Topic 2 Innovation Models In The Services Driven Economy

© 2010 IBM Corporation

Zaheer Travadi – Sr. Strategy & Transformation Consultant | Program Manager – WW STG Run Rate Marketing

Module 6 - Services innovationClosed Vs Open Innovation in the Information and Services driven Economy

© 2010 IBM Corporation2 IBM-SPJIMR – ACPS 2010

Classic linear model of innovation

Powerful, simple conceptualization; useful but not the whole story

Science base => basic research => applied research => invention => prototype => development => commercialization => diffusion => technical progress => economic growth


Example of new drug

Basic research: microbiology Applied research: screening compounds, testing on

animals Invention: lab success Development: clinical trials Commercialization: package, market Diffusion: spreads to doctors and patient populations


Linear model of innovation

– Science base=> basic research=> applied research=> invention=> prototype=> development=> commercialization=> diffusion=> technical progress=> econ growth

Which segments are “innovation”? What purposes served by this model?


Limits of linear model

Feedback loops & backward linkages – Applied research/innovation=> science– Commercialization=> new innovation– Invention/innovation=> science base via improvements

in instrumentation “Learning by doing” in manufacturing

– Chemicals, airframes, semiconductors “Learning by using” user feedback

– Software, skateboards


Uncertainty and chance

Many examples in history of technology of innovations under-appreciated at the time– Laser, radio, computer

Laser (Light Amplification by Stimulated Emission of Radiation)– Invented at Bell Labs circa 1960– Lawyers didn’t apply for patents, not useful – Now used in fiber-optic cables as well as navigation, CDs,

surgery, navigation etc.


Linear model and organization

Linear model => Closed industrial model of innovation: Focused internal R&D, clear firm boundaries, IP rights, virtuous cycles of reinvestment

Examples: AT&T Bell Labs, Xerox PARC


Open innovation

Open innovation: combine external and internal R&D into architectures and systems whose requirements are defined by a business model; blurs boundaries of firm R&D

Examples: Silicon Valley, Hollywood, P&G


Closed v. open innovation

All smart people in the field work for us

To profit from R&D must discover, develop & ship

We can get to market first if we innovate

First company to market will win

If we create most and best ideas, we’ll win

We must control our IP

There are smart people outside & inside

External R&D can add value alongside internal

We need not originate research to benefit

Building better business model more important than first to market

We win if we make best use internal & external

We can profit from others’ use of our IP and benefit from theirs when appropriate

© 2010 IBM Corporation10

IBM-SPJIMR – ACPS 2010

Democratizing innovation

User-centered innovation offers advantages over traditional producer-centered innovation, which concentrates innovation support resources on just a few pre-selected potential innovators

Users can develop what they want, enhances motivation

Users need not develop everything they need; they can benefit from innovations developed and freely shared with others



User and producer-centered

Economies of scale v. economies of scope (heterogeneous info & resources among users)

Producers integrate themselves into user-centric innovation model – Provide custom production or “foundry” services to users:

faster, better, cheaper; – Produce user-developed innovations commercially; – Sell product-development platforms or sell other

complementary products

For information products, no manufacturer is required & general distribution occurs mainly through communities



Democratization of design

Increasingly capable & cheaper tools that require less skill and training to use

Tools for communication make it easier for user-innovators to gain access to rich libraries of modifiable innovations and components that have been placed in the public domain– Today users design sophisticated new products, services, music

and art– Open source software movement as key example– Web 2.0 explicitly recognizes users add value



Service innovation: new markets

Market-creating service innovations v. incrementally improved services

– Examples: Cirque du Soleil, University of Phoenix Service v. product innovation

1. Service providers part of innovation

2. Local delivery capacity required for in-person services

3. No physical product to brand



Market-creating service innovations

1. Flexible solutions FedEx eBay CNN

2. Controllable convenience Google Netflix Skype



Market-creating service innovations

3. Comfortable gains– Starbucks– Cirque du Soleil– Barnes & Noble

4. Respectful access Ball Memorial Hospital Southwest Airlines Hertz #1 Club Gold



Typology of service innovation

1. Business model innovation:Substantial change how revenues and profits earned (business model); often accompanied by organizational changes

2. Process/system innovation:Changes in how information exchanged between customer and service provider, bus processes

3. Service product innovation:Introduction of entirely new services

In reality all 3 are interrelated; an iterative process



Creation networks

“Networks of creation:” hundreds or thousands of participants from diverse institutions collaborate to create new knowledge, learn from one another, and appropriate and build on one another’s work—under guidance of a network organizer.– Rather than protecting and hoarding knowledge, offer to

others to gain access to broader knowledge flows.– Opportunity to jointly create new knowledge and deliver

innovations to market by collaborating closely; long-term, interactive relationships with networks of suppliers, customers, specialists, even amateurs



Coordination challenges

Three primary challenges in creation process:1. Access and develop highly distributed talent2. Provide appropriate contexts for participants to come together,

collaborate to experiment, tinker, and innovate (least actively managed)

3. Effectively integrate the creations of diverse participants into shared releases (most actively managed)

Central importance of performance requirements and feedback loops to insure continuous improvement



Product development

An iterative problem-solving (trial and error) process

DESIGN

BUILD

RUN

ANALYZE



Product development in new era

1. Rapid movement from concept to prototype (rapid prototyping)

2. Define early and frequent rounds of performance tests to learn quickly and adapt designs

3. Establish broad-based communications mechanisms to share performance data

“Managers must move their focus beyond narrow efficiency gains …and embrace the possibilities that uncertainty creates.” J.S. Brown & J. Hagel (2006)



What is Web 2.0? (Tim O’Reilly)

Strategic positioning– The web as a platform (Google v. Netscape)

User positioning– You control your own data (Data is the next Intel Inside)

Core competencies– Services, not packaged software– Architecture of participation (RSS)– Cost-effective scalability – Re-mixable data source and transformations– Software above level of single device (iPod/iTunes)– Collective intelligence (hyperlinks, users as co developers)

Topic 2 Innovation Models In The Services Driven Economy

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