T he Strategic Five - PowerPoint Presentation

Slide1

The Strategic Five

Any

strategy

adds value only as far as it sharpens or

enhances the answers to five existential questions that

every

company should

be asking itself

every day

:

1.

What

business or businesses should we be in?

2. How do we add value to our businesses?

3. Who are the target customers for our businesses?

4. What are our value propositions to those target customers?

5. What capabilities do we need in order to add value to our businesses and differentiate our value propositions?Slide2
Slide3

COMPETITIVE ADVANTAGE

“The ability of a firm to provide value to customers that exceeds what competitors can provide”

.

The

five elements to a competitive advantage.

V – Value - provides superior value.

The goods and services provided

must give better

value to customers than those of

it’s

competitors

. (known also as a

comparative

advantage

or

distinctive

competence)

.

R - Rare

.

The company

must be the only one

capable of producing products or services

of this

quality that competitors

will try to

copy your ability.

I – Imitable - difficult

to imitate.

The

comparative advantage is difficult to

imitate; firms may attempt

to create both tangible and intangible barriers to

imitation.

S – Substitutable.

Your offer involves

satisfying a customer’s needs

in an alternate manner.

O – Outstanding returns for the organization.

When

the source of a competitive advantage is managed correctly, it

enables a company

to make higher than industry average profits, usually

by better

than average price/cost marginsSlide4

COMPETITIVE ADVANTAGE

Ability

of a firm to win consistently over the long term in a competitive situation

Created

through the achievement of four criteriaSlide5

COMPETITIVE ADVANTAGE CRITERIA

Types of superior value

Comparative advantage

Compared to others, the value is superior

Distinctive competence

Superior product is result of a unique competence

Superior Value

Firm provides products and services that produce value that is superior to competitors

HP

printers - meets all

fourSlide6

COMPETITIVE ADVANTAGE CRITERIA

Do

other firms

have similar

capabilities?

None =

we have

rarity If your capabilities produce superior value for the customers>1 = do not have rarity

Superior product is result of a unique competence

No other firm has the capabilities needed to provide the quality

/ quantity

of products and services.

Rarity

Capabilities that provide superior value for customers and that are rare will produce only a

temporary

advantage.

Apple - new

releasesSlide7

COMPETITIVE ADVANTAGE CRITERIA

Must create barriers difficult for others to imitate firm’s capabilities

Tangible barriers

Size, location

Intangible barriers

Company’s culture

Corporate reputation

Firm must try to avoid competitor imitation of its capabilities that create superior value to the customers

Difficult to imitate

Disney-friendly

(hire

/ train

)Slide8

To sustain

competitive

advantage, customers must find it difficult to find a substitute that equally satisfies their desire for a product

/ service

Inability for another firm to fulfill a customer’s need by alternative means

Non-

substitutability

Godiva- taste/ smoothness

COMPETITIVE ADVANTAGE CRITERIASlide9

Turning Competitive Advantage

into Profits

Firms

must manage

resources

to

capture profits

from their competitive advantage

Above-average returns

= profits greater than the average for a comparable set of firms—

compared by industry and size— function of cost-price margins

.

TURNING COMPETITIVE ADVANTAGE INTO PROFITSSlide10

iRobot: Creativity and Innovation

Created 20 years ago by

MIT

students and a professor, iRobot is a company

aiming

to create robots that make a difference in the world.

Created

and built over six million robots that help to accomplish anything from common household chores to supporting military missions. iRobot conducts studies to determine (1) what new products customers want to see; (2) how customers feel the company’s current products are performing. Research is also conducted to see how technology, developed in other fields, can be incorporated into iRobot products. The company strives to create more innovative products that bring robots into mainstream use in the home.Slide11

Is the iRobot company a symbol of product creativity and innovation? Why?http://media.pearsoncmg.com/ph/streaming/bp/2013/MGMT/POM/POM2013_iRobot_Creativity.html

Prior to the creation of iRobot,

no

company

really focused on

introducing the

use of robots into the home to help tackle common household chores. The basic idea for the products this company produces was entirely new, making each product it created extremely innovative. There was nothing on which iRobot could base its product designs. So the company had to be very creative to bring to life their unique ideas.Slide12

How does iRobot’s product creation process assure the quality and practicality of their products? 

iRobot’s

process is to build a product and then to test the product.

They

then make changes to the design and test the product again.

This

product creation process that assures that the product does what it is intended to do and that customers will get the results they expect from an iRobot product.Slide13

How does research play a role in the process of product creation at iRobot?

Research

is a fundamental part of this organization.

Research determines

what

are customer needs could

be met through the use of robotics.

