2INNOVATION and R&D MANAGEMENT Lecture 1 • Eureka… Eureka : a cry of joy or satisfaction when one finds or discovers something 1.Innovation: implementation of a new or significantly improved product / process/marketing method in business practices, workplace organisation or external relations • Source of firms' competitive advantage and could help differentiate • Goal is to enhance efficiency and profitability • Successful innovation requires careful strategies and implementation by incumbents to introduce innovation to the marketplace and protect the position against new entrants' rivals • Impact on customers: New needs/solutions/products/quality & Lower prices 3.Impact on society : range of new G&S, provides eco growth, employment, improve people’s lives • More efficient food production, medical technologies, better transportation, life standards, etc. • Negative externalities : Declining industry and jobs (Travel agencies, taxi drivers) ; Security (Data) ; Misuse of technology power (Cyberattacks) ; Pollution (Lithium battery), Antibiotic-resistant bacteria 4.Innovation is • …finding new solutions to a problem, a new need or create a new need • …destroying existing markets, transform old ones, or create new ones • …is responsible for raising quality and lowering prices, improving customer’s life • …by satisfying customer’s needs better than competitors enhance sales, revenues, profitability 5.Invention (NEW IDEAS => STARTING POINT OF INNOVATION) vs innovation(subsequential process of converting intellectual thoughts into tangibles => it has both creative and commercial dimensions) 6.Innovation management : management of all activities involved in the process of idea generation, technology development, manufacturing and marketing of a new or improved product or manufacturing process or equipment (includes the management of risks and uncertainty) 7. Uncertainty vs risk Risk : we know the potential outcomes in advance, e.g. rolling a pair of dice. Uncertainty : we don’t even know the possible outcomes in advance, let alone their probabilities.. Occurs throughout the entire innovation process: theoretical conception; technical invention and commercial exploitation and it is a measure of the complexity of the entire innovation process Discussion Questions 1. What are some of the advantages and disadvantages of innovation for a society? 2. For firms, what does innovation include, and why is it so important? 3. What is the most appropriate definition of innovation? 4. What is innovation management, and what does it include? 8.Measures of innovation: 1.1 Output: Product, Process, technology, Markets 1.2 Input: R&D expenditure, R&D personnel Research and Development : • Research : basic(increase understanding of a topic or field without an immediate commercial application in mind.) and applied research(increase understanding of a topic or field to meet a specific need. Usually referred to as SCIENCE. ) • Development refers to activities that apply knowledge to produce useful devices, materials, or processes. Usually referred to as TECHNOLOGY. An innovation funnel is a tool or process that ensures that only the best ideas are executed within an organization. They are further developed, refined, and executed. It ensures that the organization focuses on the most valuable innovations. 9. External (Open innovation) vs Internal Sourcing (Closed ) Discussion questions: 1. What is the difference between risk and uncertainty? 2. What traits appear to make individuals most creative? 3. How could firms be more creative? 4. How can the State encourage entrepreneurs and companies to foster innovation? What is the element behind the process of innovation that the State can contribute to remove? CASE STUDY: Getting an Inside Look: Given Imaging’s Camera Pilla A capsule that is swallowed by a patient that broadcasts images of the small intestine 1.What factors do you think enabled Iddan, engineer with no medical background, to pioneer the development of wireless endoscopy? • Collaboration with a gastroenterologist, Dr. Eitan Scapa, allowed him to learn about the challenges in the field of gastroenterology and get idea of using small cameras for internal imaging. Through discussions with Dr. Scapa, he gained insights into the limitations of existing technologies for viewing the small intestine. • Knowledge background with skills and expertise in optics and imaging technologies that were relevant to the development of a miniature camera for medical use • Innovative thinking : apply engineering skills to address medical chall. + innovative thinking • Tech. advances : availability of small image sensors and the promise of new semiconductor technologies (CMOS) - allowed development of a prototype for wireless endoscopy. 2.To what degree would you characterize Given’s camera pill as “science-push” versus “demand-pull”? A combination of both "science-push" and "demand-pull SP : Scientific curiosity and tech. capabilities : driving forces behind the early stages of development DP: focus on solving practical medical challenges and meeting the needs of patients and physicians reflects a demand-driven aspect of the development. 3.The advantages and disadvantages of Iddan and Meron collab with Dr. Swain’s team Advantages : 1.Complementary Expertise: Dr. Swain's team : expertise in anatomy and the imaging needs of diagnosing small intestine disorders. 2.Faster process : combining the strengths of both teams. Dr. Swain's team's knowledge of medical requirements and Iddan's tech. expertise synergized to overcome challenges more efficiently. 3.Improved Device Design: more effective device design, with medical& engineering insights. Disadvantages: Communication challenges 4.What were the advantages & disadv. of Given being owned by Medtronic • Access to Capital: financial strength enabled continued R&D, expansion into new applications, and increased market presence. • Larger Salesforces: Medtronic's larger and geographically distributed salesforces provided Given with increased market reach and distribution capabilities. This was advantageous for getting approval for PillCams in more countries and applications. • Strategic Support: Medtronic's ownership likely provided strategic support and guidance, drawing on its experience in the medical device industry. This support could aid Given in navigating regulatory processes and market dynamics. Disadvantages: • Integration Challenges • Loss of Independence: Given may have less autonomy in DM compared to when it operated independently. • Shift in Focus: Being part of a larger corporation might lead to a shift in focus from entrepreneurial innovation to broader corporate strategies, potentially impacting the nimbleness and focus on specific niche areas that characterized Given Imaging Lecture 2 Inventors Typically master the basic tools and operations of the field in which they invent, but they will not have specialized solely in that field. *Are curious and more interested in problems than solutions. *Question the assumptions made in previous work in the field. * Often have the sense that all knowledge is unified and seek global solutions *Such individuals may develop many new devices or processes but commercialize few. Organizational Creativity is a function of: Creativity of individuals within the organization • Social processes and contextual factors that shape how those individuals interact and behave Methods (formal and informal) of encouraging organizational creativity: • Idea collection systems (e.g., Google suggestion box; 20% time; awards; contests, etc.) • Creativity training programs & Culture Innovation by User: by intermediate/ consumer users, rather than suppliers. Ex: Laser sailboat Innovation by Firms: R&D: activities to innovate and introduce new P&S or to improve existing • Research: Basic => increases understanding without an immediate commercial goal Applied => directed at meeting specific needs with commercial objectives. • Development : apply knowledge to create useful devices, materials, or processes. Evolution of Innovation Models: 1950s and 1960s, a "science-push" model dominated : innovation proceeded linearly from scientific discovery to marketing. Later, a "demand-pull" model gained prominence, emphasizing innovation driven by perceived user demand. The Role of the State: public and private ➔Directly supporting the innovation efforts of firms via grants or other transfers ➔Indirectly supporting by providing education, training and skills development and fostering knowledge creation and diffusion Many of the technologies that make the iPhone and other products and services “smart” were funded by the US government (Internet, GPS, touchscreen display, voice -activated personal assistant, Siri) ▪ Apple benefit from government - funded basic research activities & received its early -stage finance for the applied phase from the U . S . government’s program . ▪ Venture capitalists entered after gov. funding had gotten the company to the critical proof of concept Lecture 3 : Type of innovation: 1. Product : embodied in the outputs (G&S)(Honda’s hybrid car, Fb marketplace, Sony PS5).Lead to new product introductions (e.g. iPhone), greater market segmentation (e.g. Nutella biscuits), penetration of niche markets (e.g. Lush cosmetics) 2. Process : inn. in way an organ. conducts its business, techniques of producing or marketing G&S (e.g., Algorithm for gene editing or social media for advert) 3. Radical : degree to which it is new and different from previously existing products and processes.