Strategy Participant Guide

Innovation Center

Strategy

Participant Guide

Participant Guide

Innovation Center: Strategy

Innovation Center  Strategy Management Process

Harvard Business School Publishing 2008

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Participant Guide

Agenda

Innovation Center: Strategy

(60 minutes)

Quick Exercise: How Good Are We at Innovation Strategy? (5 minutes)

Why Innovation Strategy Is Important (10 minutes) Tool: Assessing Your Innovation Environment (10 minutes) Looking for Innovation Opportunities (5 minutes) Selecting Your Playing Field (5 minutes) Tool: Disrupt-o-Meter (10 minutes) Determining Your Success Criteria (3 minutes) Tool: What Are Your Success Criteria? (2 minutes) Assessing New Ideas’ Potential (5 minutes) Choosing the Right Team to Lead the Innovation (5 minutes) Tips for Innovating New Ways of Doing Business (handout)

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Quick Exercise: How Good Are We at Innovation Strategy? (5 minutes) First, think about your business unit or department: In what ways has your unit or department demonstrated strength in innovation?

How does your unit or department identify ideas for developing innovative products, services, or ways of doing business?

Do your unit’s or department’s innovation efforts usually generate the expected outcomes?

Now, think about your own effectiveness at innovation strategy: How do you define “innovation”?

What practices do you use, personally, to manage innovation strategically in your unit or department?

In what respects would you like to strengthen your effectiveness in innovation strategy?

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Why Innovation Strategy Is Important

(10 minutes)

Adapted from “Interview with Scott D. Anthony,” “Can You Disrupt and Sustain at the Same Time?” by Scott D. Anthony and Clayton M. Christensen, and “Mapping Your Innovation Strategy” by Scott D. Anthony, Matt Eyring, and Lib Gibson.

There’s a lot of talk about innovation in business today. But what does “innovating” mean, exactly? It’s not the same as simply inventing a new gadget. Innovation is an invention that changes the rules of the game—by making things simpler, cheaper, more convenient, or more accessible for companies and their customers. An innovation can take several forms. Think about possible examples: Innovation can be . . .

Example

Why is innovation so important to companies? Companies that innovate successfully: •

Bring in more revenue.

•

Attract talented managers and employees.

•

Create better returns for shareholders.

•

Stay ahead of the competition.

These are crucial benefits, but innovation isn’t easy. Turn the page to find out why.

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Participant Guide

Innovation Center: Strategy

Why Innovation Strategy Is Important

(cont’d)

Innovation isn’t easy, for several reasons: •

There are many ways to go about it. For example, companies must decide whether to make small changes in their offerings or giant leaps.

•

In trying to innovate, many companies default to growth strategies that worked in the past (such as designing particular features into a new product). But in unfamiliar markets, these strategies may backfire.

•

Companies often merely take a product or service that’s already good and make it better—which doesn’t change the rules of any game.

To overcome these problems, companies need to develop an innovation strategy—a game plan for how they’re going to create transformative products, services, or ways of doing business. To craft an effective innovation strategy, you take these five steps: 1. Look around you for opportunities to innovate—inside and outside your company. 2. Select your playing field—the markets where you’ll innovate. 3. Determine your success criteria—the characteristics that have made previous innovations in your playing field successful. 4. Evaluate your ideas’ potential—the risks involved and the chances of success or failure. 5. Select the right kind of team to drive the innovation. We’ll look at each of these steps in detail in the following sections. The bottom line: Innovation is essential to companies’ survival, but it’s difficult to do successfully. To reap the benefits of innovating, companies must formulate a sound innovation strategy.

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Tool: Assessing Your Innovation Environment (10 minutes) Adapted from The Innovator’s Guide to Growth by Scott D. Anthony, Mark W. Johnson, Joseph V. Sinfield, and Elizabeth J. Altman. Harvard Business Press, 2008.

For each of the six items below, select the box that most closely represents your situation. Add five points for each choice you make in the left-hand column. Subtract five points for each choice you make in the right-hand column. When you have completed your scoring, see the scoring ranges that follow the tool.