Research is also conducted in other fields to determine how modern technologies can be incorporated into iRobot products. Research is conducted to determine how pleased customers are with the iRobot products that have already been produced. This enables improvements to be made as needed. This is important because the products are so innovative that constant analysis is necessary to find areas in which improvements can be made, allowing the products to be enhanced.Slide14

Which of the following phrases best describes the future goals of iRobot?a. extreme innovation

b. perfection of current products

c. increased profit margins

d. expansion of facilities

The

future of iRobot will focus on the creation of even more innovative technologies.

The

company wants to continue to develop new and creative ways that robots can be used in mainstream households and to make a difference in the world.Slide15

Which of the following could be considered a strength of the iRobot company?

a

. vision

b. production speed

c. profit margin

d. none of the above

The

iRobot company’s major strength is its vision. The products are highly innovative, offering creative solutions to make the completion of everyday tasks easier. The products the company offers are unique in their use of robotics to complete household chores. The ideas behind these creative products require vision and resourcefulness.Slide16

WHAT IS INNOVATION?

Innovation

involves the conversion of new knowledge into a new product, process, or service and the putting of this new product, process, or service into use, either via the marketplace or by other

processes

of delivery. Slide17

INNOVATOR DILEMMAS

Identify and respond to key innovation

dilemmas:

What relative

emphases to place

on:

technologies (push) or markets (pull),

product or process innovations, how much to rely on ‘open innovation’,the broad business model: focus on

technological innovation

or

business model

innovation.

Anticipate

key issues facing entrepreneurs as they go through the stages of growth

- from

start-up to exit.Anticipate and, to some extent, influence the diffusion or spread of innovations.

Decide when being a

‘first-mover’

or

‘follower’

is most appropriate in

innovation

.

How the organization

should respond to innovative challengers?

Evaluate opportunities and choices facing social entrepreneurs as they create new ventures to address social

problems. Slide18

INNOVATOR DILEMMAS (1)

Technology push or market pull

:

Technology push

is the view that it is the new knowledge created by technologists or scientists that pushes the innovation process.

Market pull

is the view that it is the pull of users in the market that is responsible for innovation. ‘Lead users’ are of particular importance.Slide19

Product or process innovation:Product innovation

relates to the final product (or service) to be sold, especially with regard to its features.

Process

innovation

relates to the

way

in which a product is produced and distributed, especially with regard to improvements in cost or reliability.INNOVATOR DILEMMAS (2)Slide20

PRODUCT AND PROCESS INNOVATION

Product

and process innovation

Source

: Adapted from J. Abernathy and W.

Utterback

, ‘A dynamic model of process and product innovation’,

Omega, vol. 3, no. 6 (1975), pp. 142–60Slide21

IMPLICATIONS OF PRODUCT/ PROCESS INNOVATION MODEL

New developing industries

favor

product innovation

Maturing industries

favor

process innovation

Small new entrants have greatest opportunities in early stages of an industryLarge incumbent firms have advantage in later stagesSlide22

INNOVATOR DILEMMAS (3)

Open or closed innovation

:

‘

Closed

’ innovation

-

traditional approach - relying on the organisation’s own internal resources: it’s own laboratories and marketing departments. Innovation is secretive, anxious to protect intellectual property (patents), avoid competitors’ free-riding on ideas. ‘Open’ innovation - a deliberate import and export of knowledge by an organisation to accelerate and enhance innovation. Exchanging ideas openly is likely to produce better products more quickly.Slide23

The balance between “open” and “closed” innovation depends on: Competitive rivalry – if it is intense, closed innovation is better.

‘One-shot’ <vs> continuous innovation

- open innovation is best where innovation is continuous.

Tight-linked innovation

– closed innovation is best in order to avoid inconsistent elements.

INNOVATOR DILEMMASSlide24

INNOVATION DILEMMAS (4)

Technological or business-model innovation

:

A business model

describes how an organisation manages incomes and costs through structural arrangement of activities.

Business model innovation involves re-organising all elements of a business into new combinations. This can involve innovation in:

The product.

It may redefine what the product or service is and how it is produced.The selling. It may change the way in which the organisation generates its revenues – it’s selling and distribution activities.Slide25

WHAT IS A BUSINESS MODEL?

A

business model

describes the structure of product, service, and information flows and the role of participating parties.Slide26

WHAT IS A FIRST-MOVER ADVANTAGE?

A

first-mover advantage

exists where an

organization

is better off than

it’s competitors as a result of being ‘first to market’ with a new product, process or service.Slide27

Managers must choose between

being first

into the marketplace

or

entering later

.