( e.g: mobile telephone once first introduced; Kodak) 4. Incremental : may involve only a minor change from (or adjustment to) existing practices. e.g., Gillette 5. Competence-enhancing: build on the firm’s existing knowledge base. e.g., Intel’s Pentium IV built on the technology for Pentium III. 6. Competence-destroying: render a firm’s existing Competencies obsolete. e.g., digital cameras for Kodak. 7. Architectural : change overall design of the system or the way components interact. e.g., the transition from high-wheel bicycle to safety bicycle. Require changes in the underlying components also. 8. A component/ modular : change to one or more components of a product system without significantly affecting the overall design. e.g., adding gel-filled material to a bicycle seat Technology trajectory (cycle or wave) :path/ direction of advancement a technology follows over time. This path may refer to: (a) its rate of performance improvements, (b) its rate of diffusion, And (c) other change aspects. (a)& (b) adopted follow a s-shape curve. The technology performance improvement– SUPPLY SIDE (Firms) the rate of technology adoption – DEMAND SIDE (Customers) S-shape technology improvements : Phase 1 - Basic research; Few companies & researchers; Technology improves slowly at first because it is poorly understood; Exploration phase. Phase 2 – Applied research; More companies and researchers involved; Technology accelerates as understanding of the technology increases; Exploitation phase. Phase 3 - Technology then tapers off as it approaches limits or gets substituted by another technology. S-shape technology diffusion: Adoption: initially slow bc the tech. is complex, unfamiliar & expensive. It accelerates as it becomes better understood. Eventually, market is saturated, rate of new adoptions declines. • Innovators:2.5% to adopt an inn. They are opinion leaders. • Early Adopters :13.5% .They are followers. • The Early Majority is the next 34%—mass market. • The Late Majority are the next 34%. They are sceptical. • Laggards:16%. They must feel certain that an innovation will not fail before adopting it. S-shape technology diffusion (SCD): • In part, a function of the s-curve in technology improvements . As tech. becomes better, it becomes more certain and useful to users, facilitating the adoption. Tech.diffusion tends to take far longer than information diffusion because it might require time, specific knowledge or expertise. Technology Cycles: metaphors for Schumpeter’s view of innovation as a creative destruction phenomenon: interplay between ruptures (discontinuity) in the knowledge process about a specific technology or application of technology, followed by the incorporation of knowledge into a new product or process (continuity) up to the acceptance of a dominant design. • A dominant design is a configuration or set of features that becomes the accepted market standard Discussion questions 1. What are some reasons that established firms might resist adopting a new technology?= Inertia and Resistance to change ; Investments in current systems; Risk aversion and organizational culture 2. Are well-established firms or new entrants more likely to (a) develop and/or (b) adopt new technologies? Why? : (a) => New entrants may be more likely to develop new technologies as they are often driven by a need to differentiate themselves and disrupt existing markets.Well-established firms may also engage in research and development, but their focus might be on incremental innovations or improvements to existing technologies (b) Adopt New Technologies:New entrants are more likely to adopt new technologies, as they have fewer legacy systems and investments to protect.Established firms may be cautious about adopting new tech. due to the reasons mentioned earlier, but they may eventually do so to stay competitive or in response to market pressures. 3. Think of an example of an innovation you have studied at work or school. How would you characterize it on the dimensions described at the beginning of the chapter? (Smartphones ) • Radical Innovation: introduction of smartphones was a radical innovation, transforming communication, entertainment, and access to information. • Competence Enhancing: For companies specializing in mobile tech., smartphones were competence enhancing, building expertise in hardware, software, telecommunications. • Architectural Innovation: Smartphones represented an architectural innovation, combining various functions (phone, camera, internet, apps) into a single device. 4. Reasons that both technology improvement and technology diffusion exhibit s-shape curves? • Early Chall: slow progress bc of uncertainties in improving or diffusing a tech. • Learning and Experience. • Saturation: techn. reaches its limits/ widespread adoption, causing the curve to flatten. 5. Why do technologies often improve faster than customer requirements? What are the advantages and disadvantages to a firm of developing a technology beyond the current state of market needs? • Advantages: Competitive Advantage & Future-Proofing • Disadvantages: High Costs & Market Acceptance: lag in market acceptance as customers may not immediately see the value in technologies that surpass their current requirements. 6. In what industries would you expect to see particularly short technology cycles? What factors might influence the length of technology cycles in an industry? • Short Tech. Cycles: rapid tech. advancements and high inn. Rates: electronics, software, telecommunications: firms need to quickly adopt new technologies to stay relevant. • Long Technology Cycles: Industries with high entry barriers and regulatory requirements. Mature industries where incremental innovations suffice, and major overhauls are infrequent. • Influencing Factors: Gov. Regulations; R&D; Market Competition;Complexity of Tech Case 2 : TESLA 1.IS the Tesla Model S a radical innovation or an incremental innovation? Competence enhancing or destroying, and from whose perspective? Is it a component or an architectural innovation? The Tesla Model S can be considered a radical innovation.: significant departure from traditional gasolinepowered cars, as it is an all-electric vehicle with advanced features and performance capabilities. It challenges the conventional automotive industry by introducing a high-performance electric sedan. • From Tesla's perspective, the Model S is competence-enhancing, builds company's expertise in electric drivetrain technology and capability to produce high-performance electric vehicles. • Architectural innovation: fundamental change in the design and structure. 2. What factors influence the rate at which consumers have adopted the Tesla Model S? High performance & significant range on a single charge, great for cons. who prioritize these features. • Environmental Awareness: zero-emission electric drivetrain. • Innovative Features: autopilot capabilities and over-the-air software updates • Brand Image: associated with innovation, luxury, and sustainability 3. Where do you think electric vehicle battery technology is on the technology S curve? On upward slope of the technology S curve. Continuous R&D are ongoing to enhance battery performance, reduce costs. 4. Do you think Tesla Motors will be profitable? Why or why not?. The success of the Model S, positive consumer response, and Tesla's ability to repay government loans suggest a positive trajectory. Profitability may depend on its ability to expand its market share, introduce new models and appeal to a broader consumer base. Efficient manufacturing processes and cost controls are essential. External factors, such as government policies, energy prices, and global trends in electric vehicle adoption, will influence Tesla's profitability. Lecture 4 : DISRUPTIVE INNOVATION From technology-based to a market-based concept • Disruptive inn.: changes the competition in an industry based on a new value proposition. Delivers value along a different feature set not prioritised by the existing offering and user base ; serves a marketsegment that did not exist before (unserved/unmet market need) • “WHO” - Target no existing customers and unmet needs • “WHAT” - Job to be done • “WHY” - Should customers buy this product ▪ Sustaining innovations : maintain a rate of performance improvement; give cust. smth more/ better in the attributes they already value (Intel: faster and faster chip speed or Microsoft: operating systems) Is Uber a Disruptive Innovation? = NO , Uber’s financial and strategic achievements do not qualify the company as genuinely disruptive, bc it didn’t find a low-end opportunity : That would have meant taxi service providers had overshot the needs of a material number of customers by making cabs too plentiful, too easy to use, and too clean. Uber didn’t primarily target nonconsumers ; it was launched in San Francisco (a well-served taxi market), and cust. were generally people already in the habit of hiring rides. Most of the elements of Uber’s strategy seem to be sustaining innovations. Uber’s service has rarely been described as inferior to existing taxis; in fact, many would say it is better Disruptive innovations originate in low-end or new-market footholds and get started in two types of markets that incumbents overlook. Incumbents try to provide their most profitable and demanding customers with ever-improving P&S, they pay less attention to less-demanding customers. This opens the door to a disrupter focused on providing those low-end customers with a “good enough” product and create a market where none existed => turn nonconsumers into consumers. • Don’t catch on with mainstream customers until quality catches up to their standards. They are initially considered inferior by most of an incumbent’s customers. Customers are not willing to