Core Course Innovation Session 1 PPT 1b

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RCM Corinne Grenier 
INNOVATION STRATEGY OF 
COMPETITIVE COMPANIES AND 
ENTREPRENEURSHIP
Professeur RCM : Corinne Grenier
Track One – What innovation is
PPT 1b – General presentation of Innovation
Main ideas - Innovation : main characteristics
1) Innovation calls for innovation
The advantage derived from innovation is temporary: innovation must be a 
continuous activity
2) Innovation is transverse
Not limited to a specific function of the firm,- R&D, marketing, finance, 
manufacturing, ….
3) (Van de Ven, 1986) Innovation is a new idea that can be 
. A recombination of old ideas 
. A scheme that modifies current order
. A unique formula or approach perceived as new
4) Innovation is uncertain, costly and risky
G.A. Stevens and J. Burley (1997):
. Out of 3000 initial ideas, 
. 300 gave rise to experiments or patent files, 
. Out of which 125 became real projects, 
. Generating 2 product launches, 
. Out of which only 1 became a real commercial success
RCM Corinne Grenier 
The content of the PPT 1b – General presentation of innovation 
 Distinction between idea, invention and innovation
 Definition of innovation
Various forms of innovation (product / process ; radical / incremental; 
induced / autonomous innovations and disruptive/sustaining 
innovations) 
RCM Corinne Grenier 
(1) Distinction between Discovery, Invention and 
Innovation 
Discovery is the process of finding out what was unknown but pre-existing.
Invention relies on principles, ideas, theories, it is often enclosed in R&D laboratories. 
Invention can be disconnected from the market and remain forever an idea (See some 
eccentric and amusing invention from Lépine Competition).
Innovation is not restricted to an idea nor to a first development but encompasses 
every phase from prototype development to its market launch. 
Referring to Schumpeter, invention is the realization of a new resource for the 
company whereas Innovation is the integration of this new resource in a product or 
service offered to the market.
Main idea: all ideas do not lead to innovation (i.e one new product or service 
delivered on the market) – if companies should be creative, they succeed in 
transforming creative ideas into inoovative products and services 
RCM Corinne Grenier 
Innovation : an idea…
Léonard de Vinci, ~1490
Idea
Conceptual idea and 
mechanical principle 
- Device heavier than 
air flying thanks to a 
propeller
But implementation 
failed
- Weight / power ratio 
too high
Paul Cornu, 1907
Invention
Prototype works but 
cannot be launched on 
the market
- Take off up to 1.5 m
- No stabilization
« Helicopter has no 
future… It isn’t worth 
anything »
Wilbur Wright, 1909
Igor Sikorsky, 1939
Innovation
Stabilization thanks to a 
second propeller
First purchase of 
helicopters British and 
American armies
…that came true… …& went sold
(1) 
RCM Corinne Grenier 
(2) Definitions of Innovation 
Compulsory readings – for a general overwiew of Innovation Strategy
Katz, du Preez and Schutte (2010), “Definition and role of an innovation 
strategy”,
See the Videos: 
. What is Innovation? Jacob Kragh, LEGO Education
http://www.youtube.com/watch?v=iEG8i7kgPb4
. The Innovation Cycle
http://www.youtube.com/watch?v=luJBtDB6ZjE&NR=1&feature=endscreen
RCM Corinne Grenier 
There is no consensus on a single definition for "innovation"
The first description of an innovative entrepreneur was made by Schumpeter in 
1912, in The Theory of Economic Development
According to him, his « role consists in transforming the production routine, by 
exploiting an invention or an original technical possibility »
Schumpeter identifies 5 innovation sources :
- Production of a new merchandise
- A new manufacturing method of an old merchandise
- Exploitation of a new raw material source
- Conquest of a new market
- Reorganization of a production system
(2) Definitions of Innovation 
Innovation according to Schumpeter
RCM Corinne Grenier 
(2) Definitions of Innovation 
Innovation according to Schumpeter
Other definitions
 From latin ‘innovare’: making something new
 “The commercial or industrial application of something new – a new 
product, process or method of industrial production; a new market or 
source of supply; a new form of commercial, business or financial 
organization” (Joseph Schumpeter, 1934)
 “Innovation is the specific instrument of entrepreneurship. It is the act 
that endows resources with a new capacity to create wealth. Innovation 
indeed creates a resource and endows it with economic value” (Peter 
Drucker, 1985)
RCM Corinne Grenier 
(2) Definitions of Innovation
Other definitions 
Other definitions – to read
 In the text book : chapter 1, “What is Innovation”, pages 5-8 
RCM Corinne Grenier 
(3) Various forms of Innovation 
We present Innovation through its various forms:
- innovations of product / process 
- radical / incremental innovations
- induced / autonomous innovations 
- disruptive / sustaining innovations 
Main ideas – why it is important to identify the characteristics of 
innovations 
Strategic stakes and ways of managing innovations vary according to the 
various characteristics of innovations.
When we study the ability of companies to either develop innovating project 
or launch innovating products/services, we may take care of the 
characteristics of the innovation so that to help companies to success
Compulsory readings - in the TextBook : Chapter 2 – Types of 
innovations (do not read the case studies)
RCM Corinne Grenier 
Product innovation consists of offering a product or a service that 
presents at least one originality compared to existing offers (and 
perceived as such by the market)
- Often perceived as a technological change that improves 
