 employees in the next five years. Both these indicators are higher than the average for innovation-driven economies. Slightly below average is the international orientation of Australian entrepreneurs. Most likely due to the large distances from international markets just 10% aim at a substantial share of customers from international markets.

AUSTRALIA Drivers of entrepreneurial activity So what are the drivers for this high quantity and quality of entrepreneurship in Australia? The data point to a combination of both business opportunities and entrepreneurial skills. Approximately 50% of the Australian population perceive opportunities to start-up and state that they have the necessary skills to start a business.

Furthermore a large majority of the Australian population report high media attention for entrepreneurship in Australia providing successful role models for prospective entrepreneurs. As a result 8.7% of our respondents have the intention to start a business within the next three years. These numbers are all well above average when compared to the other major economies.

AUSTRALIA Female entrepreneurship is thriving in Australia We also find a very high proportion of female entrepreneurs. Australia is the only major country where men and women participate equally in this important economic activity. This paints a healthy picture of access to entrepreneurial opportunities for Australian women.

40% 30% 20% 10%

Australia

United States

Belgium

Switzerland

Italy

France

Netherlands

Spain

Greece

Sweden

Germany

United Kingdom

Finland

Iceland

Portugal

Slovenia

Denmark

Israel

Ireland

Norway

Japan

0% Korea

Percentage of Female Entrepreneurs in 2010 in Innovation-Driven Economies: Source GEM Global Report 2010

% of Female Entrepreneurs

50%


3. Strategic Management of Innovation 4. Organizing for Innovation 5. Managing New Product Development Process 6. Managing New Product Development Teams


7. Conclusions 8. Social Innovation Main Source: Strategic Management of Technological Innovation – Melissa A. Schilling

TYPES OF INNOVATION 1. Product vs. Process Innovation  Honda: hybrid electric vehicle  Biotechnology firm: a genetic algorithm that can quickly search a set of disease-related genes to identify a target for therapeutic intervention.

2. Radical vs. Incremental Innovation  3G wireless communication technology  From exposed keyboard to flip cover; new service plans; etc.

3. Competence-enhancing vs. Competence-destroying Innovation  Hewlett-Packard: handheld calculator  Keuffel Esser slide ruler

4. Architectural vs. Component Innovation  Transition from high-wheel bicycle to bicycles with gears  Dunlop (pneumatic tires); Raleigh (three speed)

IMPACT OF INNOVATION ON SOCIETY 1800

1820

1840

1860

YEAR

INVENTION

YEAR

INVENTION

YEAR

INVENTION

- 1800

Electric battery

- 1877

Phonograph

- 1939

Atom fission

- 1804

Steam locomotive

- 1878

- 1942

Aqua lung

- 1807

Internal combustion engine

Incandescent light bulb

- 1943

Nuclear reactor

- 1947

Transistor

- 1957

Satellite

- 1958

Integrated circuit

- 1967

Portable calculator

- 1809

Telegraph

- 1817

Bicycle

- 1821

Dynamo

- 1824

Braille writing system

- 1828

Hot blast furnace

- 1831

Electric generator

- 1836

Five-shot revolver

- 1841

Bunsen battery

- 1842

Sulfuric ether-based anesthesia

- 1846

Hydraulic crane

- 1850

Petroleum refining

- 1856

Aniline dyes

- 1862

Gatling gun

- 1867

Typewriter

- 1876

Telephone

1880

1900

- 1885

Light steel skyscrapers

- 1886

Internal combustion automobile

- 1887

Pneumatic tire

- 1892

Electric stove

- 1969

ARPANET

- 1895

X-ray machine

- 1971

Microprocessor

- 1902

Air conditioner

- 1973

Mobile phone

- 1903

Wright biplane

- 1976

Supercomputer

- 1906

Electric vacuum cleaner

- 1981

Space shuttle

- 1987

Disposable contact lenses

- 1989

HD television

- 1990

WWW protocol

- 1910

1920

1940

Electric washing machine

- 1914

Rocket

- 1921

Insulin

- 1936

Computer

1960

- 1996 Internet Innovation enables a wider range of goods and Wireless services to be - 1927 Television 2000 2003 Map of human delivered to people worldwide. In this way it can be described - 1928 Penicillin genome as the catalyst of economic development.

IMPACT OF INNOVATION ON SOCIETY

THE GREAT MAN THEORY OF INNOVATION Johann Gutenberg

Printing press

1450

Christopher Columbus

America

1492

James Watt

Steam engine

1769

Eli Whitney

Cotton gin

1793

Michael Faraday

Electric motor

1821

Cyrus McCormick

Reaper

1831

Samuel Colt

Revolver

1835

Samuel Morse

Telegraph

1837

Alfred Nobel

Dynamite

1866

Alexander Graham Bell

Telephone

1876

Thomas Edison

Light bulb

1879

Marchese Marconi

Radio

1895

Wright Bros

Airplane

1903

Henry Ford

Automobile

1908

Picasso

Cubism

1910

Philo T. Farnsworth

Television

1925

Alexander Fleming

Penicillin

1928

William Shockley

Transistor

1948

Watson & Crick

The double-helix

1953

Elvis Presley

Rock and roll

1954

Bill Gates

Personal computers

1984

Steve Jobs

iPod

2001

The Great Man Theory of Innovation. As society we tend to recall an idea and a single man in a single point in time. But is this what really happens? Edison did not invent the light bulb, but the idea of how that could be brought together with other elements to change the way we live. While his first patent application for a light bulb was declined because too similar to one filed 40 years earlier, he ended up with 368 patents around the system of electric lighting. Henri Ford did not invent the first car. His ideas was mass production and to do so he combined four existing core technologies: • Interchangeable parts • Continuous flow of production through the chain • Assembly line • Electric motor Nothing Microsoft has ever made money on was developed internally. MS-DOS (Seattle Computer Company), Excel (Lotus 123), Word (Xerox PARC), Windows (Apple’s Macintosh)

