2023/2/28

Innovation Management
Session 1. Introduction

Dr. Feng Wan

Say hello…

Feng Wan, Associate Professor

Email: fengwan@intl.zju.edu.cn
Office: 335
Research areas: Strategic&Innovation management
Worked with Oracle China

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Course overview

32 contact hours

Course grading:
Course participation (10%),
Group presentation (30%),
Individual assignment (60%)

Group presentation (30%)

8 groups, 15-20 minutes presentation

Topic: “Start a new business on Haining Campus”

1. Start any business, as long as it is profitable
2. Either online or offline
3. May include business introduction, product/service description,
market analysis, business model, management team, future plan.
4. Discuss the innovative elements of the new business
Present in session 7&8 on March 19, 2023

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Individual assignment (60%)

Title: “Formulate an innovation strategy for a chosen company”

• Choose a real company (for example, the company that you work
with)
• Analyse internal and external factors
• Formulate an innovation strategy for the company, such as open
innovation, disruptive innovation, digital innovation, global innovation
• Discuss how to implement the innovation strategy
• 15-20 ppt slides
• Deadline: April 02, 2023

search
for new ideas within and outside
the organisation

selection
of these ideas to transform them
into products

implementation
of the selected ideas into new products

capture
How is the innovator going to
benefit from it? 6

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Course overview

Session 1: Introduction
Session 2: Searching innovation ideas
Session 3: Selecting innovation ideas
Session 4: Implementation
Session 5: Promoting entrepreneurship
Session 6: Capturing from innovation
Session 7: Knowledge creation + presentation
Session 8: Global innovation + presentation

Agenda

1. What is innovation?
2. Why do we care about innovation?
3. Types of innovation

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1. What is innovation?

Definition 1

Innovation is the successful exploitation of new ideas. (UK

department of Trade and Industry, 2004)

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Definition 2

A commercialized invention (Schumpeter)

Joseph Schumpeter

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Example: Iridium

 Iridium: more than $6 billion in losses

 Of those, some $3.5 billion for Motorola
 Goal: telephone connections anywhere at any time
 Technology: Success (more or less),
beginning operations in late 1998
 Business: Complete failure
 $3,000 price for an Iridium phone
 international calling rates of up to $7 a minute
 only 15,000 customers before going bust.

Source: Chicago Tribune, 31.10.00, http://www.heavens-above.com/iridiumdemise.asp

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Example: Tesco and Asda Still Water [video]

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2. Why do we care about innovation?

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Example: Prozac

 Anti-depressant, by Eli Lilly & Company

 Marketed since spring of 1988

 One of the biggest-selling drugs ever

 1988 – 2001: US$21 billion turnover

 Contributed about a third to the total turnover of the company

 Prozac generic on the market (8/2001)

 “Now the patent protection for Prozac has expired. The US$2.4 billion annual
turnover has therefore evaporated from the American market almost
overnight.”

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Living standard in 5 countries (1000-2010)

England/GB/UK (Centre-North) Italy Japan China India

25,000
GDP per capita (1990 international GK$)

20,000

15,000

10,000

5,000

0
1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000
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Major innovations in the UK 1640-1840

•Agricultural revolution from 1600s, crop rotation and husbandry improvements
•Reflecting telescope – 1663 Gregory, 1673 Hooke
•Calculus – 1665 Newton & Leibnitz
•Balance spring for watches – 1670 by Robert Hooke
•Reverberatory furnaces – 1678 Clerke and others
•Phosphorus and fire – 1680 Robert Boyle
•Steam water pump – 1698 Thomas Savery , 1712 Newcomen
•Seed drill and horse drawn hoe – 1700/1730 Jethro Tull
•Octant (latitude) – 1730 Hadley
•Fly shuttle and spinning jenny – 1740s Kay and Hargreaves
•Crucible steel for watches – 1740 Huntsman
•Stock breeding – 1750s Robert Bakewell
•Marine chronometer (longitude) – 1761 by John Harrison
•Steam engine – 1801 Trevithick
•Electric motor – 1825 Faraday

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Effects of innovation

Firm level => Competitive Advantage

Industry level => Growth

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Why do we care? Schumpeter’s view

Schumpeter (left), 1932 in Bonn

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Schumpeter and creative destruction

The “monopoly profits are

reduced, until a new point of
equilibrium is reached

An entrepreneur seeks to
use technological innovation
(new product/service/process)
SEARCH FOR Other entrepreneurs
imitate
to gain competitive advantage
PROFIT
The innovation replaces existing products
or methods of production =>
the entrepreneur gains monopoly profits

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3. Types of innovations

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Types of innovations

Different criteria:
Object of innovation
- Product, process, organizational,...
Degree of technical novelty involved
- Incremental & Radical
Impact on firm’s competitive position (market competencies)
- Disruptive & Sustaining
….