or widens product functionalities 
- But it can also refer to use habits, distribution and beyond to 
all the features and services offered to the client (pricing, 
…)
- Examples : personal computers, the walk-man or the TGV but 
also a new insurance package, fast-food restaurants, washing 
powder tablets
Process innovation consists in transforming industrial processes 
implemented to conceive, realize and distribute products and services
- Impact on a company and its competitive environment can 
sometimes be even greater than the most impressive product 
innovations 
- Examples : taylorism, « float glass » manufacturing process
(3) Various forms of Innovation –
Product/Process distinction 
RCM Corinne Grenier 
(3) Various forms of Innovation –
Product/Process distinction 
Main ideas
 Generally, companies enter (or create) new markets or wants to increase 
their market shares first by launching products / services innovation; and then 
they seek to maintain their acquired strategic positions through process 
innovation
 Process innovation is generally develop to reduce cost production and to 
reduce “time-to-market” (see latter in this track 1) 
But the more innovation is radical (see latter in this track 1), the more it is 
supported by innovations into processes
RCM Corinne Grenier 
Value chain (suppliers-company-distributors)
Sales & distribution 
Process, Structure, Culture
Services
Packaging
Products
Image
Process Innovation
Product Innovation
Rate of major innovations
Time
Transitional
Phase
Specific
Phase
Fluid
Phase
The Abernathy & Utterback model
(3) Various forms of Innovation –
Product/Process distinction 
Illustration 
RCM Corinne Grenier 
(3) Various forms of Innovation –
Product/Process distinctionIllustration 
Innovation level Examples
Product DVD vs. VHS, i-Pod, i-phone, PC vs. Mini, Renault 
Logan,…
Packaging Salt (plastic vs. cardboard), milk (plastic/cardboard 
vs. glass), yogurts, chewing-gum, wine (Australia), 
washing powder (tablets), furnitures (IKEA),…
Service Home deliveries (supermarkets), direct banking, 
financial services (GE, GM), miles plans, Amazon, 
Internet travel agencies, wedding services,…
Sales/distribution Internet sales (Dell, Amazon,…)
Process JIT, TQC (Japanese car manufacturers), built-to-
order (Dell),…
Value added chain Dell, Nike,…
(3) Various forms of Innovation –
Incremental versus radical innovation
Main ideas
 The more innovation is new and creates new markets, the more innovation is radical 
(has quite never existed before)
 However, radical innovations are rare. Innovations are more or less radical (or more or 
less incremental) 
 Two models may be used to appreciate the degree of radicalism (or degree of 
innovativeness) of innovations
 Interests to distinguish radical from incremental innovations
- From a strategic point of view: companies create new positions or new markets through 
radical innovations and maintain their current positions through incremental markets
- Strategy of Imitation is a successful strategic whether companies offer additional 
functionalities or expectations to users, through incremental innovations 
- From a managerial point of view: the more innovation is radical, the more it requires new 
ways of organizing and new ways of managing projects; and it generally requires to 
integrate external partners to the innovating project management process, which is often 
risky and complicated.
RCM Corinne Grenier 
Conventional approach
• Competitive and commercial positions are already 
in place
• Competitive advantage results from a price/ 
performance ratio greater than competitors' offers
• Struggle to reach as many potential customers as 
possible through a customized offer for each 
segment
• Focus on differences between clients segments
• A company success depends on its ability to take 
advantage and develop its strategic assets and 
capabilities
• Offer is structured in relation to competitors' 
product ranges
Discontinuous approach
• Competitive and commercial positions result from 
the interactions between firms & clients
• Competitive advantage results from a greater 
value proposition
• Struggle to reach as many potential customers as 
possible through original/innovative value 
proposition despite the risk to exclude some 
segments
• Focus on common points between clients 
segments
• No "sacred cows" : the company doesn't 
hesitate to start from scratch if necessary
• Offer is structured in order to propose a global 
solution to the clients including unusual features
(3) Various forms of Innovation –
Incremental versus radical innovation
RCM Corinne Grenier 
By degree : continuous and discontinuous change
According to Kim & Mauborgne (INSEAD), out of 100 innovations : 86%
14%
Radical innovations have a disproportionate impact on performances
Incremental 
innovations
Radical 
innovations
62% of revenues
39% of profits
38% of revenues
61% of profits
(3) Various forms of Innovation –
Incremental versus radical innovation
RCM Corinne Grenier 
Incremental
Innovation
Innovation 
radicaleNew 
concept
Current 
concept
Current market New market
Radical 
Innovation
(3) Various forms of Innovation –
Incremental versus radical innovation
How to distinguish radical from incremental innovations? 
RCM Corinne Grenier 
Incremental
Radical 
Innovation 
intensity
Current Functions New Functions
A.D. Little
Matrix
New product
/ concept
Concept revision Concept leap Radical Innovation
Modified product 
/ concept
Product revision Concept 
enrichment
Concept transfert
Current product 
/ concept
Market ExtensionFunction
Extension
Current Market New Market
(3) Various forms of Innovation –
Incremental versus radical innovation
How to distinguish radical from incremental innovations? 
 
