Management of Technological Innovation

1
Management of Technological Innovation

• Andrew Maxwell

2
Business Strategy
3
Business model exists at 3 levels
How will you make money?
How will you deliver your solution?
How are you going to make money for other people?
4
Business Model Examples

• Make a product from scratch and sell it to a
  customer
• Provide a service and charge a monthly usage fee
• Create a new product and sell copies of it to
  customers
• Provide a free service of value and provide
  access to users of that service to third parties
• Create an efficient marketplace for
  buying and selling products

5
Business model innovators that created
shareholder wealth

• Ford Integrating product manufacturing on
  assembly line and national distribution through
  dealers
• ATT provision of national phone service, with a
  pay per use or pay for access model
• Visicalc Software production and distribution
  pay for site license, with updates
• Google Free search engine with revenues from
  variety of advertising
• E Bay revenue from putting buyers and sellers
  into contact

6
Why do you need a business model?

• You need one to help clarify what it is you are
  doing
• It acts as a guide to how you move forward.
• It helps you focus on customer value added and
  profit.
• It provides a communication tool for engaging
  with other parties.

7
Core components of business model?

• How do you
• Create value?
• Select customers?
• Do it better than anyone
  else?
• Differentiate your solution?
• Make a profit?
• Grow your business?

8
Opportunity recognition

• Customers. Understand their needs vitamins and
  pain killers.
• Existing enterprises. Understand gaps in their
  current products or how they can be
  improved.
• Technology understanding. How
  new technology can facilitate new
  opportunity or business model.
  
• Personal experience. Identify a
  specific gap in the market based
  upon personal experience.

8
9
Opportunity Drivers

• Technological change
• Political or regulatory change
• Social or demographic change

9
10
Opportunity recognition process
10
11
This leads to creation of new business
opportunities

• Opportunity Example
• Products / services Medical device 1
• Production method Computerized drug
  development
• Markets Viagra
• Ways of organizing Boeing 787 Dreamliner 2
• New raw materials Bio-diesel 3
• Refs
• 1. http//www.iwalk-free.com/june052000.html
• 2. http//www.businessweek.com/magazine/content/06
  _05/b3969417.htm
• 3. http//www.bioxcorp.com/

11
12
Technology Innovation DriversCore technologies
and convergence

• Materials Biotechnology
• Information Technology Energy

12
13
Political Drivers

• Environmental legislation (Kyoto protocol)
• Enforcement legislation (Sarbannes- Oxley)
• Security concerns (Homeland Security)
• Deregulation (new wireless carriers)

13
14
Social Drivers

• Demographic changes (age and health)
• Geo-economic changes (rise of China and India)
• Wealth changes (Baby boomers retiring)

14
15
New ventures versus existing players

• Industry stage/structure
• Existing resources
• Disruptive capacity
• Protection of existing customer base

16
Industry stage/structure

• Factors favouring startups
• Young industry
• No dominant design
• Not capital intensive
• Limited economies of scale/brand
• High number of smaller firms

16
17
Opportunities favouring existing firms

• Steep learning curve
• Negative cash flow
• Economies of scale
• Complementary assets

17
18
Disruption factors that favour new firms

• Competence destroying change
• Cannibalize existing business
• Discrete sales opportunities
• Significant use of human capital
• Ref Clayton Christensen Innovators Dilemma
  Harvard Business School 1997

18
19
Biggest issue is ease of adoption Pain killers
vs vitamins

• Pain killers solve an existing problem of which
  people are already aware. If they do this better
  than current solutions, customers need to have
  them.
• Vitamins provide enhancements to current
  solutions, in some cases providing benefits
  customers were not even previously aware of, they
  are therefore nice to have.

Which do you think would be easier to get
customers to adopt?
19
20
Recognizing adoption issues
20
21
How do you overcome adoption issues?

• How do you
• Overcome perceived risk of buying your product or
  service?
• Obtain or circumvent the traditional purchasing
  pattern?
• Utilize others to
  increase awareness
  or availability?

22
The entrepreneurial process
22
23
Universal Industrial Success Curve Shows Most New
Business Development Efforts Unsuccessful
10,000
3000 Raw Ideas (Unwritten)
1000
300 Ideas Submitted
100
Number of Ideas
125 Small Projects
9 Early Stage Development
10
4 Major Development
1.7 Launches
1 Success
1
1
2
3
4
5
6
7
Stage of NBD Process
23
Source G. Stevens and J. Burley, 3000 Raw Ideas
1 Commercial Success! Research-Technology
Management,40(3)16-27,May-June, 1997. Runner-Up,
IRI Best Paper of the Year.
24
Product Planning and Development Process

• Idea stage Idea is generated
• Concept stage Validate the idea
• Product development stage Find a first customer
  and create a demo
• Test marketing stage put out on trial
• Commercialization stage