Environment

More demanding innovation environment (+5 points)

External environment 1. Industry Highly mature maturity market showing signs of commoditization

Neutral (0 points)

Less demanding innovation environment (-5 points)

Market beginning to show signs of maturity

Nascent market with unclear business models

2. Competitive dynamics

Fast-moving industry and/or industry with short product life cycles (e.g., biotech)

Moderately changing industry (e.g., automobiles)

Slow-moving industry where change rarely occurs (e.g., steel)

3. Asset intensity

Very high, with innovation requiring major capital equipment (e.g., pharmaceutical)

Moderate; innovation possible with less capital equipment (e.g., consumer goods)

Low; innovation possible with little to no investment (e.g., media)

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Participant Guide

Innovation Center: Strategy

Tool: Assessing Your Innovation Environment (cont’d)

Environment

More demanding innovation environment (+5 points)

Internal environment 4. Scope of Innovating innovation possible only activities with close coordination across business units, functions, and regions

Neutral (0 points)

Less demanding innovation environment (-5 points)

Innovating able to be isolated within a single business unit with coordination across functions

Innovating possible in separate pockets of the organization with minimal coordination

5. Innovation culture

Company in “operational” mode, with innovation viewed largely as a distraction

Innovation understood to be important, but not something that is everyone’s responsibility

Entrepreneurial culture, where innovation is a core part of the company DNA

6. Breadth of talent

30 percent of key managers capable of developing legitimately disruptive ideas

Turn the page to assess the implications of your score.

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Tool: Assessing Your Innovation Environment (cont’d)

To assess the implications of your score, see the scoring ranges below: 20 to 30 Very demanding innovation environment: In these settings, there is a likely need for greater resource allocation, more structured approaches to innovation, more significant senior management guidance, and overall organizational autonomy for selected innovation units. 10 to 15 Moderately demanding innovation environment: In these contexts, circumstances suggest focusing on one or two key aspects of a company’s environment. Significant hands-on management may be required to overcome internal challenges, and/or well-defined structure and process may be needed to foster rapid innovation while effectively managing potential risks. –15 to 5 Less demanding innovation environment: Here, focused innovation efforts can be carried out with limited need for direction from senior leaders and minimal investment. Market conditions and the personnel in the organization likely enable a more flexible and slower paced approach to innovation. –30 to –20 Naturally innovative environment: Innovation in these settings tends to be inherent in the core culture. Innovation efforts can thus be well integrated with the main lines of business and can occur as a natural part of doing business. In these environments, it is important not to overdirect or stifle innovation through excessive structure. © Copyright 2008 Innosight, LLC. All Rights Reserved. http://www.innosight.com/ Adapted from The Innovator’s Guide to Growth by Scott D. Anthony, Mark W. Johnson, Joseph V. Sinfield, and Elizabeth J. Altman. Harvard Business Press, 2008.

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Looking for Innovation Opportunities

(5 minutes)

Adapted from “The Discipline of Innovation” by Peter F. Drucker, “Connect and Develop: Inside Procter & Gamble’s New Model for Innovation” by Larry Huston and Nabil Sakkab, and “Open-Market Innovation” by Darrell Rigby and Chris Zook.

The first step in formulating your innovation strategy is to look around for opportunities. That means examining what’s happening within and outside your organization. Think of examples of places to look for innovation opportunities: Where to Look

Examples

The bottom line: Innovation opportunities can crop up anywhere.

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Selecting Your Playing Field (5 minutes) Adapted from “Mapping Your Innovation Strategy” by Scott D. Anthony, Matt Eyring, and Lib Gibson, “Interview with Scott D. Anthony,” and “Value Innovation: The Strategic Logic of High Growth” by W. Chan Kim and Renée Mauborgne.

Your company faces a bewildering array of possible markets for innovation. To narrow your choice, aim for markets lying somewhat out of—but not too far from—your core business. The following tactics can help: •

Look for customers who are using existing products in unusual ways or using products for things they weren’t designed to do. For instance, software provider Intuit noticed that small business owners were using its personal financial software package because they liked its simplicity. Intuit optimized the program for these customers, branded it QuickBooks—and quickly dominated the product category.

•

Identify market spaces where competitors haven’t ventured—and where your company can play to its strengths to create better forms of value for customers. For example, Virgin Atlantic cut first-class airline service and channeled cost savings into greater value for business-class passengers: more comfortable seats and free transportation to and from airports. It attracted not only business-class customers but also full-economyfare and first-class passengers of other airlines.

•

Aim for markets where you can disrupt the playing field by making things easier, cheaper, more convenient, or more accessible for consumers. Nintendo’s wildly successful Wii gaming console doesn’t sport extra-fancy graphics. Rather, it has a feature that makes it simple to interact with the game. Even people who have never played video games before can pick it up and immediately play.

Key point: The most promising playing fields for innovation are markets where your company can leverage its existing strengths to create disruption—to make things easier, cheaper, or more convenient or accessible for customers.

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Tool: Disrupt-o-Meter

(10 minutes)

Adapted from The Innovator’s Guide to Growth by Scott D. Anthony, Mark W. Johnson, Joseph V. Sinfield, and Elizabeth J. Altman. Harvard Business Press, 2008.