 
New 
 product /concept 
 
Concept revision 
 
 
Concept leap 
 
Radical innovation 
TNT + LCD 
 
 
Modified 
Product / concept 
 
 
Product revision 
Color, size, 
quality 
 
Concept enrichment 
16:9 format, 
sound, TV + VHS 
 
Concept transfer 
 
Current 
Product / concept 
 
 
 
 
Black and white 
 
Function extension 
Remote control 
 
Market extension 
 
 
Incremental
Radical 
Innovation 
intensity
Current functions New functions
A.D. Little 
Matrix
Current market New market
(1° axis) 
Product / 
concept
2° axis
3° axis
Example: TV
Illustration 
RCM Corinne Grenier 
(3) Various forms of Innovation –
Incremental versus radical innovation
RCM Corinne Grenier 
(3) Various forms of Innovation –
Incremental versus radical innovation
Established Technology
Photography
Classical Photo
Distribution
Offset printing
Encyclopedia
Harley Davidson
Computers
Share trading
Furniture
Tools
Circuit switching communication
Animated cartoons (Disney)
Traditional car manufacturing
Telephone
Postcards
Newspapers
Radical innovation
Portable cameras (Kodak, 1880)
Digital Photo
Internet Distribution (eBay, Amazon)
Digital printing
Internet
Honda (US)
Game consoles
Internet trading
Ikea furniture
Electric Drills (Black & Decker)
Packet switching communication (Cisco)
Digital cartoons (Pixar)
Taylorism - Fordism (Ford T)
Cordless phones
Electronic cards
Free newspapers
Illustration 
Radical or incremental innovations ?
Electrical car
Dvorak keyboardSuppliers
Manufacturers
Users
Associated
products /services
(3) Various forms of Innovation –
Incremental versus radical innovation
Illustration 
Radical or incremental innovations ?
Electrical car
Dvorak keyboard
Radical IncrementalSuppliers
Manufacturers
Users
Associated
products /services
Radical Incremental
Incremental Radical
Radical Incremental
(3) Various forms of Innovation –
Incremental versus radical innovation
Illustration 
RCM Corinne Grenier 
An industry evolves through a succession of technology cycles, which can be 
represented on a diagram as a series of S-curves. Each technological discontinuity 
inaugurates a new technology cycle.
Incremental innovation
Technical 
performance
Cumulated 
investments in 
R&D
Technology inherent limit
Radical 
innovation
Ferment
Growth
Maturity
Stagnation
Beginning of a new 
technology cycle
Key technology
… but limited techno improvement
(3) Various forms of Innovation –
Incremental versus radical innovation
Radical innovation
RCM Corinne Grenier 
There are many advantages to radical innovations:
- To create a new market, to control the environment rather than being controlled
- Pioneer advantages: ability to set the new market's standards
But significant prerequisites and obstacles 
- Necessity to redefine its business and its activities to maintain skills and even 
culture consistency
- Necessity to segment the newly created market
- And to re-assess competition
- Necessity to understand properly clients behavior to pursue this innovation 
with other innovations
- Great difficulty to carry out this kind of project : the company must be totally 
convinced before trying to convince its partners, prospects, …
(3) Various forms of Innovation –
Incremental versus radical innovation
RCM Corinne GrenierRadical innovation corresponds to a totally different development approach 
Conventional approach: 
progressive market shares gain
Discontinuous approach: 
building progressively the 
market
(3) Various forms of Innovation –
Incremental versus radical innovation
Innovation: changing the rules of the game 
Re-shaping the key success factors of an industry
• 0 or 1 star
• services:
 reception
 restaurant
• comfort:
 small rooms
 poor soundproofing
 bad bedding
 basic equipment
 hygiene to improve
• variable aesthetics
• choice criteria: price
• price: 10-15€
• 2 stars
• services:
 reception
 restaurant +
• comfort:
 large rooms
 good soundproofing
 good quality bedding
 complete equipment
 good hygiene
• aesthetics: decoration
• choice criteria: comfort
• price: 30€
Example of radical innovation: 
Formule 1 hotels
Traditional offer in low end hotels
Illustration 
- Main customer need: «a good night sleep at a low price»