WHAT IS INNOVATION ?  Most of what we look at as innovation is not truly new. The true breakthroughs, the things that change society overnight, do so not because they are new.  The novelty is not what drives the breakthrough. It is the combination, the particular way in which they are used.  Innovation is about connecting, not inventing. It is about taking the pieces that are already out there and finding ways to put them together in combinations and bring them to people who have never seen them before.  That’s how profound change happens!

NETWORK IS THE KEY

SOURCES OF INNOVATION 3. What Are Sources of Innovation?

SOURCES OF INNOVATION Linkages between different components (firm’s relationships with customers, technology transfer from universities to firms, etc.) Sources of Innovation as a System Firms

Universities

Individuals

Private Nonprofit

Government Funded Research

SOURCES OF RESEARCH WORK R&D by firms is the major source of firm innovation Roberts, E. (2001) Benchmarking Global Strategic Management of Technology, Research Technology Management, 25-36. Firms’ Rank Ordering of the Importance of Sources for R&D Work 1999 Rank Order of Sources of Research Work

Rank Order of Sources of Development Work

1

Central corporate research

Internal R&D within divisions

2

Internal R&D within divisions

Central corporate research

3

Sponsored university research

Suppliers’ technology

4

Recruited students

Joint ventures/alliances

5

Continuing education

Licensing

6

University liaison programs

Customers’ technology

7

Consultants/contract R&D

Continuing education

8

Joint ventures/alliances

Acquisition of products

SOURCES OF RESEARCH WORK U.S. Spending on R&D by Source, 1953-2002 (Billions $) 300 250 200 150 100 50 0 1953

1958

1963

1968

Total R&D Federal government

1974

1979

1984

1989

1994

1999

Industry Other non-federal government

2002

SOURCES OF RESEARCH WORK Percent of R&D Funds by Source and Country, 1999 80

70 60 50 40 30 20 10 0

Industry Government Other domestic Abroad

COLLABORATION STRATEGIES New Research Joint Ventures Registered under the US National Cooperative Research Act 1985-2000

Domestic Research Joint Ventures

140

120

100

80

60

40

20

0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

COLLABORATION STRATEGIES Worldwide Formation of New Technology or Research Alliances, 1980-2000

New Strategic Technology Alliances

800 700 600 500 400 300 200 100 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

COLLABORATION STRATEGIES Technology Alliance Strategies Individual Alliance

Network of Alliances

Capability Complementation

A GE-SNECMA alliance

B Corning Glass Alliances D

Capability Transfer

C Thomson-JVC alliance

Aspla

Source: From Y. Doz and G. Hamel, 1997, “The Use of Alliances in Implementing Technology Strategies.” In M.L. Tushman and P. Anderson, Managing Strategic Innovation and Change.

COLLABORATION STRATEGIES Summary of Trade-offs between Different Modes of Development Speed

Solo Internal Development

Cost

Control

Potential for Leveraging Existing Competences

Potential for Developing New Competencies

Potential for Accessing Other Firms’ Competences

Low

High

High

Yes

Yes

No

Varies

Varies

Low

Yes

Yes

Sometimes

Joint ventures

Low

Shared

Shared

Yes

Yes

Yes

Licensing In

High

Medium

Low

Sometimes

Sometimes

Sometimes

Licensing Out

High

Low

Medium

Yes

No

Sometimes

Medium/High

Medium

Medium

Sometimes

No

Yes

Low

Varies

Varies

Yes

Yes

Yes

Strategic Alliances

Outsourcing Collective Research Organizations





STRATEGIC MANAGEMENT OF INNOVATION 4. Why do so many innovation projects fail to generate an economic return?

THE IMPORTANCE OF STRATEGY Most innovative ideas do not become successful products (1:3,000) –Stevens, G. and Burley, J. (1997) 3,000 Raw Ideas Equals 1 Commercial Success!, Research Technology Management 16-27.

In the Pharmaceutical industry:  1 in 5,000 compounds makes it to shelf  1 in 15,000 breaks even

The Innovation Funnel

3,000 Raw ideas (unwritten)

300 2 Launches Submitted 125 Small 4 Major Projects Developments Ideas

1 Successfull New Product

INNOVATION PROCESS PHARMACEUTICAL INDUSTRY (2:40-5:45)

INNOVATION PROCESS What do we know about the process of innovation? How does it happen? How to manage it?  Rather than trying to be another great man, try instead to make a difference quickly and effectively. The way to do so is to fundamentally accept that innovation is about moving existing ideas from where they are known to where they are not, often in new combinations.  that is the way to become capable of “a minor invention every ten days and a big thing every six months or so” (Thomas Edison at Menlo Park Laboratory in 1876)

INNOVATION PROCESS In-House

CrossPollination

External

Selection

Development

Spread

Creation within a unit

Collaboration across units

Collaboration with parties outside the firm

Screening and initial funding

Movement from idea to first result

Dissemination across the organization

Key Questions

Do people in our unit create good ideas on their own?

