Sources of innovation opportunities in the business environment

Sources of innovation opportunities in the business environment

Objectives.• Understand the role and place of opportunity recognition in the innovation process• Be able understand what a business opportunity is• Understand and identify the key elements of the business environment

As new head of virtual services development of Worldwide Business Machines, the company CEO has sent you to the 25th annual Global Innovation Symposium held this year in Montréal. This year’s them : Innovation : Past, Present and Future. She has asked you to learn more about innovation and the challenges for the company.

You’ve chosen to visit the conference workshop that addresses the recognition of innovation opportunities. Understanding the “fuzzy front end” of innovation is essential for WBM which must quickly identify opportunities to place into the innovation funnel. In addition, your CEO has clearly indicated that WBM must focus on radical innovation which requires a broad appreciation of opportunities vs. in depth understanding in specific areas often useful for incremental innovation.

Introduction

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Active Reading

The first section of this course presents a short review of the fuzzy front end of innovation and opportunity recognition.

The Fuzzy Front End of InnovationListen and learn

The innovation funnel process, like most organisational processes, requires time and consumes valuable resources.

It is in the best interest of the firm to make sure that some degree of opportunity screening is done up front.

invention

planning

prototyping

developm

ent

sales


The innovation funnel process, like most organisational processes, requires time and consumes valuable resources.

It is in the best interest of the firm to make sure that some degree of opportunity screening is done up front.

$$ $$

$


Creativity and decision making skills are essential to the fuzzy front end !

The Fuzzy Front End of InnovationKey activities

Opportunity IdentificationOpportunityAnalysisIdeaGenesisIdeaSelection

Developmentof the businesscase

The Fuzzy Front End of InnovationSo…what makes it fuzzy ?

Environmental uncertainty

Market uncertainty

Technological uncertainty

Uncertainty about internal competencies

Click hereto learn more about some tools to better manage the FFE

Organizations that best manage fuzzines will more easily identify innovation opportunities that others might not be able to see.

What do businessesconsider as fuzzy ?

Remarks from the communityWhat is the innovative organization ?

Pierre MoranSenior VP, Consumer Market GroupDesjardins“Listen to clients and recognize the contribution of others”

Patrick PichetteChief Financial OfficerBell Canada“The need for clear direction”

Jean-Paul PeaugerDirector, Social, Technical and Administrative AffairsALCAN“There needs to be a clear vision andfast implementation”

ZOOM !Some ways to manage fuzziness

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« De-fuzzing » the fuzz« De-fuzzing » the fuzzThe more the Fuzzy Front End is properly aligned withthe organization, the more efficient it will be. Here are two basic tools to align the front end.

A Product Innovation Charter that authorizes an activity and reassures people that risk taking is tolerated but that the company expects to see concerted effort and leadership. Items for the PIC may include : new product purpose, concern for shareholders, statement of values, performance objectives, type of end-user activity, general new product goals…

See « Product Innovation Charters: mission statements for new products » by Christopher Bart, R&D Management, 32:1, 2002.

The Elevator Test – or the capacity to explain an idea in the time it takes to ride one way a short elevator (for example to a potential sponsor, etc.) Questions include : For whom? Who needs it? What is the product name and category? Why will people buy it? How is it different than its closest competitor? How is it different?

The Fuzzy Front End of InnovationClarification of inputs and outputs makes it less fuzzy !

INPUTS OUTPUTSClick on each element for clarification !

Cross-functional teams for

development and evaluation are often critical for success !

Learning Mission

Here’s a quick assignment for you to do on you own or with others. Please feel free to print off the assignment and do at your leisure.

You may want to consider sharing your analysis.

The Fuzzy Front End of InnovationHow fuzzy is your front end ?

Intuitive Explicit in Part Explicit

FullIntegration

PartialIntegration

Little Integration

8 104

4

8

10

3

3

Integration of Activities

Formality of Process

Adapted from « Integrating the Fuzzy Front End of New Product Development t » Khurana & Rosenthal, Sloan Management Review, 1997.

According to the authors, companies scoring at least 8 on each list can be considered as « world class ». If a company scores less than three on either list are likley to have problems with product development.