switch to the new offering merely because it is less expensive. They wait until its quality rises enough to satisfy them and once that’s happened, they adopt the new product and happily accept its lower price. (This is how disruption drives prices down in a market.) Class 5 : Standards battles and dominant design Dominant design: single product or process architecture that dominates a product category • “de facto” that becomes a standard for the industry • Adopted by majority (>50% market share) Benefits/Value : • Compatability • Easy substitution • Exchange Risk : Monopoly& commoditization: G&S become relatively indistinguishable from a rival offerings * Learning effects: as indiv. & producers repeat a process, learn to make it more efficient, often producing new tech. solutions that may enable them to reduce input costs or waste rates. Organizational learning scholars model the learning curve as a function of cumulative output: Performance increases/ cost decreases, with the nb of units of production, usually at a decreasing rate Why Dominant Designs Are Selected: • A firm’s prior experience influences its ability to recognize and utilize new info • Use of a particular technology builds a knowledge base about that technology • The knowledge base helps firms use and improve the technology →Suggests that technologies adopted earlier than others are likely to become better developed, making it difficult for other technologies to catch up Network Externalities: benefit from using good increases with the nb of other users of the same G( ex: railroads or telecommunications) • • Installed base: nb of users of a specific tech.( ex: many people choose a computer with Windows oper. system and an Intel microprocessor because the “Wintel” (Windows and Intel) platform has the largest installed base. Many products are only functional or desirable when there is a set of complementary goods available (videotapes for VCRs, film for cameras) Network externalities suggest users get more value when one technology dominates. Government Regulation: forces can encourage the market toward natural monopolies (ex: telecommunications, television) Winner-Take-All Markets : Natural monopolies ❑Firms supporting winning technologies earn huge rewards; enjoy high returns, and customers will receive more innovative products at a lower price ❑ Such markets require different firm strategies for success • Potential for monopoly costs (price gouging, restricted product variety ); rise with cumulative market share.Where monopoly costs exceed network externality benefits, intervention may be warranted. • Early entrants (timing) and their technology may become so entrenched that subsequent, superior technologies may be unable to gain a foothold in the market (path dependency and switching costs) • Value of tech. is strongly influenced by: 1.Network Externality Value ; 2. Tech. Standalone Value(the functions the tech. enables; aesthetics and ease of use => different utility factors that can be identified with Buyer utility map) To successf. overthrow an existing dominant tech., new must offer: • Dramatic techn. Improvement • Compatibilit with existing installed base & complements Subjective info(perceptions & expectations) can matter as much as objective(actual numbers).The value attributed to each dimension may be disproportional • Market share : % of market in terms of units or revenue accounted for by a specific entity CASE STUDY 3: Standards Battles and Design Dominance A Battle Emerging in Mobile Payments 1.Advantages and Disadvantages of Mobile Payment Systems: 2. 3. 4. 5. a) Developed Countries: • Advantages: Convenience, fast transactions, widespread acceptance • Disadvantages: Security concerns, fraud, competition b) Developing Countries: • Advantages: Fin. inclusion for the unbanked, accessibility due to widespread mobile phone use, potential for rapid adoption. • Disad: Limited infrastructure, security, tech.barriers, dependence on mobile network Key Factors Differentiating Mobile Payment Systems: • Consumer Factors: Convenience, security, ubiquity (ease of use everywhere) • Merchant Factors: Fraud prevention, transaction costs Forces Encouraging Dominance in Mobile Payment Systems: • Standardization: system becomes a standard, gains acceptance likely to dominate. • Integration: Systems that integrate seamlessly with existing financial infrastructure and provide added value are more likely to succeed. • Consumer Adoption: system most convenient and secure for cons. Increasing Likelihood of Dominance: • Standardization: Collaborate on industry standards to ensure interoperability. • Security: Enhance security measures to build trust among consumers and merchants. • Education: Educate consumers and merchants about the benefits and usage of mobile payment systems. Impact on Banks and Credit Cards: • Banks: Mobile payment systems can reduce the dependence on traditional banks, by providing direct access to financial services. • Credit Cards: Mobile payment systems can either complement or challenge credit cards, depending on the level of integration and adoption. Lecture 6 : Timing of entry 1. First movers /“pioneers” : first entrants to sell in a new P&S category. Advantages: • Tech. leadership (gap) and Brandloyalty (e.g. customers expectations, features, pricing, etc) Can build a reputation as a leader in that area , maintain a lead even after competition enter • Scarce assets (location, patents, permission, etc.) and exploiting buyer switching costs Inertia to change increases the longer a product is around, • May rise through increased returns and make it the dominant design, e.g. Windows became the dominant design due to its installation on IBM PCs. Disadvantages: Previous studies showed that market pioneers have a 47% rate of failure; later entrant can capitalise (free riding) on the groundwork done by the f.mover& improve upon it at less expense. • High R&D expenses • Undeveloped supply and distribution channels & Uncertainty of customer requirements Factors Influencing Optimal Timing of Entry: 1. Improvement inn. provide over previous solutions 2. Require enabling technologies or complementary goods 3. Threat of competitive entry 4. Increasing returns to adoption 5. Resources: Early losses: the earlier a firm enters, the more capital resources it may need. 6. Firm’s reputation: inn. from well-respected firms may be adopted more rapidly Can you think of an example of a successful a) first mover, b) early follower, and c) late entrant? Can you think of unsuccessful examples of each? 1. First Mover: o Successful First Mover: Apple: iPhone in 2007 o Unsuccessful First Mover: Nokia: failed to adapt quickly to the smartphone era. 2. Early Follower: Samsung strategically followed Apple. Vs BlackBerry: failed to adapt to touchscreens and app ecosystems. 3. Late Entrant: Amazon Web Services (AWS) entered the cloud computing market after other players but now dominates cloud services. Vs Google+: social networking platform, arrived late to challenge Facebook but failed. Class 7: Choosing Innovation Projects Boeing’s Sonic Cruiser: Boeing was developing a new midsized jet, the “Sonic Cruiser,” which would travel 15-20% faster than existing commercial jets; expected to cost $10 billion.In 2002, air ticket sales were down, several airlines faced bankruptcy, and aircraft were put into storage to reduce capacity. They forecasted that its worldwide aircraft fleet would double by 2021. Boeing also noted that developing the aircraft was necessary to renew the company’s skills and experience. 1.What factors must go into Boeing’s decision about to launching – the Sonic Cruiser? • Market Demand: Airlines prefer lower operating costs over higher speed. Boeing needed to assess whether there was sufficient demand for faster flights. • Financial Viability:$10 b. cost of development had to be balanced against potential returns. • Tech. Feasibility: The unique design require evaluation of feasibility and performance. • Strategic Goals: the project is essential for renewing its skills and experience. 2.What are some of the challenges with estimating the potential returns of the project? What method, or combination of methods, do you think Boeing should have used to evaluate the project? • Market Dynamics:Air ticket sales were down & predicting future demand was complex. • Competitive Landscape: The Airbus A380 was a formidable competitor. • Economic Factors: impact on travel and demand. Evaluation Methods: • Cost-Benefit Analysis: Quantify development costs against expected benefits. • Scenario Analysis: Explore different market scenarios and their impact on returns. • Risk Assessment: Evaluate risks of tech. chall. & market dynamics. • Stakeholder Input: Engage airlines and passengers to gauge interest 3.Should Boeing have developed the Sonic Cruiser? :They cancel the Sonic Cruiser project in Dec 2002.Shifted focus to the 787 Dreamliner, a slower but more fuel-efficient airliner So: Firms often use capital rationing: they set a fixed R&D budget and rank order projects.R&D budget is often a percentage of the previous year’s sales; typically determined through industry benchmarking or historical benchmarking of a firm’s performance.Methods of choosing innovation projects range from informal to highly structured and from entirely qualitative to strictly quantitative. How to choose projects: QUANTITATIVE METHODS : 1.Discounted cash flow methods PROS: - Easy to understand and calculate CONS: - Based on estimates of inflows (e.g. profits), is it accurate? - Discriminate against projects that are long-term or risky - Fail to capture the strategic importance of certain investments a) (NPV) : Given