- Customer valued attributes:
. Bedding quality
. Hygiene
. Soundproofing
- Attributes of lower importance:
. Restaurant
. Aesthetics
. Furniture and room equipment
Accor’s diagnosis
Example of radical innovation –
Formule 1 hotels
Illustration 
Reduced services:
. No restaurant, no reception hall
. Reception only at peak hours, automatic payment otherwise
Rooms:
. High quality bedding
. High level hygiene
. Good soundproofing
. Limited furniture
. Prefab
Accor launches Formule 1 in 1985: a new value proposition
Reduced services: payroll reduced to 20% 
of sales vs. 25% (1*) to 35% (2*+) for 
competitors
= Allow proposing a better offer than 
traditional 2* on attributes valued by 
customers, while keeping prices close to a 
1* (15€/night)
Example of radical innovation –
Formule 1 hotels
Illustration 
Impact
- In 5 years, Formule 1 has become the indisputable leader on 
the market 
- Formule 1 has broadened the market
. Truck drivers
. Businessmen
. Others…
An example of radical innovation 
Formule 1 hotels
Illustration 
RCM Corinne Grenier 
Example : Formule 1 Hotel innovation by refining the Key Success Factors of an 
industry (VII) – the F1 Value Proposition 
Restoration
Esthetics
Rooms' size
Receptionist
Furniture / EquipmentBedding
Hygiene
Soundproofing
Price
Formule 1 0/1* 2*
(3) Various forms of Innovation –
Incremental versus radical innovation
Illustration 
RCM Corinne Grenier 
Top Mgt
Middle Mgt
Junior Mgt
Induced 
innovations
• Induced innovations
result from a strategic 
diagnosis of the 
company's activities 
(SWOT analysis)
• They are developed in 
R&D departments, on 
budgets expressly 
requested by the 
management : planned 
innovation 
Autonomous 
innovation
Autonomous innovation
•From the initiative taken 
by some internal or 
external actors of the 
company and developed 
by them 
•Usually to respond to the 
expectations they perceive 
from clients or suppliers
Innovation not planned.
(3) Various forms of Innovation –
Induced versus Autonomous innovation
RCM Corinne Grenier 
(3) Various forms of Innovation –
Induced versus Autonomous innovation
Main ideas
 The Strategic Plan is realized (ie implemented) through Induced Innovations. 
Consequently, the teams involved (R&D Department, Design, Engineering and 
Production Depart., Marketing and Sales Depart…) receive the forecasted 
resources to develop induced innovations. They are also evaluated on their 
ability to realize them (ie to realize the strategic plan)
 However, companies must remain flexible and able to react to any 
unanticipated event in their environment as well to take advantage of new ideas 
generated “per hazard” within them. The ability to develop autonomous 
innovation is then critical for companies to reach such opportunities.
(3) Various forms of Innovation –
disruptive/sustaining innovations
Theory introduced by Harvard Professor Michael Christensen in his 
1997 book: ‘The Innovator’s dilemma’.
A disruptive technology or disruptive innovation is an innovation that 
helps create a new market and value network, and eventually goes on 
to disrupt an existing market and value network (over a few years or 
decades), displacing an earlier technology there. The term is used in 
business and technology literature to describe innovations that improve 
a product or service in ways that the market does not expect, typically 
first by designing for a different set of consumers in the new market 
and later by lowering prices in the existing market.
Christensen distinguishes between "low-end disruption" which targets 
customers who do not need the full performance valued by customers at the high 
end of the market and "new-market disruption" which targets customers who 
have needs that were previously unserved by existing incumbents.
Adapted from Wikipedia: Disruptive Innovation
Disruptive and sustaining technology: definitions
Sustaining technology
• Targets most profitable customers
• Generally improves or maintains 
gross margins
• Improves performance along a 
trajectory valued by industry’s 
most profitable customers, fosters 
improved product performance
• Can be incremental or radical in 
nature
Disruptive technology