24
25
The opportunity assessment process

• Technology (uniqueness, protectability)
• Market (opportunity, competition, structure)
• Management (leader, team)
• Business Model (margins, revenues, costs and
  implementation issues)
• Be a Dragon
• http//www.cbc.ca/dragonsden/video.html

25
26
Technology

• Will lots of people be interested in buying this
  product?
• Great product, clear need, can see lots of
  customers lining up for this one.
• Good product, of interest to a limited number of
  people.
• Can not se many people buying or switching to
  this product.
• Do you think that the product is ready for
  customers, or is there still some development
  required?
• Product complete and ready for sale, investment
  required for marketing and/or inventory build up.
• Product design finished but needs some more work
  before ready.
• Needs some more development before it is ready.

26
27
Technology/Market

• Will other people be able to copy the product
  easily?
• The product is patented or very difficult to
  copy.
• It will not be that easy to copy the product.
• Anyone could copy it easily.
• Did the inventor have a customer in mind when
  they developed the product?
• They have a first customer/s in place who will
  purchase the product/service as soon as it is
  available.
• Some clear early customers who have been
  consulted in developing the product, but have not
  yet agreed to purchase.
• There are no first customers identified.

27
28
Market

• Does the inventor know how they are going to sell
  the product to customers?
• They understand the market and have a realistic
  marketing plan and a distribution strategy in
  place.
• They have explored a number of realistic options,
  but there are no agreements in place.
• Limited thought has been given to this issue or
  plan proposed not realistic.
• Did the inventor persuade you that there will be
  a large market for this product?
• Large market (over 20 million) identified and
  achievable
• Medium market (over 5 million) identified and
  achievable
• Market size small (less than 5 million) or
  unconvinced that the
  larger market identified exists.

28
29
Management / Business Model

• Do you think that the management team of the
  company have the necessary experience to run this
  business?
• Significant relevant experience in running a
  business of this type.
• Limited experience, but some clear knowledge of
  the issues which the business is likely to
  face.
• No evidence of the experience required.
• Do you think they understand the financial side
  of running the business well enough?
• Complete understanding - amount of money asking
  for is enough to last them until they are making
  money (usually in less than 12 months).
• Good understanding - amount of money requested
  probably enough (may need to last them up to two
  years)
• Not sufficient evidence of their financial
  understanding or they will run out of money
  before they are profitable.

29
30
Business Strategy
31
Business model exists at 3 levels
How will you make money?
How will you deliver your solution?
How are you going to make money for other people?
32
Business Model Examples

• Make a product from scratch and sell it to a
  customer
• Provide a service and charge a monthly usage fee
• Create a new product and sell copies of it to
  customers
• Provide a free service of value and provide
  access to users of that service to third parties
• Create an efficient marketplace for
  buying and selling products

33
Business model innovators that created
shareholder wealth

• Ford Integrating product manufacturing on
  assembly line and national distribution through
  dealers
• ATT provision of national phone service, with a
  pay per use or pay for access model
• Visicalc Software production and distribution
  pay for site license, with updates
• Google Free search engine with revenues from
  variety of advertising
• E Bay revenue from putting buyers and sellers
  into contact

34
Why do you need a business model?

• You need one to help clarify what it is you are
  doing
• It acts as a guide to how you move forward.
• It helps you focus on customer value added and
  profit.
• It provides a communication tool for engaging
  with other parties.

35
Core components of business model?

• How do you
• Create value?
• Select customers?
• Do it better than anyone
  else?
• Differentiate your solution?
• Make a profit?
• Grow your business?

36
Opportunity recognition

• Customers. Understand their needs vitamins and
  pain killers.
• Existing enterprises. Understand gaps in their
  current products or how they can be
  improved.
• Technology understanding. How
  new technology can facilitate new
  opportunity or business model.
  
• Personal experience. Identify a
  specific gap in the market based
  upon personal experience.

36
37
Opportunity Drivers

• Technological change
• Political or regulatory change
• Social or demographic change

37
38
Opportunity recognition process
38
39
This leads to creation of new business
opportunities

• Opportunity Example
• Products / services Medical device 1
• Production method Computerized drug
  development
• Markets Viagra
• Ways of organizing Boeing 787 Dreamliner 2
• New raw materials Bio-diesel 3
• Refs
• 1. http//www.iwalk-free.com/june052000.html
• 2. http//www.businessweek.com/magazine/content/06
  _05/b3969417.htm
• 3. http//www.bioxcorp.com/

39
40
Technology Innovation DriversCore technologies
and convergence

• Materials Biotechnology
• Information Technology Energy

40
41
Political Drivers

• Environmental legislation (Kyoto protocol)
• Enforcement legislation (Sarbannes- Oxley)
• Security concerns (Homeland Security)
• Deregulation (new wireless carriers)