cash outflows, cash inflows and discount rates, what is the project worth today? NPV = Present value of cash inflows – Present value of cash outflows If NPV > 0 → , the project generates wealth – worth being carried out b) (IRR) : Given cash outflows, inflows& discount rates, what rate of return does this project yield? IRR → Discount rate that makes the NPV = 0 If IRR > discount rate (opportunity cost of capital), then NPV > 0. Worth to carry out the investment ➢ Not possible to use IRR to compare different projects ➢ There might be multiple IRR c) Payback Period : How much time will we need to break even on the project using disc.cash flows? d) Real options and call option (right to buy asset at specific price in spec.period) PROS: valuable technique when there is uncertainty CONS: - not much empirical research and methodological insights - financial market assumptions are different than R&D choices (e.g., investments in tech are > than call option prices in finance!) QUALITATIVE METHODS 1. Screening questions: to assess different dimensions of the project decision, including: • Role of the customer (market, use, compatibility and ease of use, distribution, and pricing) • Role of capabilities (existing capabilities, competitors’ capabilities, future capabilities) • Project timing and cost 2) aggregate project planning framework: Managers map R&D projects according to levels of risk, resource commitment, and timing of cash flows 3) Q-sort: a simple method for ranking ideas on different dimensions: Ideas are put on cards, for each dimension, the cards are stacked in order of their performance. Several rounds of sorting and debate are used to achieve consensus. MIXED METHODS: convert qualitative info into quantitative form 1.Conjoint analysis = estimates the relative value individuals place on attributes of a choice: ind. give a card with products/ projects with different features and prices=>Rate or rank each in terms of desirability=>Multiple regression is then used to assess the degree to which an attribute influences the rating. 2.Data envelopment analysis: linear programming to combine measures of projects based on different units (e.g., rank vs. dollars) into an efficiency frontier. Discussion questions: • Advantages and disadvantages of discounted cash flow methods such as NPV and IRR? 1.(NPV): 1. precise numerical value ; 2.Considers Time Value of Money Disadvantages: Calculating NPV requires detailed cash flow projections and discount rates. 2.(IRR): Relative Measure: for comparing projects.;Considers Time Value of Money Disadvantages: projects may have multiple IRRs, leading to ambiguity; • For what kind of projects might a real options be appropriate? Investment-Intensive Industries: Sectors with multistage investment processes (e.g., oil extraction) Staged Decision-Making: decisions are staged based on outcomes (exploration, production).Not Suitable for: Simple, Linear Projects: When flexibility isn’t a critical factor. • Why might a firm use both qualitative and quantitative assessments of a project? =>Comprehensive View: Qualitative assessments (subjective) provide insights beyond numbers. Risk Management: Quantitative data (objective) helps manage risks and make informed decisions. Balanced Perspective: Combining both ensures a holistic evaluation. • Identify a development project you are familiar with. What methods do you believe were used to assess the project? What methods do you believe should have been used to assess the project? Example Project: Development of a new mobile app. Quantitative: Cost-benefit analysis to assess financial impact. Qualitative: Stakeholder interviews to understand user needs and market trends. • Will different methods typically yield the same conclusions about whether to fund its development? 1. Consistency of Conclusions: o Not Always the Same: Different methods may yield varying conclusions. Different methods rely on distinct assumptions.Quantitative methods may overlook qualitative risks. ▪ Complexity: Some aspects are hard to quantify (e.g., user satisfaction). -----------------------------------------------------------------------------------------------------------------------------------MODULE 2 : Social businesses Grameen Danone Foods: SB enterprise which provide children with key nutrients that are missing from their diet in rural Bangladesh. It is run on 'No loss, No dividend' basis: driven by the soc.obj. • Muhammad Yunus :Bangladeshi social entrepreneur, economist and civil society leader, awarded the Nobel Peace Prize for founding the Grameen Bank. • SB: solve social problem & all profits are reinvested to help the bus grow and benefit society • YSB contributes to society, economy, and environment. So by default a sustainable business. Why are businesses going social? • The individual as a zoon politikon, companion animal, social animal, and minus • The meeting point between ind. and organization as viable systems: the Maslow’s pyramid • The evolution in a Maslow scale, from traditional business (receiving) to charity (giving) • Beyond charity: achieving self-actualization through SB (giving and receiving approach) It is not benevolence; it is business of other times “Adam Smith needs revision: Beautiful mind: best result comes from everyone in the group doing what is best for himself and the groupe. SOCIAL IMPACT + NON-LOSS + NON-DIVIDEND = SOCIAL BUSINESS 7 Principles of Social Business 1. Business obj. will be to overcome poverty, or one or more problems (education, health, tech. access, &environment) which threaten people and society; not profit maximization. 2. Financial and economic sustainability 3. Investors get back their investment amount only. No dividend is given beyond inv.money 4. When investment amount is paid back, profit stays in comp. for expansion and improvement 5. Gender sensitive and environmentally conscious 6. Workforce gets market wage with better working conditions 7. do it with joy 2.Social entity: recognised by law institution through which human beings interact and live together is society. Principles: External vision towards society: org.=instrument for social benefit ; Internal towards employees: their participation is the most important elements 3.Social Enterprise(non-profit org.) : org. with obj. to generate a positive impact in society, by transforming a social need through a market-based activity. Ex: Reducing Labor Migration by Increasing Local Employment and Talent Engagement through B • Purpose: Promote & implement soc. investments to increase local employment and engage community and talents. • Research problems:High migration flows from Western Balkans toward Europe;Unemployment, corruption, and social crisis; Brain drain and loss of talent Methodology & Research Questions: Methodology: 1. conceptual research ; 2.qualitative methodology ; 3.interpretivist paradigm; 4.literature review and theory development Research Questions:Why SB is by default a sustainable business? The relation between soc. pains/needs & SB? Does SB contribute to identifying core competencies of the labor force by producing services for which people are specialized? Does branding enhance group pride by creating a soc. identity under branded national P&S?Does SB promote talent identification and engagement? “A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Comp. gain advantage against the world’s best competitors because of pressure and challenge” (Porter) Case study: The Good Hotel: SB started in Amsterdam, than in London, and expand to many other countries. It provides training and employment to local residents struggling to find a job. Social dimension incorporated in all operating areas: HR, room occupancies; dividends distribution. Class 2 : Social Innovation Espigoladors : non-profit organisation which fights against food waste , while empowering people at risk of social exclusion, in participative & sustainable way. SE works for 3 social needs : fight for better food usage, right to a healthy diet , create job opp for collectives at risk of social exclusion. SOCIAL IMPACT INNOVATION :ability to respond to emerging needs with new forms of action& relationship. / New ideas that satisfy social needs (more effectively than existing alternatives) and create new relationships & collaborations. Innovations good for society. Features: 1. Better satisfaction of a coll. need 2. Innovation of the relationships between economic and social actors 3. Technology &Better use of available assets/resources 4. Structural impact: significant, widespread in long-term 5. Economic sustainability SOCIAL IMPACT INVESTMENTS: idea that private capital can contribute to creating positive social impacts and eco returns whose market can be positioned in a perspective government action aimed at the efficiency of public expenditure, promotion of social and economic development • Tools suitable not only for emerging markets but also for mature ones. Looking at OUTCOMES more than OUTPUTs, according to the Theory of Change. SII IN MATURE MARKETS: Output-oriented : nb of services (results emerged from activities), Outcome-oriented: change experienced by the beneficiaries. Outcomes >>> Impact = Social Changes – What would have happened anyway IMPACT INVESTING: generate soc. impact together with a financial return(Danone with Grameen) SOCIALLY RESPONSIBLE INVESTING is limited to the use of screening systems to exclude investments, in sectors of activity that are not socially responsible(weapons and gambling) and in comp. with negative or insufficient environmental, social and governance (ESG) impacts. THE VALUE OF SOC.INNOVATION : soc.world is 40 billion $,characterized by being still small. The constraint on public welfare spending becomes the most powerful driver of dissemination of impact finance tools. It is no coincidence that for some time now giants of world finance have moved in this direction, such as: JP Morgan, Goldman Sachs and UBS. RAPACIOUS INVEST. (high earnings in ST subject to a high rate of volatility: you earn a lot, but you can also lose a lot.) VS PATIENT INVESTMENTS : Social Impact Investing is aimed at patient capital willing to return in the medium term with a rate that is sometimes lower than the market rate, but not always with one advantage: low volatility & high rate of decorrelation, less subject to country risk, as they are linked to incompressible key sectors, such as water, health, the environment, education, housing. IN UK the first SIB (Social Impact Bond) in 2010 and some Ministries and Departments are experimenting with different financing instruments for innovative social services based on the principle of the "payment for results" (PfR). Social Innovation results: 1. Improv.