u Different value proposition, targets new 
(or least demanding) customers in new 
ways
u Generally offers lower gross margins, 
simpler and cheaper than existing products 
u Generally does not improves performance 
along trajectory valued by industry’s most 
profitable customers
u Introduces new performance trajectory and 
improves performance along parameters 
different by those traditionally valued by 
industry’s mainstream customers 
Dynamics of disruptive innovation
P
ro
d
u
ct
 p
er
fo
rm
a
n
ce
Time
Disruptive Technology enters 
main market
Incumbent tries to compete but is rapidly 
outperformed by new entrantIncumbent dominates market; 
no visible competition from new entrant
ST overshoots market demand: Indicator of 
performance oversupply
Disruptive Technology evolves in a low performance 
niche market. No visible competition between niche 
and main market
An example of low-end disruption: minimills vs integrated 
steelmakers case
Watch the video: Disruptive innovation explained
Market 
Segment
Margin Quality
Reinforced 
Bar (Rebar)
7% Very Low
Angle iron;
Bars and 
Rods
12% Low
Structural 
steel
18% High
Sheet steel 25-30% Very High
Innovation into 
Market
Lower Cost 
Drives out High 
Cost Competition
Price Drop 
leading to no 
Profitability
Next target 
market – New 
Innovation
Main parameters of the steel industry
Integrated steel makers (ISM): traditional way of 
producing steel. ISM process basic iron in 5 phases
1. iron making (conversion of ore to liquid iron),
2. steelmaking (conversion of pig iron to liquid steel),
3. casting (solidification of the liquid steel),
4. roughing rolling/billet rolling (reducing size of blocks)
5. product rolling (finished shapes).
Minimills emerged in the 70s and use as primary material 
scrap steel, thereby skipping the first 2 phases
Strategic phases of competition in low end disruption
Sheet Steel – 25-30% GM
Rebar – 7% Gross Margins (GM)
Angle Iron Bars and Rods - 12% GM
Structural Steel – 18% GM
1975 1980 1985 1990
4%
8%
22%
55%
TIME
Steel Quality % of Total Steel Production
Minimills vs integrated steelmakers case:
Up-Market Migration of Minimills
Minimills’ march 
into the integratedsteelmakers’ market 
space
2nd type of disruption: 
New market disruption addresses the needs 
of not-yet served customers
P
er
fo
rm
a
n
ce
Time
Sustaining strategy 
Bring a better product into 
an established market
Low end disruption
Address overserved 
customers with a lower-cost 
business model
New-market disruption
Compete against non-consumption
D
if
fe
re
n
t 
M
ea
su
re
s 
o
f 
P
er
fo
rm
a
n
ce
Time
NonConsumers or non 
consuming context
Example: Nano (Tata) – extends 
motoring from middle class to 
emergent users in countries with low 
GDP/head
Example: Apple 1 – extends computing 
from firms to individuals
http://fabrice.montupet.pagesperso-orange.fr/apple1.htm
http://www.corriereinformazione.it/201003041270/nuove-
tendenze/motori/india-e-tempo-della-tata-nano.html
Managing disruptive innovations
• Determine whether technology is likely to be disruptive or sustaining
– plot performance rate of progress
– disagreement between departments may indicate disruptive innovation (DI)
• Define strategic importance of DI
– don’t ask leading or current customers
– ask whether new technology shows DI features (cheaper, simpler, etc.)
– scan emerging, niche markets (even if non competitive)
– plot incumbent product’ demand performance with DI rate of progress
• Locate the initial market for disruptive innovation
– don’t rely on traditional market research
– don’t use existing markets as match for disruptive ones
– avoid group think: use mixed group (technologists, venture capitalists, academics) 
that rely on alternative channels of information
• Place responsibility for building DI business in independent organisation
– manage “out of context” of existing organisation
– match the size of the organisation to the size of the market
• Keep DI organisation independent
RCM Corinne Grenier 
(3) Various forms of Innovation –
disruptive/sustaining innovations
• Minicomputers (DEC) vs. mainframes (IBM)
• PC (IBM, Apple) vs. mini computers (DEC)
• Home PC (Dell) vs. business PC (IBM, