. Innovation and change 11

What is Innovation?

Invention:Creation of a completely novel technology, process, or product.

Innovation: Altering products through novel uses of technologies. Finding ways to increase value or provide new value.

Innovation as a Mindset

An Attitude: Innovation starts with questioning the status quo and being open to change.

A Process: It involves systematic approaches to improvement and development.

A Business Approach: Innovation shapes how organisations operate and compete in markets.

Innovation Changes the Norms

1 Not accepting the Status Quo:  We tend to see things as natural, expected, and proper.

2 Resistance to Change: We don't try to change things that seem normal.

3 The Innovator's Question: Innovators ask 'why not?' instead of accepting conventions

Benefits from Innovation

• Growth

  •  Company growth and increases in wealth

• New Markets

  • Access to or creation of new markets or market segments.

• Cost Savings

  •  Reduced labour costs and transaction costs. Increases in production speed.

• Competitive Advantage

  •  Differentiation from competitors. Enhanced market position.

• Customer Value

  • Improved products and services that better meet customer needs.

• Operational Efficiency

  • Streamlined processes and improved organizational performance.

• Culture of Improvement

  • Fosters adaptability and continuous change. Builds organizational resilience.

Focuses of Innovation

Innovation can be categorized into customer-focused and company-focused approaches:

Customer-Focused Innovation

1. Product Innovation: Creating new products or improving existing ones to better serve customers.

2.  Marketing Innovation: New approaches to promote products and reach customers.

Company-Focused Innovation

1. Process Innovation:Enhancing how products are created, delivered, or supported.

2.  Business Model Innovation: Rethinking how the company creates, delivers, and captures value.

Methods of Innovation

There are three key methods: modular, architectural, and service innovation.

Modular Innovation

• Definition: Upgrading individual components without changing the overall structure. The core architecture remains the same.

• Key Feature: Changes in specific components while maintaining compatibility with the existing system.

• Examples: Smartphone processors, car engines, and laptop display upgrades that improve performance without redesigning the product.

Architectural Innovation

• Definition: Changing the overall system structure while individual components remain the same. The interaction between components is altered.

• Key Feature:The design framework is restructured, but existing technologies are used differently.

• Examples: Walkman → iPod → streaming apps.
  The way people access and listen to music has changed, but the core elements (music files, headphones, portability) remain.

Service Innovation

• Definition:Improving how services are delivered to enhance customer experience, efficiency, or accessibility. This often includes digitalization, personalization, or automation.

• Key Feature: Focus on processes and experiences rather than physical products.

Examples: Uber, Netflix streaming, Amazon Prime delivery.

Product Innovation Challenges

"If I had asked my customers what they wanted, they would have said a faster horse." - Henry Ford

"It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them." - Steve Jobs

• Limitations of Customer Understanding: Customers often cannot visualize revolutionary products.

• Gaps in Market Research :Traditional research may overlook revolutionary opportunities.

• Visionary Leadership: Innovation often requires seeing beyond current market demands.

Degrees of Innovation

1.  Disruptive Innovation: Changes business definition and value proposition

2.  Adaptive Innovation:Adapts existing innovation to new uses

3. Imitative Innovation: Copies others' innovations without adding new elements

Disruptive Innovation

1 Tends to come from outside the industry,
2 Changes customer value proposition
3 Makes old ways of doing things obsolete.
4 Changes the business definitions
5 Changes the structure and cost of the value chain

Disruptive Innovation

Changes business definition and value proposition

1 Netflix: Shifted entertainment from physical rentals and scheduled TV to on-demand streaming, making Blockbuster obsolete.

2 iPhone: Transformed the phone from a calling device into a pocket computer, reshaping cameras, maps, and music.

3 Airbnb: Redefined hospitality by turning any home into a hotel, challenging the entire lodging industry.

Adaptive Innovation

1. New Use: Adapts existing innovation to serve a different purpose.

2. New Environment: Applies innovation in a different context or setting.

3. New Function: Modifies innovation to perform an additional or different function.

Adaptive Innovation

Adapts existing innovation to new uses

1 New Use Bubble Wrap: Invented in 1957 as textured wallpaper. Failed completely, then was repurposed as packaging protection material.

2 New Environment GPS: Built for military operations, later adapted into car navigation, smartphones, agriculture, and even pet trackers.

3 New Function Smartphones as Payment Devices:  A communication device modified to also function as a digital wallet (Apple Pay, Google Pay).

Imitative Innovation

• Observation: Watching what others are doing in the innovation space.