& rethinking of services, proc, and models to deal more effectively with s. needs 2. Reduction of fragmentation and recompositing of interventions and resources 3. Overcoming the flattening of services on performance by activating flexible, personalized and multidimensional responses 4. Activation of new forms of sociality and mutuality 5. Better prevention of social distress &Greater social inclusion 6. Activation of new forms of restitution to the community of the benefits obtained Benefit Corporations: certified by B Lab to benefit stakeh. In Italy: over 100 B CORP: The measurement of the impact and the certification of excellence come awarded by the non-profit B Lab • Meet world's highest standards of soc., env, & eco performance; committed from a legal point of view to consider all stakeholders • Any for-profit comp. in any country can pursue B Corp certification Too good to go : THE APP FIGHTING FOOD WASTE: connect stores with leftovers and cons. who pick Magic Box for a small price at the end of the day. How much water does it take to make a 200g hamburger? = > 3000 it (Throwing away one hamburger is wasting 10 full bathubs of water or leaving the shower running for 6 h.).If food waste was a Country => third rank (after China & USA). Reading : FROM HAPPINESS TO SUPER HAPPINESS: NOT A TRADEOFF ANYMORE People think that money can buy everything. The Rokeach Value Survey classifies values as instrumental (means) and terminal (ends), happiness = terminal. Marketers promote a product as instrumental for achieving happiness: buy Maserati buyes prestige associated with the product. • Wangchuck, introduced the Gross National Happiness (GNH) alternative to GDP. • Smith: entrepreneurial spirit based on selfish impulses of the producers(own interest) • Maslow : to achieve the top of pyramid (self-act.) you cannot ignore others helping you. • Aristotle:indiv. = zoon politikon/ animal of the city: self-fulfillment cannot happen without socializing with other species. • Muhammad Yunus: SB are driven by soc. causes (increasing cul. Awareness) • Sen, famine is not caused by a shortage of food, but by lack of political will. In a democracy it is unthinkable that a part of the population is starving. Freedom is a path to a more fair society. Critical towards GDP:does not consider env. issues & negative externalities ; can grow bc there are more illegal bus., related to drugs, while the environment is worsening. Class 3 : Measure Social Impact Theory of change • Identifies activites with more social impact and allows to redirect resources. • Generates detailed information about the activity and the context in which it operates. • Useful for the decision-making process and for strategic planning. • Helps understand the social value created with the activity Impact: Changes generated by SB regardless of what Impact would have happened anyway. Generates measurable fin, soc.and env. returns. Dancing Gold: An approximate measure of Social Impact (Part I) Group friends want to create SB with mission to provide Biodanza sessions to people over 65 years to improve their health through physical activity and reduce loneliness. Activity is free for people with fin. Difficulties; rest of the users will pay a monthly fee. 1.The first step :choose which areas of impact should be measured (env., soc.,eco). SOCIAL& ECONOMIC: if the users feel better, they may need fewer medications or go less often to the doctor. 2.Second :decide depth of the analysis& indicators for soc. accomplishment: • Number of registered users (every month). • Percentage of actual users. • Attendance of the Biodanza sessions (number of persons in each session). Demonstrate social impact: Questionnaire for users: When registering: After 3 months(regular attendance of sessions); 6 months/12 months How many times do you go to the doctor in one month? • 0 to 1 • 2 to 3 • 4 to 6 • How much do you spend in medication every month? • Which other benefits have you perceived in your life due to attending Dancing Gold? Monetizing the impact: Decrease in nb of visits to the doctor. If a visit to the doctor has a cost of 100 monetary units. • Decrease in the cost of medication every month. Returning to the initial table Dancing Gold: An approximate measure of Social Impact (Part II) Dancing Gold: An approximate measure of Social Impact (Part III) Instruments to measure social & eco impact is SROI (Social Return on Investment); SROI Toolkit can monetize the social, environmental and economic impact of an organization. • Inputs: resources needed : 200 m.u. of salary for the sessions and 300 m.u. for the rent = 500 m.u. • Impact: quantitative : 1,200 m.u. SROI = Impact / Inputs = 1,200 / 500 = 2.4 => for every monetary unit that is invested in Dancing Gold, there is an impact of 2.4 monetary units Strategic External Analysis, Core Competencies, BModels & Competitive Positioning Organization’s Aspirations The Strategy Process: set and revisit Coherence recalls resilience. Survivor recalls change => recalls vicariance(split) => coherence Hierarchy of Statements: Ex: The new CEO of Sony(world’s best-known manufacturer of consumer electronic hard- ware), changed the company’s theory by acquiring a Hollywood movie production so it became a software producer that creates a market demand for hardware.” Defining the strategic direction of the firm: coherent tech. innovation strategy leverages the firm’s existing competitive position and provides direction for future development of the firm. Requires: i. Appraising the firm’s environment. ii. Appraising the firm’s strengths, weaknesses, comp. advantages, core competencies. iii. Articulating an ambitious strategic intent. Assessing the Firm’s Current Position: External Analysis: Porter’s Six-Force Model(1.Degree of rivalry; 2.Threat of potential entrants; 3.Bargaining power of suppliers ; 4.of buyers; 5.Threat of substitutes) and Stakeholder Analysis. Who are the stakeholders? • What does each stakeholder want? • What resources do they contribute to the organization? • What claims are they likely to make on the organization? Internal Analysis: strengths and weaknesses. Value Creation and Competitive Advantage: • The competitive advantage = company’s profitability is greater than the industry’s average profitability. Depends on the amount of produced (i.e., value creation). The greater the perceived value, the more the company can charge. • A product’s price is usually less than the value placed on it by the average customer which causes customers to capture consumer surplus. • A company will look for ways to increase productivity of capital and labor through: ➢ Economies of Scale and Scope ➢ Spread fixed cost over large product volume ➢ Greater division of labor and specialization Two Basic Strategies for Creating Value: • Low Cost- Drive down cost structure • Differentiation- Consumers value the product and are willing to pay a premium price Japanese Management (Drucker, 1971): • Effective decision-making (elastic choices; spending time for defining questions first, and then providing answers by focusing the problem and taking immediate action). • Lifetime employment (high security and productivity of workforce; attention to employee needs, plus rewards, Japanese have a very low employee turnover . • Continuous training and job rotation to build specialization and a generalist vision. • Godfather system (caring and feeding of the young or the so-called mentoring) Research Brief: Using Big Data to Guide Inn.: “God syndrome” of data possession. Build a data sharing culture: power over vast data, leading to potential misuse or manipulation Assessing the Firm’s Current Position: Resources are difficult to imitate when they are : Tacit (shoelace example : hard to explain it ; but the knowledge is acquired); Path dependant; Socially complex; Causally ambiguous. So , sustainable competitive advantage arises from ownership and control of ress. and distinctive capabilities, because: • They allow firms to obtain unique products and services; • Other firms cannot easily buy them in the market; • Other firms cannot easily replicate, reproduce, copy them; • Buyers are willing to pay a premium price for the exclusive price-value proposition of the firms’ products and services. Core competence: when the well-performed activity is central to the company’s strategy, competitiveness, and profitability. Typically, reside in a company’s people, not in its physical assets and gives a company a potentially valuable competitive and collaborative advantage.Ex: Skills in manufacturing a high-quality product ; Fast development of new products; Superior know-how in selecting good retail locations; Innovativeness in developing popular product features; Expertise in an important technology Core Competence-Market Matrix (Hamel & Prahalad) Risk of Core Rigidities (твръдост): when firms excel at an activity, they can become over committed and rigid. So , Dynamic capabilities: competences that enable the firm to quickly respond to change and overcome rigidities: ex : develop a set of abilities to rapidly deploy new product dev. teams for a new opp./ develop competency in working with alliance partners to gain needed resources quickly. Dynamic Capabilities and T-Shaped Knowledge: A Viable Systems Approach : Barile & Saviano (2013) T-shaped professionals: vertical specialization (competencies) + horizontal generalization (dynamic capabilities) Its equally impossible to know the parts without knowing the whole& to know the whole without knowing the parts in detail.” Strategic Intent: LT goal(10-20 years) that is ambitious, builds upon and stretches firm’s core competencies, and draws from all levels of the org.Firm should identify res.