Short Quiz

We have seen that opportunity recognition starts with effective management of the fuzzy front end. Companies that can recognize innovation opportunities and get them going through the funnel faster than the others will have the advantage.

Much of the recognition process deals with getting people to think differently and effectively see innovation opportunities.

In many cases people are not prepared to see opportunities. Are you?

While another course will address specific aspects of creativity, here are three quick concepts to consider.

Opportunity RecognitionAre you ready to see them?

1

True

False

Business ideas usually just « appear »


1

True

False

Research suggests that opportunity identification or recognition is composed of several learning steps over time and requires immersion into the industry or marketplace.

Business ideas usually just « appear »


2

True

False

To recognize opportunites, you must be concentrated


2

True

False

Research suggests that opportunity recognition does not require deliberate action. In fact many successful entrepreneurs think of new business ideas when they are totally relaxed, doing something unrelated to business.

So, while information gathering is active, the capacity to bring the information together and think creatively may be much less deliberate.

To recognize opportunites, you must be concentrated

What does this suggest about managing creativity ?


3

The creative thinking process requires strong « right brain » thinking. What characterizes this way of thinking?

Left Brain Thinking Right Brain Thinkingrandomness

holistic

think about parts

think about whole

focus on logic

analytical

Case Study

As you have seen, opportunity recognition is based primarily on process that deal with information gathering and information analysis.

Information gathering is a well structured process that helps identify potential areas of business opportunities.

The following case study helps to illustrate the importance of this process.

Case Study : Hybrid AutomobilesThey “never saw it coming” … or did they ?

A recent key innovation has been the emergence of hybrid automobiles.

With growing sales, hybrids have successfully gone from the drawing board to the garage.

The « lowdown » on « motown »May 2005 December 2005

Toyota and GM stock performance

Toyota

GM

A recent key innovation has been the emergence of hybrid automobiles.

With growing sales, hybrids have successfully gone from the drawing board to the garage.

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The « lowdown » on « motown »The « lowdown » on « motown »

In 2004, Forbes magazine suggested that GM (along with Chrysler) needed a hybrid strategy option and that even though gas prices were at $2 a gallon, higher prices might encourage their use. GM seemed to be looking in other directions for investment – rather than going down the road well traveled – hybrid. While the paradiGM hybrid system

was anounced as early as 2001, by 2005GM still had no commercial strategy for the system.

ZOOM !Was Detroit ready for hybrids?

Case Study : Hybrid AutomobilesDid Toyota just “get lucky” ?

Some might suggest that Toyota is just lucky and that gas prices are increased because of random events.

In fact, the hybrid innovation is an excellent example of the importance of analyzing the business environment in seeking and exploiting opportunities.

OrganizationalCapabilities

Environmentand MarketCoherence

Organizational capabilities

Consumer trends

Emerging values

Technological feasbility

Political support

Economic forces

Supply of oil

Case Study : Hybrid AutomobilesTo what extent are consumers ready to pay for them?

Lets come back to the case of hybrid cars.

To what extent has this innovation interplayed with a coherent and supportive environment ?

Perceived value of hybrid cars

Price of gas

The hybrid« buy » zoneThe hybrid

« buy » zone

The hybrid can be considered an innovation as people are increasingly buying them.

Case Study : Hybrid AutomobilesBut oil prices are only part of the puzzle !

But the environment is much more than consumer behaviour.

How have other parts of the business environment played a role in this innovation?

The hybrid is consistent with the evolution of family structures, values and demographics

Government policies support the purchase of hybrid automobiles

The required technologies (more than one) evolved and finally converged to make it possible

The long road to « hybrid »

The long road to « hybrid »The long road to « hybrid »

The first hybrid was developed by Porsche in 1898!

During the gas crunch in the 70’s, many car makers invested into hybrid and electric cars. However as prices decreased, do did the enthusiasm of these solutions. In 1992, Toyota announced the “Earth Charter” – a mission of developing low emission vehicles and in 1997 the Prius went on sale in Japan.

ZOOM !Hybrid history

Case Study : Hybrid AutomobilesBringing it all together

This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation.