41
42
Social Drivers

• Demographic changes (age and health)
• Geo-economic changes (rise of China and India)
• Wealth changes (Baby boomers retiring)

42
43
New ventures versus existing players

• Industry stage/structure
• Existing resources
• Disruptive capacity
• Protection of existing customer base

44
Industry stage/structure

• Factors favouring startups
• Young industry
• No dominant design
• Not capital intensive
• Limited economies of scale/brand
• High number of smaller firms

44
45
Opportunities favouring existing firms

• Steep learning curve
• Negative cash flow
• Economies of scale
• Complementary assets

45
46
Disruption factors that favour new firms

• Competence destroying change
• Cannibalize existing business
• Discrete sales opportunities
• Significant use of human capital
• Ref Clayton Christensen Innovators Dilemma
  Harvard Business School 1997

46
47
Biggest issue is ease of adoption Pain killers
vs vitamins

• Pain killers solve an existing problem of which
  people are already aware. If they do this better
  than current solutions, customers need to have
  them.
• Vitamins provide enhancements to current
  solutions, in some cases providing benefits
  customers were not even previously aware of, they
  are therefore nice to have.

Which do you think would be easier to get
customers to adopt?
47
48
Recognizing adoption issues
48
49
How do you overcome adoption issues?

• How do you
• Overcome perceived risk of buying your product or
  service?
• Obtain or circumvent the traditional purchasing
  pattern?
• Utilize others to
  increase awareness
  or availability?

50
The entrepreneurial process
50
51
Universal Industrial Success Curve Shows Most New
Business Development Efforts Unsuccessful
10,000
3000 Raw Ideas (Unwritten)
1000
300 Ideas Submitted
100
Number of Ideas
125 Small Projects
9 Early Stage Development
10
4 Major Development
1.7 Launches
1 Success
1
1
2
3
4
5
6
7
Stage of NBD Process
51
Source G. Stevens and J. Burley, 3000 Raw Ideas
1 Commercial Success! Research-Technology
Management,40(3)16-27,May-June, 1997. Runner-Up,
IRI Best Paper of the Year.
52
Product Planning and Development Process

• Idea stage Idea is generated
• Concept stage Validate the idea
• Product development stage Find a first customer
  and create a demo
• Test marketing stage put out on trial
• Commercialization stage

52
53
The opportunity assessment process

• Technology (uniqueness, protectability)
• Market (opportunity, competition, structure)
• Management (leader, team)
• Business Model (margins, revenues, costs and
  implementation issues)
• Be a Dragon
• http//www.cbc.ca/dragonsden/video.html

53
54
Technology

• Will lots of people be interested in buying this
  product?
• Great product, clear need, can see lots of
  customers lining up for this one.
• Good product, of interest to a limited number of
  people.
• Can not se many people buying or switching to
  this product.
• Do you think that the product is ready for
  customers, or is there still some development
  required?
• Product complete and ready for sale, investment
  required for marketing and/or inventory build up.
• Product design finished but needs some more work
  before ready.
• Needs some more development before it is ready.

54
55
Technology/Market

• Will other people be able to copy the product
  easily?
• The product is patented or very difficult to
  copy.
• It will not be that easy to copy the product.
• Anyone could copy it easily.
• Did the inventor have a customer in mind when
  they developed the product?
• They have a first customer/s in place who will
  purchase the product/service as soon as it is
  available.
• Some clear early customers who have been
  consulted in developing the product, but have not
  yet agreed to purchase.
• There are no first customers identified.

55
56
Market

• Does the inventor know how they are going to sell
  the product to customers?
• They understand the market and have a realistic
  marketing plan and a distribution strategy in
  place.
• They have explored a number of realistic options,
  but there are no agreements in place.
• Limited thought has been given to this issue or
  plan proposed not realistic.
• Did the inventor persuade you that there will be
  a large market for this product?
• Large market (over 20 million) identified and
  achievable
• Medium market (over 5 million) identified and
  achievable
• Market size small (less than 5 million) or
  unconvinced that the
  larger market identified exists.

56
57
Management / Business Model

• Do you think that the management team of the
  company have the necessary experience to run this
  business?
• Significant relevant experience in running a
  business of this type.
• Limited experience, but some clear knowledge of
  the issues which the business is likely to
  face.
• No evidence of the experience required.
• Do you think they understand the financial side
  of running the business well enough?
• Complete understanding - amount of money asking
  for is enough to last them until they are making
  money (usually in less than 12 months).
• Good understanding - amount of money requested
  probably enough (may need to last them up to two
  years)
• Not sufficient evidence of their financial
  understanding or they will run out of money
  before they are profitable.

57