Innovators

can capture first-mover advantages. “Fast second’ strategies however, are often more attractive.Slide28

FIRST-MOVER ADVANTAGES

Experience

curve

benefits

Scale

benefits

Pre-emption

of scarce

resources

Reputation

Buyer

switching costsSlide29

LATE-MOVER ADVANTAGES

Free-riding – imitating

pioneer’s strategies

but more cheaply

Learning – from the

mistakes made

by pioneersSlide30

FIRST OR SECOND?

Three contextual factors to conside

r

in choosing between innovating and imitating:

Capacity for profit capture

Complementary assets

Fast-moving arenasSlide31

STAGES OF ENTREPRENEURIAL GROWTHSlide32

KEY DEBATE:

ARE LARGE FIRMS BETTER INNOVATORS THAN SMALL FIRMS?

What kinds of managerial action might you consider if you were trying to increase the innovativeness of a large firm in a high-technology manufacturing industry? Slide33

PLATFORM LEADERSHIP

Platform leadership

refers to how large firms consciously nurture independent companies through successive waves of innovation around their basic technological ‘platform’.

Intel

as a platform leader, transformed the

company from

merely `

supplying silicon embedded microprocessors` to become `the architect of the PC industry.' Slide34

INNOVATION DIFFUSION

Diffusion

is the process by which innovations spread amongst users. This can vary with respect to both speed and extent.Slide35

INTRODUCTION TO DISRUPTIVE INNOVATION

Because companies tend to innovate faster than their customers' lives change, most organizations eventually end up producing products or services that are too good, too expensive, and too inconvenient for many customers.

By

pursuing only "

sustaining innovations

" that perpetuate what has historically helped them succeed, companies unwittingly open the door to disruptive

innovations.Slide36

WHAT IS A DISRUPTIVE INNOVATION?

A

 disruptive innovation

helps

create a new market and value network, and eventually disrupts an existing market and value network (over a few years or decades), displacing an earlier 

technology

.

Disruptive innovation creates substantial growth by offering a new performance trajectory – “a game changer” - that, even if initially inferior to the performance of existing technologies, has the potential to become markedly superior.Blockbuster vs Netflix, Xerox vs Canon, Apple iPhone vs Nokia, Southwest Airlines, Given Imaging, Skype, Spotify, MOOCs).Slide37

DISRUPTIVE INNOVATION

Disruptive

innovation

Source

: Reprinted by permission of Harvard Business School Press. From

The Innovator’s Solution

by C. Christensen and M.E.

Raynor. Boston, MA 2003. Copyright © 2003 by the Harvard Business School Publishing Corporation. All rights reservedSlide38
Slide39

Sustaining innovations are typically innovations in technology, whereas disruptive innovations change entire markets

.

For

example, the automobile was a revolutionary technological innovation, but it was not a disruptive innovation, because early automobiles were expensive luxury items that did not disrupt the market for 

horse-drawn vehicles

.

The

market for transportation essentially remained unchanged until the debut of the lower priced Ford Model T in 1908.The mass-produced automobile was a disruptive innovation, because it changed the transportation market. The automobile, by itself, was not.Slide40

DISRUPTIVE INNOVATION

Incumbents can follow two policies to help keep them responsive to potentially disruptive innovations:

Develop a portfolio of real options

(limited investments that keep opportunities open for the future);

Develop new venture units

– small, innovative businesses with relative autonomy.Slide41

Entrepreneurial relationships Entrepreneurship often involves managing relationships with other companies:Corporate venturing

– investing externally in new ventures thereby protecting early-stage ventures from internal bureaucracy and by spreading risk.

Spin-offs (or spin-outs)

– the generation of small innovative units from larger organisations.

Ecosystems

– fostering communities of connected suppliers, agents, distributors, franchisees, technology entrepreneurs and makers of complementary products.Slide42

Case Example: SkypeSlide43

Skype’s software allows people to use the Internet to make free calls to other Skype usersSkype’s costs are very low. Customers use their own computers and marketing is accomplished via word of mouthIt earns revenues on ancillary serviceseBay purchased Skype

There are similarities in the business models

eBay plans to leave Skype to manage its own businessSlide44
Slide45

Social entrepreneurship Social entrepreneurs

are individuals and groups who create independent organisations to mobilise ideas and resources to address social problems, typically earning revenues but on a not-for-profit basis.Slide46

Social entrepreneurship decisions

Social mission

Organisational form

Business modelSlide47

SUMMARY

Strategists face

four fundamental dilemmas

in innovation: the relative emphasis to put on technology push or market pull; whether to focus on product or process innovation; how much to rely on ‘open innovation’ and finally, how far to concentrate on technological innovation as opposed to broader business-model innovation.