&cap. needed to close gap between strategic intent and current position. A good tool to evaluate it is the Balanced Scorecard. Tha matrix : evaluates business units based on two factors: industry attractiveness and competitive strength within the industry. The placement of units in the matrix guides strategic decisions, with units above the diagonal considered for investment and growth, those along the diagonal for selective investment, and those below for potential sale, liquidation, or cash generation The quest for Business Models: Value proposition and co-creation with customers • How a company creates, delivers, and captures value; how operates and generates revenue. • Key components : value proposition &target customer segments, revenue streams, cost structure, underlying infrastructure and resources needed to deliver the value proposition. • BM= how a company creates and captures value ; “what” a company does to create value vs. Strategy=how it positions itself in the market and seeks to achieve its objectives; “how” it plans to achieve its goals within the context of the competitive landscape. Business Model & Competitive Positioning: • BMW offers luxury vehicles for high consumers, Ford Motor Company : much wider product range intended for the mass market. • Cirque du Soleil reinvented the circus to create a theatrical experience for adults, Barnum & Bailey continues to target families with tradit. circus, with elephants, lions, and trapeze artists. • Ikea: low-priced, self-assembled home goods for tighter budg, Fendi Casa: luxury furniture. Business model and Porter’s generic strategies: There are two fundamental considerations in any business model: the value proposition (based on differentiation or low cost.)and the target market. Let’s suppose the firm produces optical lens, but the market of optical lens is very competitive (“red ocean”). The firm extends the market also to optical lens for cell phone camera and photographic machines. There is less competition here, cust. are more fragmented=> better profitability chances. Let’s call this the point “B” in the landscape.An alternative outcome could be a move to point “C”, where the optical lens company continues to serve the same market but changes its business model. It could rebrand and reposition itself as a luxury option for more-discerning consumers willing to pay a premium price or do backward integration (controlling the supply of parts) if it found that doing so would enable an improved cost position, thereby improving the firm’s profitability. An even more dramatic change could take the optical lens company to point “D”. Imagine that the better optical lens design can be repurposed for Virtual Reality (VR) and Augmented Reality (AR) headsets. Now, gamers, museums that apply VR & AR in their “HistoPads” (a digital tablet that enhances museums’ visits through AR), would be willing to pay much higher, bc the relevant retail channel is more fragmented, competition is almost nonexistent. With its patented products, the optical lens company could establish a strong, defensible position in a wholly new, unexplored part of the landscape. • The case of Southwest Airlines: In contrast to its full-service competitors, Southwest targeted price-sensitive customers, focused on midsize cities and the secondary airports of large cities=>avoid the intense rivalry in other segments but also mitigated the power of customers. Value Innovation: merging cost leadership with differentiation: simultaneously (co)creating value to/with customers while reducing company costs. EX: Airbnb. The Case of De Beers Group: Launching Lightbox Jewelry for Lab-Grown Diamonds = new fashion jewelry brand of laboratory-grown (synthetic) diamonds. • Was it a “huge gamble”( If a decision involves significant risk, uncertainty, and potential downside ; company invests heavily in a new, untested market or technology, or takes on substantial debt for expansion) or a “Machiavellian masterstroke”( If a business move involves strategic cunning, manipulation to achieve a favorable outcome=>strategic intelligence and the ability to outmaneuver competitors or navigate complex situations) • What was the objective of the new product launch, would it succeed, and how would this new business affect the Group’s core business of selling natural (mined) diamonds? 1. Meet Cons. Demand: There is increasing demand for ethically sourced and sustainable products, including diamonds. Lab-grown diamonds are often perceived as a more environmentally friendly and ethical alternative to mined diamonds. 2. Market Diversification: By entering the lab-grown diamond market, De Beers diversify its product offerings and appeal to a segment of consumers who prefer synthetic diamonds. Challenges and Opportunities: 1. Market Cannibalization: If the lab-grown diamond brand gained significant market share, it could potentially cannibalize sales of natural diamonds 2. Maintaining Brand Image 3. Market Segmentation: targeting consumers with different preferences. This way, the two product lines could coexist without directly competing. Tesla Case Study: Roadster, the first electric car, 2008, setting new standards for range, acceleration, and speed. Priced at $109,000, it targeted the luxury electric automobile market. Question 1: Types of Innovation: • Process innovation results in better ways to do things: E.g. No internal combustion engine. • Product innovation results in new or improved goods or services: E.g. No internal combustion engine. Self-driving cars. Innovated the whole driving experience. (from BB ) Question 2: SWOT Analysis:S: Innovations, strong brand trust, diverse product offerings.; W: High prices, production cost structure; O: Global env. awareness, potential growth in the electric vehicle market.T: Intense competition, potential economic downturns; substitute products Porter’s Five Forces: • Threat of New Entrants: Moderate due to Tesla's established brand loyalty and innovation • Bargaining Power of Buyers: High, influenced by competitors and substitutes. • Bargaining Power of Suppliers: Moderate, considering the reliance on battery suppliers. • Threat of Substitutes: High, with various electric and traditional vehicles. • Intensity of Competitive Rivalry: High, facing competition from established players. Question 3: Competitive Strategies • Niche Focus: Tesla targets the luxury electric automobile market. & Differentiation Strategy • Innovation: Continuous inn. in electric vehicles, autonomous driving, and solar energy. Question 4: Growth Strategy • Diversification: Expanded into solar energy products and acquired SolarCity. • Global Expansion: Supercharger network expansion globally. Critical Thinking: The analysis indicates that the industry is attractive but challenging. Environmental awareness creates opportunities, but Tesla faces strong competition and high buyer power. Porter’s Five Forces and SWOT reveal both the potential and risks, emphasizing the importance of continuous innovation and global expansion for sustained growth. Case study: Disposable Nappy Industry(Cloth Diaper) How developments in electronic sensors create destruction in the disposable nappy industry 1.Explain why baby nappy producers, such as P&G and Unilever, may have dismissed this product idea? And then explain why this may have been short sighted? : Due to the high initial cost of the technology, potential resistance from cons. accustomed to traditional nappies, uncertainty about the market's willingness to adopt. This could be short-sighted=> underestimate the potential market shift and the lucrative opp. in other segmentselderly market. 2 Sketch the range of business models available and their advantages: Consumer Market: Targeting parents for baby nappies with sensors. Elderly Care Market: Focusing on nursing homes and elderly care services. Technology Licensing: Licensing the technology to other companies. 3 What changes in the external environment has led to this new business opportunity? Aging population, technological advancements in sensors, and a shift towards service-based businesses have created an opportunity to cater to the elderly care market. The increasing demand for professional elderly nursing services, especially in regions like Asia, is a key external factor 4 Use the cyclic model of innovation to show how key decisions led to this innovation: Identification of technology -> Evaluation of market potential -> Exploration of strategic alliances -> Consideration of business models -> Proposal for investment 5 What potential strategic alliances should the business explore? :with sensor manufacturers, health care providers, national nursing home chains, or global pharmaceutical firms . 