Do we create good ideas by working across the company?

Do we source enough good ideas from outside the firm?

Are we good at screening and funding new ideas?

Are we good at turning ideas into viable products, businesses, and best practices?

Are we good at diffusing developed ideas across the company?

Key Performance Indicators

Number of high-quality ideas generated within a unit.

Number of high-quality ideas generated across units.

Number of high-quality ideas generated from outside the firm.

Percentage of all ideas generated that end up being selected and funded.

Percentage of funded ideas that lead to revenues, number of months to first sale.

Percentage of penetration in desired markets, channels, customer groups, number of months to full diffusion.

Source: Morten Hansen and Julian Birkinshaw

DAY _2 : 3hrs





ORGANIZING FOR INNOVATION 5. Are there particular types of innovation activities for which large firms are likely to outperform small firms? Are there types for which small firms are likely to outperform large firms?

Google Case Study

VALUE INNOVATION Business Type: Circus Entertainment High Big League Small League Low

Source: Chan Kim and Renee Mauborgonee

Customer Type: Families with Children

VALUE INNOVATION Business Type: Circus Entertainment High Big League Small League Low

Source: Chan Kim and Renee Mauborgonee

Customer Type: Families with Children

ORGANIZING FOR INNOVATION Excuses:

 Our people are bright but not challenged to innovate  Our organizations are not designed for innovation  Companies take a long time to innovate

 Organizations have to respond to multiple pressures – innovation becomes one of them

DOES SIZE MATTER? 1. Bigger is better (Schumpeter 1940s) 2. Small are more flexible and entrepreneurial: more careful and efficient result in a larger number of patents per dollar 3. Industries with large development scale (aircraft, pharma) use large firms. Advantages

Disadvantages

Easier to obtain financing for R&D

Difficult overtime to effectively monitor and motivate employees

Better developed complementary activities (marketing, financial planning)

Less dynamic and responsive to change due to many layers of authority that create bureaucratic inertia.

Greater global reach for information and resources

Communication and coordination more difficult and decision-making delays

Learning curve advantages due to repetition

Strategic commitments to customers and suppliers (Icarus Paradox: Xerox, Canon 1980s)

Able to take on large risky innovation projects

Large fixed-asset bases

STRUCTURAL DIMENSIONS OF THE FIRM Formalization

Standardization

Centralization

Use of rules, procedures, and written documentation to structure behaviours

The degree to which activities are performed in a uniform manner

The degree to which decision-making authority is kept at top levels of management (geography and power location)

Can substitute for some degree of managerial oversight

Operations run smoothly and yield predictable outcomes (quality)

Greater division of labour among R&D specialists.

High degree makes a firm rigid stifling employees creativity

Excessive minimization of variation can stifle innovation

Generally industry-specific: decentralised for research intensive firms.

++  mechanistic - -  organic

CENTRALIZATION Centralized and Decentralized R&D Activities

Centralized R&D

Decentralized R&D R&D

R&D Headquarters

R&D

R&D Headquarters

R&D

(a)

R&D

(b)

AMBIDEXTERITY •

Make large firms feel small. Break into smaller subunits and  General Electrics, Hewlett-Packard, Johnson & Johnson, General Motors

•

Encourage an entrepreneurial culture within these subunits

•

Disaggregation into smaller, specialized autonomous divisions

•

Especially those characterized by high-speed technological change

•

New terminology: virtual organization, network organization, modular organization.

The Ambidextrous Organization •

Complex organizational form: multiple internally inconsistent architectures that can collectively achieve both short term efficiency and long term innovation

•

High formalization and standardization in some divisions but not in R&D (the Macintosh team at Apple).

•

Some divisions need a more organic structure to encourage creativity while others do not (USA Today).

•

Frequent reorganization of personnel (Motorola, Texas Instruments).

MODULAR PRODUCTS • Standardize a number of common components and • Using flexible manufacturing technologies that can quickly shift from one assembly configuration to another • Produce a wide range of product models just by changing which components are combined (IKEA, Tata Motors) • Cost effective • More valuable when customers have heterogeneous demands • Highly modular products require modular production systems  reduce amount of coordination required.

INNOVATION ACROSS BORDERS •

International R&D activities (R&D divisions abroad in the late 1990s):  Netherlands and Switzerland > 50% ; 30% of Western Europe ; 5% USA

•

Customization of products and services to local markets makes them particularly difficult to transfer

•

The benefit is more on leveraging technological innovation rather than sharing innovations.

•

4 main strategies

Center for global

Local for local

Locally leveraged

Globally linked

All innovation activities are conducted at a central hub and innovations are then diffused throughout the company.

Each subsidiary of the firm conducts its own R&D activities, tailored for the needs of the local market.