Innovations often diffuse

into the marketplace according to an S-curve model in which slow start-up is followed by accelerating growth (the tipping point) and finally a flattening of demand. Managers should watch out for ‘tripping points’.

Managers must choose between

being first into the marketplace and entering later. Innovators can capture first-mover advantages. However, ‘fast second’ strategies are often more attractive.Slide48

Established incumbents’ businesses should beware of disruptive innovations. Incumbents can reduce inertia by developing portfolios of real options and by organizing autonomous new venture units.

Entrepreneurs face characteristic dilemmas as their businesses go through the

entrepreneurial life cycle

of

start-up, growth, maturity and exit

. Entrepreneurs have to choose how they relate to large firms as they may become involved in ecosystems or strategies for open innovation.

Social entrepreneurship

offers a flexible way of addressing social problems, but raises issues about appropriate missions, organizational forms and business models.Slide49

INNOVATION - RESEARCH & DEVELOPMENT

Are there universal principles that may be applied to improve success rates?

R&D is a “

black box

” - where large sums of money go in, but only sometimes do products and services come out.

There are

no

statistically significant relationships between R&D spending and successful company performance. Studies show that R&D does not impact sales growth, gross profit, enterprise profit, market capitalization, or shareholder return.“When Apple came out with the Mac, IBM were spending 100 times more on R&D. It’s not about money, but the people, the leaders and how much you get it” (Steve Jobs, 1998). Are there universal principles that may be applied to improve success rates?Slide50

THE TOP R&D SPENDERSSlide51

R&D SPENDING BY INDUSTRY 2014Slide52

CHANGE IN R&D SPENDING BY REGION 2013-14Slide53

SUCCESSFUL INNOVATORS

Studies over 10 years show that companies improve innovation by focus on 2 areas:

business capabilities, and organization and processes.

Aligning the innovation portfolio with customer needs;

Developing and retaining the right people with technical knowledge;

Ensuring that technical and business leaders are aligned;

Understanding new product and service-related trends and technologies;

Pursuing lean product development.The top 25% of companies, as measured by sustained performance, concentrate on a shorter, coherent list of capabilities (‘doing less, instead of being good at everything’).Companies with more tightly linked innovation and business strategies, had a 40% higher operating income growth over a 3-year period. Slide54

THE CUSTOMER CONNECTION

When R&D efforts were driven by a thorough understanding of what their customers need and want, companies had:

3 times the growth in operating income

,

twice the return on assets

compared to those who captured customer insights indirectly,

65% higher total shareholder returns

. Slide55

THREE TYPES OF INNOVATING COMPANIES

The 2007 Global Innovation study identified 3 ways in which different companies managed their R&D processes.

Need Seekers:

Use superior insights gained by direct engagement with clients to generate new ideas, and by big data analysis.

New products are developed based on this end-user understanding.

The goal is to find the unstated needs of the future and be the first to address them (Apple, P&G, Tesla).Slide56

Market Readers:

Focus

on creating value by incremental innovations to products already proven in the market.

They

closely monitor markets, customers and competitors.

More

a “follower” and “second mover”

type.Prioritize capabilities for managing resource requirements and engaging suppliers and partners (Samsung, Caterpillar, Visteon

).Slide57

Technology Drivers:

Spend

heavily on internal technological capabilities to develop new products and services

.

Leverage

their R&D to drive breakthrough innovation and incremental change.

By

discoveries, will meet known and unknown needs.Strive to develop products of superior technological value. Their cultures respect talent and technical knowledge (Google, Bosch, Siemens).Slide58

CAPABILITIES OF TOP PERFROMERSSlide59
Slide60

THE MOST INNOVATIVE COMPANIESSlide61

THE TOP 10 INNOVATORS vs THE TOP 10 SPENDERSSlide62

THE KEY AREA OF INNOVATION FOCUS - 2014Slide63

ANTICIPATED FUTURE R&D INVESTMENTSlide64

THE KEY IMPERATIVES TO INNOVATION SUCCESS

Define the innovation strategy, communicate it throughout the organization, and identify a short list of capabilities that will enable it.

Align the innovation and business strategies.

Ensure that innovation culture is aligned with and supportive of the innovation strategy.

Focus on developing deep customer insight by directly engaging and observing end-users of your products.

Ensure the technical community participates in defining the corporate agenda.

Systematically manage the R&D portfolio, scrapping low-potential projects, beefing-up high-potential ones, and ensure good risk management capabilities support the ‘big bets

’.