6 Was the team correct to dismiss the baby nappy market so readily?: may have been premature. 7 Discuss the different types of services that can be developed around the core technology concept. Nursing Home Upgrade Services: Offering technology solutions to nursing homes. Elderly Care Monitoring: platform for monitoring multiple nappies through mobile devices. Educational Services: Educating caregivers on effective use of the technology. 8 Explain why you would or would not invest €10,000 of your own money in this new bus.?:Depend on strength of the business case, market potential, competition, ability to overcome entry barriers. Collaboration Strategies : Developing Innovations Reasons for Going Solo and not In collab. Depends on: *Availability of capabilities (does firm have needed capabilities in house? Does a potential partner?). *Protecting proprietary technologies *Control tech. development and use *Building and renewing capabilities (is the project key to developing the firm’s capabilities?). Negative outcomes: 1.Dependence on supplier ; 2.Hidden cost; 3.Loss of competencies; 4.Social risk; 5. Inefficient mana Game Theory to analyze Strategic Alliances: Some alliance are associated with a high opportunity to cheat, uncertainty and poor stability, longevity and performance(Sony embarked on several strategic alliances with competitors try to make its Betamax technology the industry standard.) The role of TRUST in collaborations Assembling the component of iPhone Types of Collaborative Arrangements: • Strategic Alliances: formal/informal agreements between two or more organizations to cooperate in some way. Might require: Combining complementary capabilities /transferring capabilities. Individual alliances or a network of alliances. • Joint Ventures: type of strategic alliance that entails significant equity investment and often establishes a new separate legal entity. • Licensing: a contractual arrangement that gives an organization (or individual) the rights to use another’s intellectual property, in exchange for royalties. • Outsourcing: org. procures S&P from another rather than producing them in-house. • Collective Research Organizations: facilitate collaboration among a group of firms. Choosing a Mode of Collaboration: Partner Selection Criteria: • Resource fit: How well does the potential partner fit the resource needs of the project? Are resources complementary or supplementary? • Strategic fit: Does the potential partner have compatible objectives and styles? • Impact on Opportunities and Threats: How would collaboration impact bargaining power of customers and suppliers, degree of rivalry, threat of entry or substitutes? • Impact on Internal Strengths and Weaknesses =>Strategic Direction Partner Selection Process: May also use shared equity ownership (each partner contributes capital & owns a share of equity in the alliance).Typical in JV May rely on relational governance (self-enforcing governance based on the goodwill, trust, and reputation of partners). Key aspects of a firm’s position :centrality(degree to which a firm is strategically positioned within a network or industry.) and opportunities for brokerage. (when a firm is strategically positioned to mediate or facilitate connections between other entities in a network. Silicon valley – the best example of an innovation network Key points to take away: 1. Increased competition, rapidly evolving/complex tech, shorter product lifecycles and so on all contribute to the need for collaboration. 2. A variety of strategic alliances are possible, risks involved in each. 3. Selecting and managing the right partnerships is critical to success. Managing New Product Development (NPD): Innovation and NPD: part of innovation & reaquires significant market inteligence and careful planning. It is part of end-game of innovation where innov. become real and tangible EX: New products crucial to success for Shimano: world’s biggest manufacturer of bicycle components. Shimano borrows a bike from the company’s R&D division to keep in touch with what researchers are up to. => idea of overcoming the “marketing myopia”= narrow-minded approach that focuses on only one aspect of the product/service, while ignoring the long-term goals and customer needs (Levitt) with NPD New Product Strategy: main inputs in DM: Diversification: Ansoff’s Growth: Has the BMW Mini been repositioned=>BMW Mini has been repositioned as a premium small car with a range of variants, catering to different preferences and lifestyles. A product is multi-dimensional: Different examples of ‘newness’ Product has different interpretations of new Tauber’s growth matrix: Brand & Product Ex: Opening innovation up through crowdsourcing: the case of Threadless.com | How to threadless?=> create your design=> be scored=> your design may be selected=> get paid Customer roles in NPD: towards value co-creation And Involving Suppliers in the Development Process: • Can improve product design and development efficiency. • Suppliers can suggest alternative inputs that reduce cost or improve functionality. Activity Stage Model: The need for cross-functional teams Redefining the NPD process as a series of linked activities Cross Functional Teams An activity-stage model: Matrix structure at Siemens: Network Model Open Innovation & Stakeholder Engagement Leadership Challenges in Service-Oriented Industries; • Managing NPD • Knowledge Workers Two essential challenges; 1.The service industry is knowledge-intensive & you must deal with emotional Intelligence(What makes a leader : Self-awareness/regulation; Motivation; Emphaty; 5.Social skill) Ex: What do Leonardo DiCaprio and Russell Crowe have in common?: Talent; Recognition; Env.Activism; Mirror Neurons and Empathy: “shared manifold” hypothesis: links mirror neurons to our ability to understand others as intentional agents. 2.The service industry and the knowledge workers are living in a Smarter Planet =>you must deal with self-managing teams to lead NPD process . Characteristics of Self-managing teams. • Autopoietic • Self-regulated • Productivity and Kaizen • Flexibility and faster response to technological change • Reduced absenteeism and turnover • Improved work attitudes and quality of work life Passion and Discipline: Don Quixote’s Lessons for Leadership: Leaders can learn from Quixote, whose life was dedicated to imagination, commitment, and joy.” “The critical concerns of leadership are not technical questions of management or power, they are fundamental issues of life.” Agile Development at Cisco Systems: AG: product is constantly, incrementally adapted; has to be fairly modular(possible to be broken down into many smaller, relatively independent problems that can be worked on separately).Cisco Used “waterfall” method to develop its software where teams moved through stages of the dev. process sequentially, taking 18 months. Process: product is broken up into many smaller parts built by autonomous teams and released quickly, enabling developers to get feedback and fix bugs early. • Product owner – cust’s interests and assembles complete list of functions to be developed. • “User stories” – short descriptions of desired functions described by cust. in their own words. • Product backlog – the list of functions to be developed. • Sprints – two-week periods; small sets of features of product backlog are dev. and tested. • Scrum teams & master – small, self-organizing teams with no manager , but a coach for multiple scrum teams, guiding scrum process (but not solutions). • Minimum viable product (M V P) – work that can be demonstrated to client for feedback. • Burndown chart – amount of work remaining or product release + whether its on schedule. Leadership tips for successful NPD: “Culture eats strategy for breakfast” (Peter Drucker: founder of modern management: mana by objectives and self-control. Coined the term “knowledge worker” : importance of intellectual work. NPD: a Quality Management view: Quality Function Deployment (QFD) – The House of Quality : improves communication and coordination between engineering, marketing, and manufacturing.Steps: 1. Team identifies customer requirements. 2. Team weights requirements in terms of relative importance. 3. Team identifies engineering attributes that drive performance. 4. Team enters correlations between different engineering attributes. 5. Team indicates relationship between engineering attributes and customer requirements. 6. Team multiplies customer importance rating by relationship to engineering attribute and then sums for each attribute. 7. Team evaluates competition. 8. Using relative importance ratings for engineering attributes and scores for competing products, team determines design targets. 