Organizational capabilities

Consumer trends

Emerging values

Technological feasbility

Political support

Economic forces

Supply of oil



Global warming

Tax policy

Energy policy

Global warming

Energy policy

Tax policy



Global warming

Energy policy

Suburban life

Tax policy

High cost of city housing

Suburban life

Dismantling ofrailways

Dismantling of railways




Global warming

Energy policy

Suburban life

Tax policy

Increased elderly


Increased elderly




Global warming

Energy policy

Suburban life

Tax policy

Peak oil


Increased elderly

Peak oil




Global warming

Energy policy

Suburban life

Tax policy

Technology convergence


Increased elderly

Peak oilTechnology convergence


Case Study : Hybrid Automobiles

Political - LegalPP

EconomicEESocio-culturalDemographicSS

TechnologicalTT

Bringing it all together : PEST


Global warming

Energy policy

Suburban life

Tax policy


Increased elderly

Peak oilTechnology convergence


Detecting PatternsThe environmental changes may create recognizable patterns

PP

TT

EE

SS

Detecting PatternsThe environmental changes may create recognizable patterns

TT

EE

SS

PESTPESPESTPESPESTPESTPEPESTPESTPESTPESTSTPESTPESTPPESTPESPESTPESTPESESPESTPESTPESTPESTTPEST

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PESTPESPESTPESPESTPESTPPESTPESTPESTPESTESTPESTPESTPESPESPESTPESPESTPETPESTPESTPESTSTPESTPEST

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PP

$Understanding thePEST environment

Remarks from the communityThe PEST environment

Pierre MoranSenior VP, Consumer Market GroupDesjardins“Social and demographic changes andtheir impact on financial services

Patrick PichetteChief Financial OfficerBell Canada“Focus on the technology agendaand the regulatory environment”

Jean-Paul PeaugerDirector, Social, Technical and Administrative AffairsALCAN“The importance of regulations and social responsibility”

Listen and Learn

What defines a potential opportunity for innovation?

Where can organizations search for these opportunities?

The following section looks at these two questions in detail.

Analysing the environment for opportunitiesSearch and Rescue

A

B

SOS

WHERE ?WHAT ?HOW ?

Analysing the environment for opportunitiesKey questions to consider

WHERE ?

After you know what to look for, you have to narrow the scope of the search to be efficient.

Identifying an opportunity should not be like finding a needle in a haystack.

Companies need to look in the relevant environment and across pertinent segments.


WHAT ?

Searching for potentialopportunities for innovation requires that we know WHAT we are searching for !

What characterizes potential opportunities?

WHERE ?


WHERE ?

HOW ?

WHAT ?

How the search process takes place must be clear and efficient.

How can the search process vary across businesses and sectors?

What active and passive searching activities can be undertaken?

OPPORTUNITY

WHERE should we look ?Patterns that signal opportunities

WHERE?

Key concepts Some key definitions to read the “map”

WeatherForecasting

Business Environment

IndicatorsBarometric pressure, Wind speed Interest rates, confidence surveys

TrendsFalling temperaturesIncreased wind speeds

Rising interest ratesDecreasing confidence

PatternsWinter storm possible Risk of decrease in sales

SegmentsWinds, Temperatures Politics, Economics, Demogrpahy,..

Key concepts Analysing change

• Absolute analysis is not revealing look at change !

• Analysis of change is essential to business decision making

p a

t t

e r

n

Key concepts The goal

P

E

S

T

indicatorindicatorindicator




rising

falling

falling

falling

rising

Trends

Using historic analysisand our understandingof the links betweensegments, the emerging patterns actas a signal of otherpotential changesto come and theirpotential impact.

The goal is to pick outimportant changebefore it is underway.

The environment Where is the business environment?

Firm

TaskEnvironment

CompetitiveEnvironment

General Environment

Relevant Environment

The environment Characteristics of the business environment

HomogeneityHeterogeneity

This considers the degree of similarity across elements or entities in the environment (how similar are products, competitors, etc.)

StabilityInstability

To what extent are the elements or entities changing (rate of failure of companies, growth of the market, etc.)

ConnectednessHow many different interconnections exist among the entities (how many suppliers for a buyer, distributors for a producer, lobbyists to

politicians). Also looks at links across segments.

Scarcity How rare are required resources by the organization

Concentration Are required resources spread out or concentrated ? Are the clients concentrated by region? Be age?