Each subsidiary conducts its own R&D, but the firm attempts to leverage resulting innovations throughout the company (champion or international brand custodian)

Innovation activities are decentralized, but also centrally coordinated for the global needs of the corporation.

May not closely fit the needs of foreign markets.

Lack of scale. Redundancy in activities.

Is effective if the different markets served have similar needs.

Expensive in time and money and requires intensive coordination.

MULTINATIONALS Overall the objective of multinationals is to make centralized innovation activities more effective while making decentralized innovation activities more efficient. 1. Encourage reciprocal interdependence among the divisions of the firm. 2. Utilize integration mechanisms across the divisions (e.g. Rotating personnel across divisions) 3. Balance the organization’s identity between its national brands and its global image. Ericsson: sending teams of 50-100 engineers to a different subsidiary a year or two.

ORGANIZING FOR INNOVATION We can learn from global leaders in organizing for innovation The innovation process can be managed (tools: scenario analysis, value innovation, etc.)

…but ultimately it comes down to the PEOPLE we have and the BEHAVIOURS we encourage.





MANAGING NEW PRODUCT DEVELOPMENT PROCESS 6. What are the benefits and costs of involving customers and suppliers in the development process?

Frog Design Case Study

MANAGING NEW PRODUCT DEVELOPMENT PROCESS •

The ability to develop new products quickly, efficiently and effectively is today the most important factor driving firm success.  Computer hardware and software, telecommunications, automobiles, and consumer electronics.

•

Firms depend on products introduced within the past 5 years for more than 50% of their sales.

•

Failure rate for new products remains extremely high.  > 95% of all new product development projects fail to return in an economic return

How do we make the new product development process more effective and more efficient?

THE KEY OBJECTIVES •

Maximizing fit with customer requirements.  Have a clear sense of which features customers value the most

 Overestimate the customer’s willingness to pay for some features  Resolving heterogeneity in customer demands  Philips in the video game industry: 1989 CD-i (before Sega Saturn and Sony PlayStation): priced too high, complex.

•

Minimizing cycle time  Early entry advantages: Build brand loyalty, build customer switching costs, more time for complementary goods.  Many development costs are directly related to time  Maximize the product life cycle (electronics: 12 mo)

 More quickly revise and upgrade its offering  Avoid: sloppy product testing, overburdening development teams

•

Controlling development costs  Good PM to avoid costs having ballooned too much  efficient development efforts.

DEVELOPMENT PROCESSES • Communication challenge • No early warning system: risk to iterate back and fourth  time lengthening

• Much closer coordination • Not ideal for markets with rapid changes and uncertainty  risks of high costs and reluctance to change by managers

Sequential Process

Opportunity identification

Partly Parallel Development Process

R&D

Opportunity identification

Manufacturing Engineers

Concept development

Concept development Product design

Product design

Process design

Process design Commercial production

(a)

Cycle Time

Commercial production

(b)

Cycle Time

METHODS 

Adopting parallel development processes



Using project champions: senior executives with the power and authority to fight for a project.  Anti-champions (devil’s advocate)



Involving customers in the development process  Best to identify the maximum performance capabilities and minimum service requirements (beta testing)  Use lead users instead of mass sample: same the same needs of the marketplace well before.



Involving suppliers in the development process  For alternative inputs with same functionalities but at lower costs

PRODUCT INNOVATION - TRENDS 1. FUN – Colori vivaci, forme sinuose, superfici decorate ed imperfezioni ad hoc strizzano l'occhio ad oggetti e realtà di altri contesti. 2. TOUCH – Le persone raramente sono intimidite dagli oggetti che desiderano toccare. L'interazione fisica rivela la natura e le qualità di un prodotto. 3. CUSTOM – La personalizzazione di un prodotto, dal dettaglio grafico fino alle varianti tridimensionali, lo rende un oggetto personale e speciale. 4. HEALTH – La cura della propria salute è l'interesse più importante per ognuno di noi, sempre più desiderosi di soluzioni in-home efficaci e di facile utilizzo.

5. FEMININE – I gadgets non sono più cose da maschi! Sempre più aziende propongono versioni più raffinate dei propri prodotti, per le donne che vogliono essere “geek chic”. 6. SIMPLEXITY – Un prodotto ricco di funzioni deve essere anche accessibile, ergonomico e di facile utilizzo per essere accettato dall'utente. “One click or no click!” 7. GREEN – I designers hanno la missione di creare oggetti innovativi e sostenibili, migliorando la nostra qualità di vita, senza danneggiare il pianeta nè privare le generazioni future delle nostre medesime opportunità. 8. MEANING – Scegliamo un oggetto non in base a quello che fa, bensì in funzione del suo significato, di ciò che ci comunica e del modo in cui ci permette di relazionarci con gli altri. 9. SOCIAL – Ogni nuovo prodotto genera una comunità reale e virtuale, che si riconosce in un insieme di valori condivisi, e collabora per la soddisfazione e la serenità di tutti i suoi partecipanti.

10. MASS GEEK – La conoscenza sempre più approfondita e dettagliata di qualsiasi prodotto ci rende utenti esigenti, bisognosi di performance elevate ed esperienze d'uso ineguagliabili.

