Lectures IMM 2019-2020 PDF

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IMM – Lecture 1 – 6/2/ Brad Paisley – Welcome to the future  Many products have been replaced by phones Definition of innovation: Innovation is the process by which an idea or invention is translated into a good or service for which customers are willing to pay, or the result from this process”  ...

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IMM – Lecture 1 – 6/2/2020 Brad Paisley – Welcome to the future  Many products have been replaced by phones 

Definition of innovation: Innovation is the process by which an idea or invention is translated into a good or service for which customers are willing to pay, or the result from this process”  Innovation = invention + commercialization Misconceptions about innovation 1. Lightbulbs, innovation is associated with clever ideas, but this is just the beginning of the process. You need to translate this into a successful product. ’Innovation is just about getting good ideas’  SPANX: wanted to wear pantyhose’s and open sandals: cut of the feet and use it like that. Improved the product and tried to sell the product. Manufactures (middle-aged men) did not like the product. Many women already did this but did not sell the product. The reason is that a good idea is just a starting point. 2. Innovation is not creativity. ‘The innovation process cannot be managed’ Importance of innovation Innovation improves a firm’s competitive position ▫ respond to market opportunities, which results in new products and/or new markets ▫ new products help to differentiate from the competition ▫ innovation contributes to growth: many companies get 30% of their current sales from new products ▫ product lifecycles get shorter; innovation is needed to remain attractive to customers ▫ without constant renewal you will be overtaken by the competition; innovation results in competitive advantage Innovation improves society ▫ radical innovations improve health, safety and comfort of customers ▫ cloud computing, artificial intelligence, internet of things, online shopping Changing technologies, customer needs and global economies create many opportunities for innovation Studies show that there is no direct relationship between money spent on R&D and firm innovation performance Characteristics of successful innovators 1. Strategic alignment: between innovation strategy and business strategy 2. Cultural support: corporate culture aligned with innovation strategy 3. Executive involvement: top management involved in R&D program 4. Focus on customer insights: value deep customer insights 5. Focus on project selection: considered most important and critical to success

The future of innovation is digital Companies expect to invest more in digital technologies and products Three types of products

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pure information goods: ruled by digital companies (Google in search and Facebook in social networking) ▫ once-analog products that have been converted into digital products: ruled by digital companies (Audible.com for books, Spotify for music, Netflix for movies) ▫ analog products with digital being integrated (Internet of Things): dominated by manufacturers such as Caterpillar, Tesla, Ford Who will come to dominate the third category? ▫ the industry incumbents, such as Caterpillar or Ford? ▫ or the tech giants, such as Microsoft or Amazon? Innovation powerhouse: Amazon Largest number of new products and services in the last decade ▫ Amazon Prime, Amazon Fresh, Amazon Video, Amazon Music, Amazon Publishing, Amazon Web Services, Kindle, Echo ▫ In ebooks app. 83% market share in US; in smart speakers app. 30% market share Amazon Go: tested in 2017, launched January 2018 February 2018: Amazon announces to use big data to transform healthcare In 2019, Q3: range of new Echo devices, Personal Shopper by Prime Wardrobe (styling service), several tools and services for small and midsized sellers. Amazon Leadership Principle #1: Customer obsession Start with the customer and work backwards; work vigorously to earn and keep customer trust; pay attention to competitors, but keep obsessing over customers Degree of newness Newness to the market vs newness to the company Incremental innovation ▫ minor product change ▫ high success rate ▫ low returns Radical innovation ▫ large product change ▫ low success rate ▫ high potential returns Lecture takeaways  Innovation is the process by which an idea or invention is translated into a good or service for which customers are willing to pay, or the result from this process  Innovation is of critical importance for a firm’s future, but creates many challenges, resulting in many failed innovations  Successful innovation is not about having good ideas, but about successfully developing them into new products or services and launching them in the market  R&D spending by firms does not directly result in firm innovation performance; you cannot buy your way to success  Innovations differ in their degree of newness, from very minor, incremental innovations to new-to-the-world radical innovations