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Product vs. process

Product innovation
to generate / increase sales
must be established on the market

Process innovation
to enable / improve production of goods or services
must be established inside the organization

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Innovation and industry evolution

Dominant design is the idea that one product wins in every industry and becomes the
de-facto standard
Dominant design
is established

number of firms
Number of Firms

(populations
density)
Entry / Exits

entries
exits

innovations
Innovation

process
Innovation
Rate of

product
innovation

fluid transitional specific Time

phase phase phase
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Dominant design(s) in electric shavers

The 1954 Remington 60 De Luxe The 1966 Philips three heads model

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Dominant design(s) in smartphones

Smartphones: Has a dominant design emerged already? Discuss [video].

Motorola Milestone Blackberry Curve 8900 i-Phone

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Degree of innovation - technical

Incremental innovation; small improvements

printers: improved functions in follow-up model
cars: improved injection technology

Radical innovation; new technology

printers: laser instead of inkjet
cars: fuel cell instead of combustion engine

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Failure of leading firms: technical novelty

INCREMENTAL / RADICAL /
CONTINUOUS DISCONTINUOUS
INNOVATION INNOVATION

Competence Competence
enhancing destroying

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Examples

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Examples
Historically, Nokia has been a highly efficient manufacturing and logistics
machine…
But mobile phones are changing into hand-held computers… Here US firms have
the advantage
Source: The Economist, Feb 2011

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Existing vs. emerging/niche markets

SUSTAINING DISRUPTIVE
INNOVATION INNOVATION

Christensen, 1997, The Innovator’s Dilemma; Christensen-Bower, 1996

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Existing vs. emerging/niche markets

SUSTAINING DISRUPTIVE
INNOVATION INNOVATION
Innovations that foster
improved product
performance

Christensen, 1997, The Innovator’s Dilemma; Christensen-Bower, 1996

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Existing vs. emerging/niche markets

SUSTAINING DISRUPTIVE
INNOVATION INNOVATION
Innovations that foster Innovations that typically result
improved product in worse product performance
performance (at least in the short term) but
have other features (low cost,
simplicity, small size, etc) that a
few fringe customers value

Christensen, 1997, The Innovator’s Dilemma; Christensen-Bower, 1996

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Failure of leading firms

Great firms
have their competitive antennae up
aggressively invest in new products and technology
listen astutely to their customer
Yet they can lose their leadership
little to do with technology itself
Rather, they fail because they listen too carefully to their customers – and
customers place stringent limits on the strategies firms can and cannot
pursue

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Resource allocation process

The resource allocation procedures in successful organizations provide
impetus for innovations known to be demanded by current customers in
existing markets

Disruptive innovation: disk drives

Source:
http://www.pdl.cmu.edu/RAIDframe/raidframebook.pdf,
download 2005-05-20 / Christensen 1997

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Disruptive innovation: disk drives

5.25-inch drives are technically vastly inferior to 8-inch drives

The cost per megabyte is 4x as high
Source: C. Christensen (1997),
“The innovator’s dilemma”
But they are smaller and 33% cheaper in absolute terms

New entrants

New entrants adopt the new technology and focus on niche markets
• Why not incumbents?