TurbulenceTo what extent are entities and linkages between them disturbed

by increasing connectedness and rate of connectedness. Looks at the increase in causal connections that may obscure things.

The environment Looking for change

P

E

S

T

Political Milieu Regulatory Milieu

LobbyistsInterest groups

PartiesPolitical structures

PoliciesBureacracies

Branches of governmentLocal, National, Supranational

PollsOpinion statments

Books by politiciansEmergence of interest groups

Election resultsProposed laws and policies

LawsRegulationsInstitutions

Local, National, Supranational

New standards and ratesChanges in information

disclosure rulesTax benefits/penalties

DeregulationSupranational harmonisations

Other segments


P

E

S

T

Economic Environment

Government AgenciesFederal Banks

Supranational Agenciesand Governing Bodies

Policy MakersUnions and Interest Groups

Capital Market ActorsFinancial Institutions

National Income and ProductSavings

Investment, InventoriesHousing Starts

Price and Wage IndicesLabor Statistics

Government BudgetsInternational Transactions


P

E

S

T

Lifestyles Demographics

Fast change hereHard to predict so concetrate

on discovery of emerging lifestyles is important pay

attention to primary data sources

Government agenciesConsumer reports

Fashion trend expertsFocus groups

PollsOpinion statments

Books by politiciansEmergence of interest groups

Election resultsProposed laws and policies

Statistical AgenciesSecondary Sources

ConsultanciesResearch Organisations

Census Bureaus

Population SizePopulation Composition

Age StructuresEthnic Mix

Geographic DistribtuionHousehold Characteristics

Values

The concept of a familyComposition of householdTypical « basket of goods »

Fashions and FadsJob security

Two income familiesAge of workers

MobilityLevel of educationHealth concerns

Value changes are tracked by looking at indicators of the other segments


PEST

DemographicsLife-stylesSocial valuesPolitical milieuRegulatoryEconomic environmentTechnology

Remarks from the communityCharacterizing the business environment

Pierre MoranSenior VP, Consumer Market GroupDesjardins“An environment in evolution”

Patrick PichetteChief Financial OfficerBell Canada

Jean-Paul PeaugerDirector, Social, Technical and Administrative AffairsALCAN“A complex and unstable environment with numerous actors and increased concentration.

PotentialOpportunities

WHAT are we looking for ?Patterns that signal opportunities

WHAT?

Opportunities

Potential opportunitiesDrucker’s seven sources of innovation

1

2

3

4

5

6

7

The unexpected

The incongruity

Process needs

Structural changes

Demographics

Changes in perception, mood and meaning

New knowledge

Requirea focusedanalysis.

Symptoms of changeunderway

Potential opportunities

1 The unexpected

unexpected success

What SHOULD be bad is goodWhat SHOULD be good is bad

The response of organizations to the unexpected success is more than often affected by the current strategy.

Drucker’s seven sources of innovation

Organizations tend tobe too concerned aboutthe relative failure - or their incapacity to predict success !


1 The unexpected


unexpected failureLike the unexpected success, the unexpected failure suggests that the way companies analyze their environment and subsequently make decisions may be flawed.

By using a failure to motivate changing the way things are done, new opportunities that were not visible, will be.

In the case of Ford, they replaced socio-economic segmentation with lifestyle segmentation a real innovation !


1 The unexpected


unexpected outside eventsThe emergence of new technologies, behaviours or other changes that are unexpected often provides potential entrants a way to enter the market through innovation.

Again, existing companies tend to discount the change or misunderstand its importance – retrenching activities and beliefs.

Fear of change may blind organizations to opportunities !


1 The unexpected


Two concerns :

1) Prolonged success and arrogance can result in changes not being expected !

2) Defensive behavior in face of the unexpected may not be beneficial - change may provide opportunities !


2 The incongruity


persistence of discrepancies

The way it is or has been

The way it should or can be


2 The incongruity


Why don’t companies do it differently?Why doesn’t someone provide this service?Economic Realities

We can’t make money like that …or can we?Realities vs. Assumptions of Reality

The buyer wants fast, speedy service…not qualityI don’t understand why they are not happy !