TOOLS 

Creating go/kill decisions points with stage gate processes  Cooper’s stage-gate process  At each stage use a cross-functional team  Preceding each stage is a go/kill gate  Each gate has 3 components 1. Deliverables: results of previous, now inputs 2. Criteria: metrics for the go/kill 3. Outputs: decision, action plan for next gate

STAGE-GATE PROCESS

IDEA

GATE 1

GATE 2

GATE 3

GATE 4

GATE 5

Idea Screen Does the idea merit any work?

Second Screen Does the idea justify extensive investigation?

Decisions to Develop Is the business case sound?

Decision to Test Should the project be moved to external testing?

Decision to Launch Is the product ready for commercial launch?

SCOPING

BUILING BUSINESS CASE

DEVELOPMENT

TESTING & VALIDATION

LAUNCH

STAGE 1

STAGE 2

STAGE 3

STAGE 4

STAGE 5

• Preliminary market assessment • Preliminary technical assessment • Preliminary financial and business assessment • Action plan for Stage 2

• User needs and wants study • Competitive analysis • Value proposition defined • Technical feasibility assessment • Operations assessment • Product definition • Financial analysis

• Technical development work • Rapid prototypes • Initial customer feedback • Prototype development • In-house product testing • Operations process development • Full launch and operations plans

• Extended in-house testing • Customer field trials • Acquisition of production equipment • Production trials • Test market/trial sell • Finalized launch and operations plans • Post launch and life cycle plans

• Market launch and rollout • Full production • Selling begun • Results monitoring • Post launch and life cycle plans under way.

POSTLAUNCH REVIEW How did we do vs. projections? What did we learn?

Source: From “Doing It Right: Winning with New Products”. By R. G. Cooper, Ivey Business Journal, July/August 2000, Vol.64, No.6

DEVELOPMENT TIME AND COSTS BY STAGE There is an escalation, only as uncertainty decreases Stage

Time

Cost

1. Formulate-describe and sketch

1 week

$100

2. Conduct preliminary investigations

2 weeks

$1,000

3. Design and define specifications

1 month

$10,000

0. “Here’s an idea!”

$11,111,100

4a. Develop prototype and test 4b. Market research 4c. Strategic fit evaluation and NPV risk analysis

Cost 2 months

$100,000

8 months

$1 million

5a. Scale up, build pilot plant 5b. Market test 6a. Build plant 6b. Promote, launch, market

16 months

$10 million

Time

Source: From Frederick D. Buggie, “Set the Fuzzy Front End in Concrete”, Research Technology Management, Vol. 45, No. 4, July/August 2002.

28 Months

EXTENDED SYSTEM Exxon Research and Engineering’s Stage-Gate System • Adaptation to meet specific needs of the firm • Inclusion of directed basic research to develop a research plan and identify possible business opportunities

Stage A

Gate A

Opportunity Identification

Stage 1 Lead Definition

Stage B

Gate B

Enabling Science & Idea Growing

Gate 1

Stage 2 Predevelopment Assestment

Gate 2

Stage 3 Development

Gate 3

Stage 4 Validation

Gate4

Stage 5 Commercialization

TOOLS Defining design targets with Quality Function Deployment  QFD: to improve communication and coordination (Japan)

 Takes managers through a structured problem-solving process  House of Quality: matrix to map customer requirements against product attributes. 1. Identify customer requirements 2. Assign weights from a customer’s perspective (out of 100)

3. Identify engineering attributes of performance 4. Enter correlations between attributes (+ ; - ) 5. Fill the matrix with values that represent the strength of relationship (low number is weak, high strong) 6. Multiply customer importance rating of each feature by its relationship to an engineering attribute. Sum per each column  what is the most important engineering attribute? 7. Evaluate the competition (1-7): low is not addressed, high is satisfied. 8. Using these values and the importance ratings, target values for each design requirements are established. 9. Create a product design based on the design targets of step 8.

THE HOUSE OF QUALITY Quality Function Deployment House of Quality for a Car Door

A heavy door reduces the stiffness of the hinges

-

TOOLS Design for Manufacturing (DFM) 

Facilitate integration between engineering and manufacturing



Articulate a series of design rules to ease manufacturing



Ease to manufacture  few assembly line steps  higher productivity  lower unit costs

Failure Modes and Effects Analysis (FMEA) 

A type of risk analysis



Identify potential failures in a system, classify them, prevention plans  Landing gear doe not descend  Reservation not found



Prioritize development efforts to target potential failure modes



Apollo Space Program ; Ford Pinto (gas tank position, fire-related deaths, lawsuits)

TOOLS Computer Aided Design (CAD) / Computer Aided Manufacturing (CAM) systems  Test product designs  Low price, high power graphics  3D easily adjustable models  Reduce cycle time  Communication with non-engineers

PERFORMANCE MEASUREMENT TOOLS Using metrics to assess performance of the new product development process  They vary substantially across firms  Benchmarking

 Multiple measures  Avg. Cycle time, how many projects met deadlines, stayed in budget, were completed  At firm’s level: firm’s return on innovation, % of products that achieve sales goals

DAY _3 : 3hrs





MANAGING NEW PRODUCT DEVELOPMENT TEAMS 7. What are the trade-offs in choosing a team’s size and level of diversity?