Use this tool to determine how disruptive a potential innovation is likely to be. For each strategic area, give 0 points for each “least disruptive” answer, 5 points for each answer in the middle, and 10 points for each “most disruptive” answer. See where the total score places the potential innovation on the “Disrupt-o-Meter” arc. 45 30

60

0

90 Less Disruptive

More Disruptive

Least disruptive

Somewhat disruptive

Most disruptive

Strategic Area

(0 points)

(5 points)

(10 points)

1. Our first year target is ….

the mass market

a large market

a niche market

2. The customer thinks the target job needs to …

get done better

get done cheaper

get done easier

3. The customer will think the offering is …

perfect

good

good enough

4. The price will be …

high

medium

low

5. The business model is …

what we've always done

… with a few tweaks

radically different

6. The channel to market is …

100% existing channel

at least 50% new channel

entirely new channel

7. The competitor will think …

I need to do this tomorrow

I need to watch this carefully

I don't care

8. 1st-year revenue will be …

huge

average

small

9. Required investment over the next 12 months is …

above average

average

below average

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Tool: Disrupt-o-Meter

(cont’d)

In the table below, read the rationale for each of the 9 strategic areas. Then consider the possible strategic opportunities for those areas for which your innovation scored “not disruptive” or “somewhat disruptive.”

Area

Rationale

1. Our first year target is ….

Disruptive solutions typically start in limited foothold markets before expanding into more demanding market tiers

Strategic opportunities • Focus on smaller customer group • Change to a new geography • Target a new context

2. The customer thinks the target job needs to …

The customer should be looking for improvements along new dimensions such as simplicity and convenience

• Address a more focused job

3. The customer will think the offering is …

The customer should think the solution is “good enough” in the early days

• Make solution easier to use

4. The price will be …

Although pricing is complicated, generally speaking a disruptive solution will be relatively inexpensive compared to existing solutions

• Cut price by 50%

5. The business model is …

For an established company, disruptive approaches often follow very different business models from the core business

• Add element (e.g., service)

• De-feature to lower cost

• Drop element

The tool continues on the next page.

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Participant Guide

Innovation Center: Strategy

Tool: Disrupt-o-Meter

(cont’d)

Strategic opportunities

Area

Rationale

6. The channel to market is …

Frequently disruptive approaches utilize distinct channels to market from established products and services (startups should answer this and the previous question from the perspective of an industry incumbent)

• Choose a new channel

7. The competitor will think …

Disruptive solutions take advantage of competitive weakness and blind spots

• Reformulate the business model

8. 1st-year revenue will be …

Patient for growth, impatient for profits implies a slow and steady start

• Start with a test market

9. Required investment over the next 12 months is …

Disruptive solutions typically don’t involve “Buck Rogers” solutions so require relatively below average investment to move forward

• Cut investment by 50%

• Go direct to consumer

• Partner with a competitor

© Copyright 2008 Innosight, LLC. All Rights Reserved. http://www.innosight.com/ Adapted from The Innovator’s Guide to Growth by Scott D. Anthony, Mark W. Johnson, Joseph V. Sinfield, and Elizabeth J. Altman. Harvard Business Press, 2008.

Harvard Business School Publishing 2008

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Participant Guide

Determining Your Success Criteria

Innovation Center: Strategy

(3 minutes)

Adapted from “Mapping Your Innovation Strategy” by Scott D. Anthony, Matt Eyring, and Lib Gibson.

Once you’ve chosen your playing field, analyze major innovations in your targeted market’s history to identify common elements shared by successful offerings. Example: A consumer health care products company had identified at-home diagnostics as a key growth area and targeted playing field. By analyzing the history of home diagnostics (pregnancy kits, blood glucose monitors), it identified numerous characteristics shared by successful innovations. These included: •

Diagnosing the condition was currently difficult, inconvenient, or expensive.

•

The results were conclusive without requiring further testing.

•

Competitors had difficulty duplicating the product.

In the table on the next page, write down your selected playing field. In the left-hand column, list innovations that have scored successes in that playing field. In the right-hand column, list all the characteristics shared by those successful innovations.

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Participant Guide

Innovation Center: Strategy

Tool: What Are Your Success Criteria?

(2 minutes)

Use this tool to identify your selected playing field and then record your insights into the characteristics shared by successful innovations in this same playing field.

Your selected playing field: Previously Successful Innovations

Shared Characteristics

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Participant Guide

Innovation Center: Strategy

Assessing New Ideas’ Potential

(5 minutes)

Adapted from “Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio” by George S. Day.