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Leading firms “held captive by their customers”

Introduction of 3.5’’ drives:

Seagate – leader in 5.25’’ drives – developed 3.5’’ drives in 1985

 only one year after the first ones were introduced to the market
 initiative came from engineering

They showed prototypes to customers for evaluation

 More precisely, to existing customers, i.e., in the desktop market
 Little interest; customers needed higher capacities, while small size was not an advantage

Leading firms “held captive by their customers”

Resistance to 3.5’’ program from marketing and executive team:

 Market for 5.25’’ drives is larger
 Effort expanded there would yield higher returns

“We needed a new model which could become the next ST412 (a very successful product
generating $300 million sales annually in the desktop market that was near the end of its life
cycle). Our forecasts for the 3.5-inch drive were under $50 million because the laptop market
was just emerging-and the 3.5-inch product just didn't fit the bill” (former Seagate manager)
Seagate finally did start shipping 3.5’’ products, but only in 1988

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New entrants

New entrants adopt the new technology and focus on niche markets
Why not incumbents?
The disruptive technology improves faster than performance demanded by
customers in the traditional markets
The disruptive technology invades the traditional market thanks to its other
advantages (cost, ruggedness, simplicity, etc.)

Disruptive innovation
Disruptive vs. sustaining change [video]

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Comments
Contrast:
 Radical innovation is difficult for technical reasons
 Disruptive innovation is difficult for market-related reasons

The challenge for the incumbent is to properly appreciate the strategic importance of
emerging markets
 Different from inertia due to bureaucracy or complacency

Comments
Possible solution for incumbents:
 Try to create entrepreneurship within existing organizations (“corporate venturing”)
 These young, small units can afford serving small, nascent markets
 Plan to fail early and inexpensively
 Focus on finding or developing new markets, rather than search for tech
breakthrough

Words of warning:
 These concepts only explain some cases of failure by established firms
 And this can only be found out afterwards
 Large firms could wait to see if disruptive innovations are successful, and then use their resources
to buy the most successful disrupters
 See Lepore J. 2014. The disruption machine. The New Yorker (23): 30-6 (Blackboard) for a
very harsh account of Christiansen’s theory

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What is digital Innovation? [video]

Digital innovation is to use technologies such as information, computing,
communication, and connectivity to create new products, improve production
process, or create new business models, etc.
1. Digital technologies. Such as big data, cloud computing, block chain, IoT, AI
2. Innovative outcomes. Such as digital product innovation, business model
innovation.
3. Innovation process. Use digital technologies in the process of innovation.

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Key characteristics of digital innovation

1. Reprogrammable
As long as users agree on the meaning of the digital data and have the wits to come
up with new instructions to manipulate the data, the architecture offers flexibility in
the way data is manipulated.

The reprogrammability allows a digital device to perform a wide array of functions

• Calculating distances
• Word processing
• Video editing
• Web browsing

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Key characteristics of digital innovation

2. Homogenization of all data
Analog data implies a tight coupling between data and special purpose devices for
storing, transmitting, processing, and displaying the data;

In contrast, a digital representation maps any analog signal into a set of binary
numbers, i.e., bits (audio, video, text, and image)

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Key characteristics of digital innovation

3. Self-reference
Digital innovation requires the use of digital technology such as computers.

The diffusion of digital innovation creates positive network externalities that further
accelerate the creation and availability of digital devices, networks, services, and
contents.

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Types of digital innovation

1. Digital product innovation
New products combining digital technologies or supported by digital technologies.
• Smart home products
• Applications (APPs)
• Self driven cars

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Types of digital innovation

2. Digital process innovation
Improve or reconfigure existing innovation processes by digital technologies.
• R&D processes by simulation to lower cost
• IoT to make production process transparent
• Involve customers in VCEs (virtual customer environment)

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Types of digital innovation

3. Digital business model innovation
Change business models by digital technologies.
• Automation and digital enhancement
• Digital extension of traditional business models
• Digital transformation of business models

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Referencs
Christensen CM, Bower JL. 1996. Customer power, strategic investment, and the failure of
leading firms. Strategic management journal 17(3): 197-218.

Christensen C. 1997. The innovator's dilemma: when new technologies cause great firms to
fail. Harvard Business Review Press.

Lepore J. 2014. The disruption machine. The New Yorker (23): 30-6.

Belenzon S, Patacconi A. 2014. How does firm size moderate firms' ability to benefit from
invention? Evidence from patents and scientific publications. European Management Review,
11(1): 21-45.

Klepper S. 1996. Entry, exit, growth, and innovation over the product life cycle. American
Economic Review: 562-583.

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Thank you!

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