Skullcandy Case Study

BUILDING TEAMS - New product development requires activities that are the responsibility of various departments. - Formation and management varies: size, composition, structure, leadership, administration.

SIZE - A few > 100s - Adv. more knowledge - Disadv. more admin costs, communication problems, social loafing

BUILDING TEAMS COMPOSITION - cross-functional teams:  facilitate communication  faster, less mistakes, cost effective  wide variety of information sources  more solutions - MKT-R&D -> customer fit

- R&D-MFG -> quality and price - Different time, cultural diversity, gender, age - Homophily: tendency to like similar people  communication barriers  Long-term, intensive interaction, personalities.

STRUCTURE - Functional, lightweight, heavyweight, autonomous

TYPES OF DEVELOPMENT TEAMS CEO R&D

MFG

CEO R&D

MKT

MFG

CEO R&D

MKT

Project Manager

MFG

CEO MKT

Project Manager

R&D

MFG

MKT

Project Manager

a) Functional Team Structure

b) Lightweight Team Structure

c) Heavyweight Team Structure

d) Autonomous Team Structure

No cross-functional integration; employees remain within functional departments.

Employees remain within functional departments but project manager provides cross-functional integration.

Project manager provides cross-functional integration; team members are collocated but still report to functional managers also.

Project manager provides cross-functional integration; team members are collocated and report only to project manager.

TYPES OF DEVELOPMENT TEAMS Characteristics

Functional

Lightweight

Heavyweight Team

Autonomous Team

Project manager

None

Junior or middle

Senior manager

Senior manager

Power of project manager

N/A

Low

High

Very high

Time spent on team activities

Up to 10%

Up to 25%

100%

100%

Location of team members

Functions

Functions

Collocated with project manager

Collocated with project manager

Length of commitment to team

Temporary

Temporary

Long-term but ultimately temporary

Permanent

Evaluation of team members

Functional heads

Functional heads

Project manager and functional heads

Project manager

Potential for conflict between team and functions

Low

Low

Moderate

High

Degree of cross-functional integration

Low

Moderate

High

High

Degree of fit with existing organizational practices

High

High

Moderate

Moderate-low

Appropriate for:

Some derivative projects

Derivative projects

Platform projects / breakthrough projects

Platform projects / breakthrough projects

Summary of Characteristics of Team Team Team Types

LEADERSHIP

BUILDING TEAMS LEADERSHIP - Communication between team and senior management - Act as concept champion, conflict resolution, multi-language

ADMINISTRATION - Project Charter: project mission, goals, vision statement, team info  “Dell laptops will be the market standard for performance and value”

- Contract Book: negotiated between core team members and senior management  Plan: resources, time, outcomes  Benchmarks and deadlines  Sense of ownership for the team  sign

MANAGING VIRTUAL TEAMS - Needed skills defines the appropriate pool of people.

- Many challenges: rich face-to-face communication, informal interaction - Select the right people  Comfortable with those technologies  Strong interpersonal skills

 Work independently  Strong work ethic  Establish ground rules:  quickly respond to messages

 have regular group meetings  have mandatory unstructured “chat” time  develop trust, exchange tacit knowledge, resolving conflict

TOWARDS VIRTUAL TEAMS

Decentralization

Centralization

Decentralized SelfCoordinated

System Integrator as Coordinator

Core Team as System Architect

Centralized Venture Team

All R&D conducted by decentralized divisions that coordinate loosely with each other.

Most R&D activity conducted by decentralized divisions, but each coordinates with central integrator.

Core team takes lead role in R&D activities while also coordinating the R&D activities of the decentralized divisions.

R&D resources transferred to centralized venture team, which then conducts all R&D activities.

Source: From O. Gassman and M. von Zedtwitz, 2003. “Trends and Determinants of Managing Virtual R&D Teams”, R&D Management Vol.33, No.3, pp.243-262

PROPER HUMAN RESOURCES Design-Driven Innovation Innovate = technology + application Youth

Business-Driven Innovation

Innovate = technology + business models Maturity

CREATIVITY MYTH •

A common myth is that only certain people are creative (E. Glasman).

•

Creativity is not inherited.

•

We are born innovative – we all have a curious child within us

•

Reviving many of the child-like ways of looking at the world that we have lost as adults.

•

Adults use many devices to think routinely and create inhibitors to creative thinking.

•

We need to practice innovative habits on a daily basis. Innovation is a skill that must be cultivated.

BLOCKS TO CREATIVITY Environmental blocks 1. Physical surroundings 2. Lack of cooperation or trust in a group 3. An autocratic leader 4. Lack of physical, economic, or organizational help Cultural blocks 1. Fear of inability, making a bad choice, or a mistake; fear of failing, or of risking too much. 2. No appetite for chaos: inability to tolerate ambiguity. 3. Judging rather than generating ideas 4. Inability to incubate, to "sleep on it.“ 5. Lack of motivation, lack of enthusiasm. 6. Excessive zeal 7. Awareness and control of reality and fantasy

CATALYSTS FOR CREATIVITY Promote an environment that prompts innovation

•

Open questions

•

Non-conventional influences

•

Emotional/spiritual awareness

•

Proper equipment and facilities

•

An open classroom where all can feel they belong

•

Having the freedom/support to take risks and learn from one another

•

Encouragement to persevere

•

Confidence that peers will give everyone space

•

Brainstorming exercises

•

…..

BRAINSTORMING • Criticism is ruled out; all ideas are accepted and recorded. • Free-wheeling is welcomed -- the wilder the idea the better.

• Quantity of ideas is emphasized as much as quality. • Involve no fewer than five and no more than seven people to guarantee "critical mass" and to allow everyone to participate. • Always hold meetings in a neutral place, such as a conference room, or off-site location. •

Use a round table whenever possible -- all people should have positions of equal prominence.

• Use visuals -- flip charts, blackboards, and places to hang or mount exhibits -- for easy reference later. •

Tape record sessions, if desired.

•

A designated leader, preferably not the person with the primary responsibility for the problem, should lead the discussion, pose questions, and ask for reactions.

•

A facilitator, other than the leader, should handle mechanics, such as note taking and writing on the flip chart.

•

Always notify people in advance so they can think about the issue prior to the meeting and schedule the meeting when people are fresh and undistracted.




CONCLUSIONS 1. LEADERSHIP in innovation: Three essential traits for innovation leadership are positive encouragement, a tolerance for failure, and patience. “Innovation is central to strategy” (Patrick Cescau Group CEO, Unilever) 2. Celebrate an innovation CULTURE: A mindset open to innovation builds upon first principles, doesn’t rely on assumptions and accepts failure. Significant innovation requires significant funding – it must be conststent and sufficient even in economic downturns. “We never accept the status quo, we never accept conventional thinking” (Art Levinson CEO, Genentech) 3. Engage more innovation PARTNERS: Innovative companies pursue multiple approaches to access external innovative talent and expertise: joint ventures, technology clusters, venture funds, open innovation models. “There is so much knowledge and skills in the company – but we don’t have enough in terms of skills and capabilities” (Olli-Pekka Kallasvou CEO, Nokia)

CONCLUSIONS 4. Encourage DIVERSITY & POSITIVE FRICTION: Cultural diversity stimulates innovation because individuals from different backgrounds/experiences working together create more innovative solutions. “One of our core values is cultural diversity” (Franz Fehrenbach CEO, Bosch) 5. Use COSTUMERS judiciously: Excessive attention to customers’ short-term requests inhibits the far-horizon speculation and imagination. “Two things are key for innovation: one is listen to the customers, and the second is not listen to the customers” (Henning Kagermann CE, SAP) 6. Encourage YOUTH to challenge: Supporting and encouraging youth can advance innovation because is typically more open to new ideas. “The biggest challenge is creating a sense of urgency for innovation where things are going well” (Narayana Murthy Chairman Infosys)

CONCLUSIONS •

The pace of innovation is ACCELERATING globally

•

We need innovation-centric POLICIES and FRAMEWORKS

•

Keep faith in the ability of PEOPLE to innovate; encourage them to PRACTICE INNOVATIVE HABITS

•

DESIGN innovation into the core of your organization

•

SMALL ACTIONS can go a long way – each one of us can MAKE A DIFFERENCE and create a TIPPING POINT.

•

The PHYSICAL workspace represents the “body language” of an organization. o Terrific spaces help teams stay fresh and foster an environment that sparks new ideas. They can also suck the life out of an organization! o It is the stage for your team’s performance.

•

You need to innovate to SURVIVE, grow and prosper

•

Treat life as an EXPERIMENT

CONCLUSIONS The supreme achievement is to blur the line between work and play (Arnold J. Toynbee)

Good at

Born To Do

Pay you to do

CONCLUSIONS •

Breath instead of depth

breadth 1

depth

Constant prototyping instead of optimization

CONCLUSIONS Siede la terra dove nata fui su la marina dove ‘l Po discende per aver pace co’ seguaci sui. amor, ch’al cor gentil ratto s’apprende, prese costui de la bella persona che mi fu tolta, e ‘l modo ancor m’offende. Amor, ch’a nullo amato amar perdona, mi prese del costui piacer si forte, che, come vedi, ancor non m’abbandona.

BREADTH FIRST

Paolo e Francesca

Rimini

Il Grand Hotel

Francesca da Rimini di Riccardo Zandonai

DEPTH FIRST Paolo e Francesca

Gabriele D’Annunzio

Continuo a leggere la Commedia

Ronchi dei legionari

Forse leggerò anche Francesca da Rimini di Riccardo Zandonai

Che Guevara

Fellini

Evita

Andrew Lloyd Webber

Oscar

CONCLUSIONS Depth

Breadth

Approfondire mi fa apprezzare davvero quel che merita di essere approfondito

Resto superficiale e rischio abbagli

Approfondendo imparo a capire a fondo

Ma imparo a istituire collegamenti

The devil is in the details

É più probabile che mi imbatta in una cosa che ritengo degna di essere approfondita...

