innovation strategies presentation feb 2015 v slideshare

© 2011 SAP AG. All rights reserved. 1 Internal

Innovation Strategies

How to put the theories of innovation to work in creation


Who I am…

Maxwell Wessel

VP of Innovation Strategy

• Think tanker with Clayton Christensen

• Member of the WEF Agenda Council

• Investor with NextGen Angels


Innovation is a terrible word

Innovation Invention

Commercialization

Platform

Reverse

Incremental

Continuous Discontinuous

Business model

Sustaining

Step-out

Disruptive

Big-bang

Breakthrough


“More fundamentally, I think long-term thinking squares the circle. Proactively delighting

customers earns trust, which earns more business from those customers, even in new

business arenas. Take a long-term view, and the interests of customers and shareholders

align.”

- Jeff Bezos, Amazon.com CEO

Companies that innovate systematically, grow





align.”


"If you don't cannibalize yourself, someone else will”

- Steve Jobs, Apple CEO






align.”


“The heart of a company’s business model should be game-changing innovation. This is not

just the invention of new products and services, but the ability to systematically convert ideas

into new offerings that alter the very context of the business.”

- AG Lafley, Procter & Gamble CEO



Innovation doesn’t take outsized expenditures…

…just smarter expenditures


…how?

The question that arises…


Today we’re going to talk about 5 concepts

1

2

3

4

5

The types of innovation you’re predisposed to fail in…

How to evaluate whether your business model fits…

How to think about scenario planning and valuation…

How to create the right tests…

How to predict if your product is worth testing at all…


Why do large, well-resourced, organizations fall behind?

Incumbents nearly always

win

Disruptors nearly always

win

Pro

du

ct

Pe

rfo

rma

nc

e

Time


Businesses innovate both commercially and technically

Incremental improvements to existing

technologies

Integrate seamlessly with legacy formats

Example: • A traditional engine that generates 20% more

horsepower than its predecessor

Technological innovation that bypass the

existing paradigm; often cited as a step-

change

Can or cannot integrate with legacy formats

Example: • An solar engine that generates 20% more

horsepower than its gasoline predecessor

Dis

co

nti

nu

ou

s

Co

nti

nu

ou

s

Categorization of tech innovation

Dis

rup

tive

S

usta

inin

g

Categorization of competitive innovation

Innovations that integrate with the profit

models of incumbent firms

Can be derived from either continuous or

discontinuous innovation

Example: • A solar engine integrated into a Ford coupe

and priced at a premium

Innovations that do not integrate with profit

models of incumbent firms

Often lower quality to existing products, but

cheaper and more accessible

Example: • An solar engine used to power a cheap,

around-town bicycle for city commuters


Customer

Value

Business

Interest (Short-term)

Maximize

personal utility

Unconcerned with

how a problem is

solved

Maximize return

on assets

Maximize

investments in

additional

assets

Normally these

interests are aligned,

in instances of

disruption and

business model

innovation they are

not

Some innovations are more interesting than others


Disruptive innovation Before Description

Retail health clinics $5603 • Over the past 2 decades, retail health

clinics have emerged to offer basic

healthcare services w/out expensive

overhead of primary care offices

Personal computing ~$120-

160K1

• In the late 1970’s, companies arose to

manufacture computers using existing,

modular, technical components, thereby

decreasing cost of production

Mobile digital

learning

100M

w/out

access to

education

• Educational platforms being developed to

provide access to the more than 100M

children that do not attend school across

the globe

After

$1103

~$1.3K2

N/A

Disruption brings services to more customers by dramatically reducing

costs and increasing accessibility

Disruption brings more users and larger markets

1) DEC VAX 11/780 Computer Specifications. ed-thelen.org/comp-hist/vax-11-750. Accessed 6/15/2012

2) The Encyclopedia of Consoles, Handhelds, & Home Computers, pg. 19

3) Comparing Costs and Quality of Care at Retail Clinics… Annals of Internal Medicine, Sept 2009, pg. 324


R.P.P.

Business models generate the internal tension


Business models are core to challenges with innovation

“In a new-market disruption, the unserved customers are unserved

precisely because serving them would be unprofitable given the

incumbent’s business model.

In a low-end disruption, the customers lost typically are unprofitable

for the incumbents, so the big companies are happy to lose them.”