To assess new ideas’ potential, evaluate them against the success criteria you’ve defined. Also assess their risk—by subjecting them to the “R-W-W” test: Is it real (does a market exist for it)? Can your company win (will the offering be competitive)? And is the innovation worth doing (will it be profitable and make strategic sense)? Consider how you might determine answers to these questions: Is It Real? A market exists for the innovation if:

The product is real if:

Can We Win? The product will be competitive if:

Your company will be competitive if:

Is It Worth Doing? The innovation will be profitable at an acceptable risk if:

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The innovation makes strategic sense if:

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Participant Guide

Innovation Center: Strategy

Choosing the Right Team to Lead the Innovation (5 minutes) Adapted from “Meeting the Challenge of Disruptive Change” by Clayton M. Christensen and Michael Overdorf.

Congratulations! Your potential innovation meets your success criteria and passes the R-W-W (Real, Win, Worth It) test. You can boost its chances of success even further by selecting the right kind of team to move the project forward. There are several kinds of teams, and they may operate within your company or separately from it. How to pick the right kind of team and make the right choice about where it should operate? Ask yourself two questions: •

“How well does the innovation fit with our company’s values?” (For example, if your innovation team can tolerate lower profit margins than your established company demands, the value fit is poor.)

•

“How well does the innovation fit with our company’s processes?” (Processes include decision-making protocols and project coordination patterns.)

Now use the table on the next page to choose the right team for your innovation.

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Choosing the Right Team to Lead the Innovation (cont’d) If your innovation …

Select this type of team …

To operate …

Because …

Fits well with your existing values and processes

Functional teams who work sequentially on issues, or lightweight teams—ad hoc crossfunctional teams who work simultaneously on multiple issues

Within your existing organization

Owing to the good fit with existing processes and values, no new capabilities or organizational structures are called for.

Fits well with existing values but poorly with existing processes

Heavyweight team dedicated exclusively to the innovation project, with complete responsibility for its success

Within your existing organization

The poor fit with existing processes requires new types of coordination among groups and individuals.

Fits poorly with existing values but well with existing processes

Heavyweight team dedicated exclusively to the innovation project, with complete responsibility for its success

Within your existing organization for development; followed by a spin-off for commercialization

In-house development capitalizes on existing processes. A spin-off for the commercialization phase facilitates new values—such as a different cost structure with lower profit margins.

Fits poorly with your existing values and processes

Heavyweight team dedicated exclusively to the innovation project, with complete responsibility for its success

In a separate spin-off or acquired organization

A spin-off enables the project to be governed by different values and ensures that new processes emerge.

Key point: By selecting the right kind of team for your innovation and making the right choice about where it will operate, you heighten your chances of innovating successfully.

Harvard Business School Publishing 2008

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Participant Guide

Innovation Center: Strategy

Tips for Innovating New Ways of Doing Business (handout) Adapted from “The Why, What, and How of Management Innovation” by Gary Hamel.

Like innovative products and services, breakthroughs in how your company does business can deliver potent competitive advantages. The following practices can help you identify innovations in business processes and models. Identify a Meaty Problem •

Ask what tough trade-offs your company never gets right. Example: Does obsessive pursuit of short-term earnings undermine your willingness to invest in new ideas? Is your organization growing less agile while pursuing size and scale advantages? What other “either/or’s” can you turn into “both/and’s”?

•

Ask what your organization is bad at. Example: Does your company have trouble changing before it’s forced to? Unleashing front-line employees’ imaginations? Imagine a “can’t do” you can turn into a “can do.”

•

Ask what challenges the future will hold for you. Example: What are the ramifications of escalating consumer power? Near-instant commoditization of products?

Challenge Your Management Assumptions •

Ask what shared beliefs may be inhibiting your company’s ability to tackle the meaty problem you’ve identified. Example: Do shared beliefs include “Change must start at the top”? If so, such beliefs may be inhibiting employees from offering fresh ideas about how to do things more efficiently or effectively. Such beliefs may also be making it difficult for employees to get support for their ideas.

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Participant Guide

Innovation Center: Strategy

Tips for Innovating New Ways of Doing Business (cont’d) Exploit the Power of Analogy •

Identify a decidedly unconventional organization and ask what practices it applies that might help you solve the meaty problem you’ve identified. Example: If you seek ideas for funding ordinary employees’ glimmer-in-the-eye innovations, study Bangladesh’s Grameen Bank. It makes micro-loans to poor people with no collateral requirement and little paperwork. Borrowers—which by 2004 numbered more than 4 million—use the funds to start small businesses that benefit themselves and their communities. Ask: “How can we make it equally easy for our employees to get the capital and other support they need to bring a promising new idea to fruition?”

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