Approfondendo qualcosa, imparo a rifuggire tutte le semplificazioni

...e allora colgo il meglio dei due mondi

> (R.A. Heinlein, Lazarus Long l’immortale, 1973)

CONCLUSIONS Good enough! Mitigare la mania di ottimizzazione Sforzo / costo

6 Sigma 1 Sigma

690mila difetti per milione

Efficienza

31% 2 Sigma


Efficienza

9% 3 Sigma


Efficienza

93% 4 Sigma 6mila difetti per milione

Efficienza

99.4% 5 Sigma

230 difetti per milione

Efficienza

99.97%

6 Sigma

3 difetti per milione

Efficienza

99.99%

Guadagno / miglioramento




IS INNOVATION ALWAYS GOOD? 8. What are the advantages and disadvantages of technological innovation?

SOCIAL INNOVATION Reality Check: Innovation often also results in negative externalities such as pollution, depletion of natural resources, moral dilemmas, antibioticresistant strains of bacteria, etc. Reasons: knowledge created through technological innovation is sometimes applied to problems hastily, without full consideration of the consequences and alternatives. Social Innovation: “a process and a strategy to foster human development through solidarity, cooperation, and cultural diversity” The term has overlapping meanings. It can be used to refer to social processes of innovation, such as open source methods and techniques. Alternatively it refers to innovations which have a social purpose.

OPEN INNOVATION Certainly one of the new trends of innovation is that is now more OPEN and GLOBAL that before. “Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology” Innovate through collaboration OI advocates knowledge-sharing not only internally but also with actors beyond a firm’s boundaries. “Per ciascuno dei nostri 7,500 ricercatori in P&G ci sono almeno 200 scienziati e ingenieri da qualche altra parte del mondo che sono almeno altrettando bravi – forse un totale di un milione e mezzo di persone il cui talento potremmo usare” L.Huston VP per l’innovazione e la conoscenza, P&G

SOCIAL PURPOSE Produttori di rifiuti

1.

Pur registrando una riduzione dei rifiuti urbani smaltiti in discarica, l’Italia si colloca ancora significativamente al di sopra della media europea, con 286,1 kg di rifiuti per abitante. Si tratta del 52,7 per cento del totale dei rifiuti urbani raccolti su tutto il territorio nazionale

Anziani e stranieri

2.

I cittadini stranieri iscritti nelle anagrafi dei comuni italiani all’inizio del 2010 sono oltre 4,2 milioni, il 7,0 per cento del totale dei residenti. Rispetto al 2001 sono più che triplicati; nel 2009 sono cresciuti dell’8,8 per cento, anche se, rispetto agli ultimi anni, il ritmo di crescita è meno sostenuto. Il rapporto tra popolazione giovane e anziana e popolazione in età attiva supera il 52 per cento (2009). L’Italia è ai primi posti nella graduatoria europea.

Attenti alla salute ma pigri

3.

Praticano sport poco più di 19 milioni di residenti di tre anni e più (circa un italiano su tre): il 22,8 per cento in modo continuativo, il 10,2 saltuariamente. Pur non praticando sport, 16,5 milioni di persone svolgono un'attività fisica, mentre i sedentari superano i 22 milioni (2009)

Sempre in viaggio

4.

I viaggi con pernottamento effettuati dai residenti per motivi di vacanza e di lavoro, sia in Italia sia all’estero, sono pari a circa 115 milioni, per un totale di oltre 680 milioni di notti (2009). Le durate medie dei soggiorni in Italia sono pari a 6,0 e a 2,8 notti, rispettivamente per vacanza e per lavoro.

SOCIAL PURPOSE Produttori di rifiuti

SOCIAL PURPOSE Anziani e stranieri in crescita

Il prossimo obiettivo di Ibm è quello di semplificare la telefonia mobile. L'azienda ha infatti annunciato di aver avviato un programma di ricerca biennale che mira a sviluppare nuovi modelli di cellulare di più facile utilizzo. Il progetto vedrà la collaborazione del National Institute of Design of India e della Tokyo University. "Dato l'invecchiamento della popolazione europea e nord americana, la necessità di strumenti ad hoc diventerà incalzante", ha commentato Ben Wood, direttore della società di consulenza britannica Css Insight. Ma quali sono le caratteristiche che un cellulare deve supportare per soddisfare le esigenze dei non più giovani? Prima di tutto uno schermo grande e ben leggibile in ogni condizione di luminosità. In secondo luogo, tasti grandi e di facile utilizzo. Terzo, funzioni semplificate: in un mercato ormai dominato dagli smartphone dotati di applicazioni, giochi e funzionalità sempre più complesse, gli anziani chiedono che il cellulare ritorni ad essere quello che era in origine, uno strumento per telefonare.

SOCIAL PURPOSE Attenti alla salute ma pigri

SOCIAL PURPOSE Sempre in viaggio

ASSIGNMENT: INDIVIDUAL CASE STUDIES 1.

The power of yellow

2.

Sesame Workshop: Empowering children through media

3.

The Northern Rangelands Trust: A new model for development

4.

Simple solutions that save lives

5.

Why social innovators need design thinking

6.

Social Innovation: A matter of scale

7.

Scuba rice: Building a better food from past innovations

8.

New ways to fund social innovation

9.

Mobile money: A game changer for financial inclusion

10. Innovating for a better city 11. Big data, small wars, local insights: Designing for development with conflict-affected communities 12. Harnessing technology for transformation 13. Tapping corporate expertise to improve lives 14. Telling the world’s stories to promote change 15. Incubating innovation in social enterprises

THE END