Lecture 2 – 13/2/2020 Don’t wait until the other departments are done  Constant interaction with departments and customer is necessary Don’t always talk to the same customers  hear different stories Old approach to innovation: 1. Each department works on the project until they have completed their task 2. Then, the project is handed over to the next department This results in a very suboptimal process • many communication problems, even when there are feedback loops • many delays, resulting in a slow process • less successful output (the new product) Sources of ideas There are many sources of ideas for innovations ▫ customers, R&D department, the salesforce, suppliers, competitors, patents, research institutes, complementors, other industries, technological developments, existing products… Successful innovators use a wide range of sources to generate ideas ▫ beware of ingrained patterns of behavior (like always talking to the same customers) ▫ successful firms stimulate serendipity The nature of the idea depends on the source ▫ customers are more likely to suggest incremental innovations or wild ideas ▫ employees or experts are more likely to suggest practical/implementable ideas ▫ universities are more likely to suggest radical innovations   

Customers are more likely to suggest small changes, they are used to the products and they do not want it to change that much Universities are most likely to suggest radical innovations because they do research Employees have knowledge about the application of the products so they suggest practical ideas

Strong innovators use a wide range of different sources Many ideas for breakthrough innovations come from outsiders  They look at problems in a new way  They are not trapped by traditional paradigms and assumptions  They do not have investments in traditional methods Traditional method to see into a patient’s intestines: endoscope (flexible rod with a camera) Innovation is mostly incremental improvements of the rod, camera and imaging software  Someone with an entirely different background looks at it from a different angle; no rod but a camera in a pill that you need to swallow Bryan Setzer combined rock and roll with big band Colt Ford: combining country music and rap

From idea to product concept A concept is a more detailed representation of the new product ▫ list of specifications ▫ blueprints, drawings ▫ concept boards ▫ computer-generated images or videos ▫ scale models, physical mockups A concept makes the idea more specific ▫ facilitates communication ▫ both within the team and with customers Test your concept with customers ▫ your current customers ▫ your ex customers ▫ loyal customers from the competition Popular method to test your concept: crowdfunding ▫ Kickstarter, Indiegogo, RocketHub; cheap way to quickly test customer interest From concept to prototype Prototype is a first, preliminary version of the new product Alpha-test ▫ technical test, performed by the manufacturer ▫ manufacturers copy user situations in great detail in the laboratory ▫ test whether the product meets the specifications, design flaws, safety, ease of use, durability etc. Beta-test ▫ market test, performed by real, potential customers ▫ test whether the product functions in real-life situations ▫ often used for promotion (“this product was tested by X”) Virtual prototyping ▫ testing of more prototypes, cheaper, faster: more information ▫ prototype testing and development is a continuous, iterative process ▫ e.g. new medicines are tested on organs-on-a-chip Boeing, potatoes, WIFI-signals effects on human bodies Chicken ingestion test Used by jet engine manufacturers, such as Pratt & Whitney, to test engine prototypes One of a series of stress tests required by the FAA before a new engine can be certified With the engine operating at full speed, the chicken cannon uses compressed air to shoot chicken carcasses (or sometimes duck or turkey carcasses) into the turbine at 180 mph. This is the approximate speed a plane would be traveling if it encountered a bird during takeoff or landing, when most such incidents occur If the turbine disintegrates, or if the engine can't be operated safely for another twenty minutes after impact, the design fails the test