Perceived vs. True Client Value

I know the process – and I know we can do it differently !Why can’t they get it right for once !

Process incongruities

Listen AND ACT upon client feedback. Clients won’t put up with incongruities for a long time !


2 The incongruity


Why do I have to give my credit card number again?

Why don’t they give me the phone numbers I need to confirm my flight?


3 Process needs

Task focused innovations

Perfect a process

Replace weak links in a process

Modify old processes

IncongruitiesDemographic change


3 Process needs

Task focused innovations

Self-containmentOnly one link to improveA clear process objectiveSolutions can be clearly definedUsers open to improvement

The problem is understoodWe have the knowledgeThe solution « fits » behaviors


4 Structural changes

New competitors

Fast growthAdoption of new technologies

More sophisticated buyersChange in supplier markets

New distribution channelsDe-regulation



4 indicators of structural change

1. Rapid Growth

Periods of rapid growthopen the door to potentialnew players.




1. Rapid Growth

2. Out of synch supply

The emergence of new userswho seek different value froma product or service may signalthat change is around the corner




1. Rapid Growth


3. Technology convergence




1. Rapid Growth


3. Technology convergence

4. Changes in how things are done

Changein A

Changein B

Changein C


1

2

3

4

5

6

7

The unexpected

The incongruity

Process needs

Structural changes

Demographics

Changes in perception, mood and meaning

New knowledge

Requirea focusedanalysis.

Symptoms of changeunderway

A broad visionis required

External


5 Demographics

Size

MobilityAge distribution

EmploymentGender

Education

Sub-groups Lead times


5 Demographics

Source : Canada ‘s Aging Population; Minister of Public Works and Government Services Canada 2002


5 Demographics

PIN Number : ????


5 Changes in Perception

fads or lasting change ? play it safe !

On-going and recent changes

Perception of security

Perception of health

Perception of women leaders

Perception of the family

Perception of work vs. leisure

Perception of social classes

Even if the content stays the same, perceptions can change !


5 New Knowledge

Long lead time from knowledge to application

Convergence of knowledge often required

nanotubes


5 New Knowledge

1. Do ALL of the analysis

2. Have a clear strategic position

3. Be entrepreneurial managers

Short Quiz

In the following example try to match the examples with the generic sources of innovation.

QUIZ : Source of InnovationDrag the examples from the right into the appropriate box on the left

In home elevators

On-line Training in China

Increase in on-line purchasing

P2P cell phones

Unexpected fall in 4x4 sales

High rate of cheating on public transportation

Change in perception

New Knowledge

Structural Change

The Unexpected

Demographics

The Incongruity

Feedback

Comprehension Exercise

Respond to the following 10 multiple choice questions.


1

Development

Invention

Planning

Which of the following innovation funnel stages is NOT part of the fuzzy front end ?


2

Stage gate criteria

The implementation plan

The innovation definition

Which of the following is should clearly be provided as an input by companies when properly managing the fuzzy front end?


3

True

False

Scanning only the companies task environment may limit the search for radical innovations.


4

Political

Economic

Analyzing the trends in industry regulation is a key element of which environmental segment?

Social


5

Patterns

Indicators

Operational measures of variables under analysis are called…

Segments


6

True

False

An incongruity is a one-time discrepancy between the way things are and the way they should or can be.


7

Self containment

Behaviors can be easily modified to fit the solution

Which of he following is NOT a key criteria for effective process innovation?

The problem is well understood


8

True

False

Rapid and not slow growth is an indicator of structural change.


9

Connectedness

Turbulence

Change in the connections between environmental entities is referred to as :

Instability


10

Cross-impact criteria

Investment hurdles

The criteria that innovations must meet as they go through the innovation funnel are referred to as :

Stage gates

Author and Scenarist : Daniel S. Evans

About the Author

Daniel S. Evans Ph.D. is Director of the LifeLong learning Research Centre at EM LYON, France. He holds a Doctorate from The Ohio State University and is professor of Entrepreneurship. In addition to extensive experience in teaching at the graduate level, Doctor Evans has designed and implemented training programmes for companies in the areas of innovation, intrapreneurship and the business impact of technological change.

Sources of innovation opportunities in the business environment

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