• Replication: Copying innovations without significant modifications.

Not adding new elements or using it in different ways

Imitative Innovation

Copies others' innovations without adding new elements

1 Samsung Galaxy vs. iPhone: Samsung adopted the smartphone touchscreen format pioneered by Apple, competing on price and features.

2 Burger King vs. McDonald's: Replicated the fast-food franchise model without fundamentally changing the concept or customer experience.

3 Xiaomi: Copied premium smartphone features from leading brands and offered them at significantly lower prices for emerging markets.

Factors Influencing Company Innovation

• Age of Firm: Younger firms have more organizational flexibility and aggressiveness.

• Competition Level:Higher competition stimulate innovation and improvement.

• Company Culture: Innovation-oriented vs. tradition-link approaches. Product- and service-linked vs. business-linked

• Desire to Change: Willingness to innovate vs. desires to stay the same.

Organizational Responses to Innovation

1.  Initial Resistance: Organizations initially resist changes that threaten existing models.

2.  Tension Period:Conflict between maintaining current success and embracing innovation.

3. Adaptation Decision:Companies must decide whether to adapt or maintain status quo.

4. Implementation: Successful companies integrate innovation into their operations.

Success Paradox

• Sony vs. Apple: Sony dominated mobile music but Apple took over with iPod and MP3.

• Kodak's Dilemma: Kodak held digital photography patents but its film business prevented adaptation.

Success Trap: Successful products interfere with radical product innovation in firms.

Innovation and change in media firms

Innovation Challenges for Established Media Firms

< Lower Revenue: Online revenues are far below offline, impeding investment in innovation.

↓ Reward Potential:  Innovations offer less near-term reward than current operations.

↑ Resistance: Organizational resistance and inertia inhibit reaction to market changes.

Hollywood's Resistance to Change

• Sound in Film

  •  Studios didn’t like sound because it limited mobility on sets, created new costs, and they were successful without it.

  •  "Who the hell wants to hear actors talk."

• Television Emergence

  •  Studios ignored TV in the late 1940s, allowing new competitors to emerge.

• Dismissive Attitude

  •  "[TV] won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night"

Recording Industry's Innovation Struggles

1. 1920s-30s: Opposed radio development and refused to allow recordings to be played.

2. 1980s: Attempted to block home audio tape recorders.

3. 1990s: Fought against digital audio tape recorders.

4. 2000s: Tried to stop digital distribution of music.

Why Companies Need Leaders, Not Just Managers

1. Long-term Vision:Leaders maintain a strategic view of the firm's future, not just current operations.

2. Organizational Guidance:They create and maintain the company vision, serving as guides for others.

3. Values and Character: Leaders embody and communicate the company's core values.

4. Innovation Support: They develop strategies and processes that foster innovation and change.

Strategic Innovation Activities

1. Organic Innovation
   • Internal efforts
   • Capability building
   • Innovation promotion

2. Cluster Innovation
   • Collaborating with partners in industry clusters to share knowledge and resources.
   • Innovation units
    

3. Corporate Venturing
   • Investing in startups and creating spinoffs to explore new market opportunities.

4. Mergers & Acquisitions
   • Acquiring external companies to gain new technologies and market access.
   

Research and Development in Media

Designed to deliver new solutions to benefit customers and the firm

• Historical Gap: Media firms traditionally invested little in R&D, unlike other industries.

• External Reliance: They often depended on suppliers and other firms for innovation.

• Modern Methods: Today's approaches include dedicated departments and innovation teams.

Product Development Process

1. Insight searching: Identifying market needs and opportunities.

2. Idea Generation: Brainstorming and concept development.

3. Screening: Evaluating feasibility and market potential.

4. Development: Creating prototypes and testing.

5. Commercialization: Market launch and scaling.

6. Product Review: Evaluating performance and collecting customer feedback.

Attributes of Innovative Companies

• Customer Focus: Strong identification with customer needs and experiences.

• Pride & Commitment: Deep pride and commitment to product/service quality and excellence.

• Collaborative Culture: Respect for technical and creative people within a collaborative environment.

• Failure Tolerance:Accepting failure as part of the innovation process.

• Company-Wide Innovation: Innovation expected and encouraged at all levels of the organization.

Iterative Innovation

1. Design: Create initial concepts based on customer needs. 

2. Build: Develop minimum viable products or prototypes. 

3. Test: Gather user feedback through real-world testing. 

4. Learn: Analyze results and refine approach for next iteration.