9. Team evaluates the new design based on the design targets. Design for Manufacturing: rules to reduce cost&time while boosting quality Recalling the “Toyota Way”: Computer-Aided Design (CAD): : Enables rapid and inexpensive prototyping. Computer-Aided Manufacturing(CAM) CAD : Enables rapid and inexpensive prototyping. (C A M) : use of machine-controlled processes in manufacturing. Increases flexibility by enabling faster changes in production set ups. Crafting a Deployment Strategy Value of a techn.innovation is determined by the degree to which people understand and use it. Effective deployment strategy is a key element in a techn. Inn. Strategy. Factors : timing, licensing and compatibility, pricing, distribution, and marketing) 1.Strategic Timing of Entry: Firms can use timing of entry to take advantage of business cycle or seasonal effects.It signals cust. about the generation of technology the product represents. Timing must be coordinated with production capacity and complements availability, or launch could be weak. 2.Licensing and Compatibility:Protecting a technology too little can result in low quality complements and clones; protecting too much may impede development of complements. • If firm is dominant, prefers incompatibility, may use controlled licensing for complements. • If firm is at installed base disadvantage,prefers some compatibility & aggressive licensing • If installed base and complements are important, backward compatibility usually best – leverages installed base and complements of previous generation, and links generations 3.Pricing: influences product positioning, rate of adoption, and cash flow. • Typical pricing strategies for new innovations: • Market skimming strategy (high initial prices). • Penetration Pricing:(very low price or free). Can manipulate customer’s perception of price. • Free initial trial or introductory pricing; but pay for monthly service. • Razor-Razorblade model: The razor handles: free, replacement blades are expensive. 4.Distribution: • Direct selling: control over selling process.Can be expensive and/or impractical. • Intermediaries: independent agents, promote& sell the product lines • Wholesalers: buy products in bulk & resell them in smaller, more diverse bundles). Strategies for Accelerating Distribution: Alliances with distr.; Bundling rel.;Contracts & sponsorship 5.Marketing trends for 2024 : • AI-powered marketing: chatbots, voice search optimization, and predictive analytics. • • • • AR/VR: brand storytelling, consumer engagement avenues, and virtual try-on experiences. Micro-influencers: ind. with smaller but highly engaged followings, more targeted audiences. Social e-commerce ecosystems integrating more prominent shopping features Sustainability and Purpose-Driven Marketing: incorporate sustainable practices, Promotion through product sampling: the case of “Relish” (relishagency.com): 6 Iconic product sampling ideas to inspire your campaign: 1.Sephora: Beauty Insider Programme.:get free gifts with their online purchases 2.Glade: Scent by Glade:Partnering with Walmart: Took packing pillows used for deliveries and fill them with its air freshener so that customers could smell Glade’s spring scent. 3. Cheerios: free box of Honey Nut and $10 discount to shoppers on Amazon Prime Day who spend a certain amount using the Amazon service. 4.Aperol Cocktail Kits: partnered with UK takeaway delivery partners to distribute cocktail kits to 40,000 customers across 300 restaurants. Generating Awareness for “Farmaci Daja”:Not just a shop, but an industry – home-made medicines (galenic preparations) & consultancy center. Online, branded as “FarmaOn”: Consultancy Center (customer service & online chat with pharmacists), e-commerce, and delivery (shipping + tracking). Tailoring the Marketing Plan to Intended Adopters: Innovators and Early Adopters respond to marketing that offers significant technical content and emphasizes leading-edge nature of product. ➢ Need media with high content and selective reach. Early Majority responds to marketing emphasizing product’s completeness, ease of use, consistency with customer’s life, and legitimacy. ➢ Need media with high reach and high credibility. Late Majority and Laggards respond to marketing emphasizing reliability, simplicity, and costeffectiveness. ➢ Need media with high reach, high credibility, but low cost. EX: Deployment Tactics in the Global Video Game Industry From 1985-1989 : Nintendo had a near monopoly in video games. Then Sega overthrow Nintendo’s dominance by introducing a 16-bit system 1½ years before Nintendo.Sony was able to break into the video game industry by introducing a 32-bit system, investing heavily in game development, and leveraging its massive clout with distributors.Microsoft was first to introduce the next generation console: Xbox 360. In 2010, Sony and Microsoft both also introduced their own motion-based controllers, the Move and Kinect. • What factors enabled Sega to break Nintendo’s monopoly late 19 80s? Innovation& Early Market Entry Sega introduced a 16-bit system (Sega Genesis) ahead of Nintendo + Effective Marketing: highlight the superiority of their system. The "Genesis does what Nintendo don't" campaign positioned Sega as a cooler, more cutting-edge brand. • • • Why did Nintendo choose to not make its video game consoles backward compatible? What were the advantages and disadvantages of this strategy? Advantages: Encouraging Upgrades; Innovation Disadvantages: Consumer Transitionl; Competitive Disadvantage What strengths and weaknesses did Sony have when it entered the video game Strengths: Technological Innovation: Sony introduced the PlayStation with a 32-bit system, bringing advanced graphics and gameplay, appealing to gamers looking for a more immersive experience.; Content Development: Sony invested heavily in game development, securing strong exclusive titles that attracted a wide audience; Distribution Clout: Leveraging its existing relationships and distribution network, Sony could effectively place its consoles in the market. Weaknesses: Newcomer Status: Sony was a newcomer to the gaming industry, lacking the established reputation of Nintendo. However, it managed to overcome this by delivering a highquality product and effective marketing. • • In what ways did Nintendo’s Wii break with the norms of competition in the video game industry? How defensible was its position? • Motion Controls: The Wii introduced motion-based controls, allowing a more interactive and accessible gaming experience. • Casual Gaming Focus: Targeting a broader audience, including non-traditional gamers, with games like Wii Sports, deviating from the industry's focus on hardcore gamers. Defensibility of Position: • Unique Market Segment: The Wii's focus on casual gaming and innovative controls created a unique market segment. While it may not have competed directly with the processing power of other consoles, its broad appeal made it a defensible position. Case study: Umbrella wars: GustBuster® and senz° A group of friends studying at Delft University of Techn. ventured into the umbrella business, creating the senz° umbrella as a unique and innovative product. Despite the competitive market dominated by the GustBuster® umbrella, the students, with diverse backgrounds in product design, development, innovation management, successfully established Senz Umbrellas , designed to address traditional umbrella flaws; aerodynamic form that positions itself effectively in the wind, making it comfortable, wind-resistant, and safer. The venture emerged from the Delft incubator, supported by TU Delft and the City of Delft, offering a conducive environment for business development which involved collab. with TU Delft's Aeronautical and Industrial Design Faculties, resulting in a product capable of withstanding winds up to force 10. Senz faced challenges in manufacturing costs, eventually opting for a production partner in China. The unique design, material costs, and competition, particularly from GustBuster®, influenced the pricing strategy. It expanded its reach by partnering with the fashion brand Mexx for distribution. A separate entity, Senz Technologies, extend design expertise to other products, with future to introduce new products under the senz° label. 1. Explain the rationale to enter a mature market with established brand, the GustBuster®: The students entered the mature umbrella market, dominated by GustBuster®, with confidence in their innovative design addressing traditional flaws. Despite GustBuster®'s success, the students believed in the uniqueness and superiority of their product. 2. Has Senz turned its back on regional and national governments by manufacturing in China? The objective of incubators is to encourage economic growth locally: Senz opted for China due to lower manufacturing costs, bc of pressure to achieve competitive pricing. 3. This case raises important policy issues regarding how countries encourage employment and new business start-ups. Senz has decided to manufacture in China rather than The Netherlands. What, if anything, can governments do to encourage manufacturing at home?: They could incentivize domestic manufacturing to align with the objectives of incubators. 4. Should universities be encouraging students to start their own businesses or to go and work for companies such as Shell/Unilever? : The association with TU Delft played a significant role in Senz's success. The university provided essential support, facilities, and an incubator environment, contributing to the venture's viability. 5. Was it the technology that won customers, the design or both?: could be attributed to a combination of technology and design. The aerodynamic & wind-resistant features of senz° appealed to customers.Success without their involvement might have been challenging. 6. Should Senz have sought a licensing deal with Adidas, North Face or Berghaus?: he might have considered licensing deals with established brands. 7. Senz Technologies has had limited success outside umbrellas. Why? : Senz Technologies' limited success outside umbrellas suggests challenges in diversifying beyond their core product. Factors like market dynamics and competition may have played a role. 8. The pricing of the product seems to have limited its mass appeal. Why?: The unique design and material costs influenced the pricing strategy, limiting mass appeal. The challenge was to balance costs with consumer willingness to pay, considering the dominance of higher-priced competitors like GustBuster®.