Test market Selling the new product on a limited scale in a controlled environment ▫ in a specific region or city (such as Apeldoorn or Breda) ▫ in a specific channel (such as gas stations) Objective is to test the viability of the new product; i.e. the complete marketing mix ▫ product ▫ channels ▫ communication messages/media ▫ pricing ▫ promotional activities To test market or not? ▫ costs vs profits ▫ required capital investments ▫ required marketing investments ▫ danger of competitors copying Testing innovation in a global context Some countries are more useful to test innovations than others ▫ what are a country’s demographics? ▫ how open are a country’s inhabitants to new products and services? ▫ to what extent do consumers in other countries look to a country in deciding which products to buy? The Netherlands ▫ very diverse mix of cultures (representativeness!) ▫ critical, innovative consumers ▫ open to new products (especially home appliances and cosmetics; less financial services) Launching the new product in the market Market launch is the last stage of the innovation process Marketing activity, but only successful if marketing was involved in entire innovation process Usually, the innovation that is launched is different from the original idea... Two types of launch decisions: ▫ strategic launch decisions: taken early in the process, concern why/what/when/where questions  launch objective (expand product range, increase market penetration, create entry barriers)  newness of product (completely new, modification)  timing (pioneer or follower, all at once or phased)  choice of target market (mass market, niche market) ▫ tactical launch decisions: taken later in the process, concern how questions related to  product (branding, depth of product range, packaging)  distribution (channel selection, distribution intensity, delivery conditions)  price (skimming or penetration pricing?, discounts)  communication (budget, instruments, push or pull?) New product announcements

Every communication that makes it clear that a new product will be launched Objectives of new product announcements ▫ create excitement ▫ convince potential buyers to postpone their purchase ▫ allow buyers to get ready for the purchase (e.g. by saving money or making required investments) ▫ encourage suppliers to develop new components ▫ encourage complementors to develop products ▫ prepare distribution channels ▫ scare off the competition Increasing emphasis on stimulation of buzz Process in practice The innovation process is not always linear ▫ many feedback loops ▫ going back to earlier stages, redo the work Innovation projects are not finished, but shelved ▫ temporarily, until the market or technology changes ▫ indefinitely Innovation projects are combined with other projects ▫ two unsuccessful projects may inspire one new successful project Innovation may not be planned, but the result of many small decisions ▫ IKEA Lecture takeaways  The innovation process is a multifunctional process, which requires inputs from several departments, each with their own objectives and background  The innovation process consists of stages (activities), separated by gates (go/no go decisions); in practice the process is not always linear  Ideas for innovations come from many different sources: customers, suppliers, research institutes, existing products, patents, technology  The innovation process transforms the idea into a concept, prototype and final product; the final product is typically different from the original idea  Market launch decisions encompass strategic launch decisions and tactical launch decisions (both concern different questions and different time frames

Lecture 3 – 20/02/2020

Creativity and innovation Creativity: conceiving something original/unusual, generating new ideas Innovation: implementing something new, a new idea You need creativity during your innovation process ▫ to generate promising ideas for new products or services ▫ to design new ways of presenting your concepts to potential customers ▫ to design new methods to test prototypes ▫ to design new ways to successfully launch your innovation Innovation is the application of creative thinking; applied creativity Both innovation and creativity can be stimulated and managed Both innovation and creativity can be stimulated and managed Raiders of the lost arc: stuntman, fighting scene, unable to do scene, just shot him Connecting dots with one stroke  fold paper Giving people constraints helps them to come up with creative solutions Innovation funnel Managing the innovation process is more complex than just managing 6 or 7 stages; each stage consists of multiple activities A leading software company uses a formal launch process with 300+ activities, deadlines and responsibilities covering the period from concept to launch plus 120 days; after that period, all responsibility returns to the marketing team and the launch team disbands Managing the innovation process is more complex than just stages Innovation morality curve: you start with a lot of ideas, how many go to the next stage. Green line: the further you go in the process, the more expensive it becomes The steeper the line becomes, the higher the likelihood you throw away ideas that might have had a lot of potential Innovation success factors : cooper (1979) compared successful and unsuccessful new products 3 key success factors ▫ PRODUCT UNIQUENESS AND SUPERIORITY ▫ market knowledge and marketing proficiency ▫ technical/production synergy and proficiency 3 barriers to success ▫ relatively high price ▫ dynamic market ▫ competitive market with satisfied customers 3 facilitators ▫ marketing and management synergy ▫ marketing communications and launch ▫ market need, growth and size NO impact on success ▫ first to market

#1 success factor: does your new product create superior value for customers?