- Andy Rachleff, CEO Wealthfront


What is your business model… RPP

PROCESSES:

Ways of working together to

address recurrent tasks in a

consistent way: training,

development, manufacturing,

budgeting, planning, etc.

PRIORITIES:

Values of the company, core

mission, etc.

THE VALUE PROPOSITION:

A product that helps customers

do more effectively, conveniently

& affordably fulfill a need

RESOURCES:

People, technology, products,

facilities, equipment, brands,

and cash that are required to

deliver this value proposition to

the targeted customers


Our business models guide how we see the world

2002

• Total Assets: $6.24 Billion

• Total Sales: $5.57 Billion

• Employees: 85,200

• Stores: 8,500

• Brand Recognition: 100%

2010

BANKRUPT

• Total Assets: $131 Million

• Total Sales: $150 Million

• Employees: 381

• Market Cap: $164 Million

• Total Assets: $982 Million

• Total Sales: $2.2 Billion

• Employees: 2,180

• Market Cap: $4.02 Billion

“Obviously, we pay attention to any way people are getting home entertainment. We always

look at all those things. We have not seen a business model that is financially viable in the

long-term in this arena. Online rental services are ‘serving a niche market’.”

-Blockbuster Spokesperson in 2002


New models inherently have more uncertainty…


Most businesses invest in predictable cash flows…

Probability

$ Value =Pre commercial experiment


Truly innovative projects are less predictable

Probability

$ Value =Pre commercial experiment

=Post successful commercial experiment


What does that really mean?


Investing in innovation requires scenario planning

An idea

Some basic scenarios

Some complex scenarios


Modeling innovation is critical to winning

Always scenario model – your best guess is never right

• 93% of businesses that IPO change their business model

• Use scenarios to test sensitivity of the business to different variables

• Seven of ten venture backed businesses will fail to return capital

Question all your assumptions – you have a ton

• Knowing all your assumptions helps mitigate operational risk

• Calling out each assumption lets you benchmark against others

Model over long time horizons – 5 years is too short

• After 6 years, Google did <$1B. It takes a while to build a business

• Make realistic cash assumptions. Growth is expensive

• Know how long it took similar businesses to be built


Modeling also teaches to invest in options


Great innovators invest to learn.

Learning the right things minimizes risk


Pursuing the unknown requires experimentation

Ask a

question

Do

background

research

Construct

hypothesis

Test with an

experiment

Analyze

results

Report

results

True

False The scientific method


Business is no different. Experiment to learn more.

Build

Measure Learn

Goal

Discovery

Growth P

roc

es

s C

od

ifica

tion

V

alu

e

Entrepreneurial endeavor requires a

process of learning to identify value

proposition and de-risk scalable product

Once understanding of value proposition is

solidified, resources can be scaled and

processes and priorities developed effectively

Entrepreneurial

discovery…

Must always occur before

process codification…


Discovery driven planning increases success chances

1

2

3

4

5

Identify your most sensitive business assumptions

Test the most important of those assumptions quickly and cheaply

Iterate your business based on feedback, where necessary

Identify the new assumptions and repeat

Develop a vision and a plan for your business


The more certainty, the more valuable the business

$200M

$10B

SpaceX before certainty

SpaceX after certainty


Finally. Make sure you’re pursuing a market that exists.


People are simple.


A Knife

A Compass

A Satellite Phone

Get me home, safely Entertain me, now

Make the world better

for my children

Board games

Television

Netflix

The products we “hire” to complete these jobs, do change.

The jobs don’t.

Investments in infrastructure

Investments in parkland

Investments in sustainability


Identify the Job-to-be-done

Determine what experiences

are necessary to complete

the job

Integrate your “whole”

product around those

experiences

1

2

3

Determine the fundamental need

that causes a consumer to draw

your product into their life

Identify the relevant experiences

are necessary to complete the job

Integrate product design,

distribution, and support to deliver

those services

Successful product development integrates around the job

Functional Emotional Social


Make sure you’re addressing a real job-to-be-done

innovation strategies presentation feb 2015 v slideshare

Business

sap ag

internal innovation

internal innovation

ag lafley

interests of customers

new business arenas

delighting customers

internal businesses