You must focus on what your customers need but - They often cannot tell you what they like - They do not want to tell you - They do something else anyway  You have to be very careful in the way you do market research, because you will make mistakes Being first to market Pros • Shows technological leadership • Generate buzz in the press • Fast market penetration • Lock-in of customers • Can create the rules; e.g. determine price level • No competition • Protect your IP • Use of more advanced technology Cons • High costs of product development and IP protection • High market development costs • High technological and market uncertainties • Need to stay ahead of impending competition • Market leader inertia • Need to deal with restricting regulations Criteria to assess new product ideas 1. Product: Does the product address a relevant market need? Does the product offer superior value to customers? 2. Market: What is the expected market size/growth? Is there a global market? Is the market homogeneous or do segments exist? 3. Competition: What is the number of competitors in the market? What is the intensity of competition? How easy is it to enter the market? 4. Organization: Do we have the required skills and technologies? Does the product fit with our marketing strategy? Does the product create synergies? 5. Financials: Which resources does the product require? What are expected revenues/profits? What is the expected break-even point? 6. Other factors: Are there relevant regulations? Can the product be patented? What is the expected impact on other products? #1 success factor: does your new product create superior value for customers? So, you must ask your customers what they want and then develop new products based on what your customers want. Right? Well, yes, you must focus on what your customers need…, but  customer often cannot tell you what they like  or they do not want to tell you  or they do something else anyway So, be careful with how you do market research!

When the iPhone came into the market

Worldwide market research with 10,000 respondents (2007, when the iPhone had just been announced) • in developed economies people do not need one device that replaces the digital camera, mobile phone and mp3 player • question: to what extent do you agree with the statement “I like the idea of having one portable device to fulfill all my needs” • but later, at the time of making the actual purchase decision, consumers had more information (e.g. experiences of first users) The body (intuition) knows something very quickly but the mind (ratio) is very slow to understand  That is why Steve Jobs refused to test, and James Dyson ignores test results Solution:  do not reject rationality, but understand its limits its limits  combine traditional testing methods with physiological testing  use testing to inspire creativity, not to forecast sales The voice of the customer Incorporate the ‘voice of the customer’ in your innovation process ▫ during the entire innovation process: collect information about and interact with customers  to get insight into their needs and requirements  to get feedback on ideas, product concepts, prototypes ▫ wide range of tools  interviews, surveys, focus groups, live chats, social media, online customer reviews, call center data, emails Problems with voice of the customer ▫ several departments have customer information but do not share ▫ ad hoc activities, no systematic approach These problems are even worse in multinational companies ▫ how to combine insights from customers in different countries? ▫ how to get the right information to the right people in other countries? ▫ how to create a coordinated response across countries? Amazon uses the approach of “working backwards” from the customer A product manager or team that wants to start a new initiative must write a 1-1.5-page press release that describes • the target customers • the customer’s problem • how current solutions fail • how the new product will blow away existing solutions If the product manager or team cannot articulate the problem from the customer’s point of view, nothing gets built The role of failure in innovation Successful firms generate many ideas, which result in many failures, but increase the chances of success Innovative leaders encourage a culture of experimentation

▫ give employees the freedom to innovate, to experiment ▫ do not punish failure, but stimulate learning as a necessary step to success Jacuzzi Brothers • in the 1950s, the Jacuzzi brothers invented a whirlpool bath to treat people with arthritis • the product flopped because people with arthritis could not afford it • product relaunched as a luxury product for the wealthy Amazon • Fire Phone was launched in 2014 • the product failed and was discontinued in 2015 • but one of the phone’s feature (voice recognition) became the basis for Alexa Create gates with teeth; time to drown some puppies! • fewer, but better projects • clearly defined gates • explicit priorities and go/no go criteria Innovation portfolio Firms have multiple innovation projects at the same time Need for portfolio management • serves to manage risks • serves to allocate resources Goal is to achieve a balance between three types of projects: • core projects: small changes to existing products or small entries to new markets (Oreos on-the-go packages) • adjacent projects: levera...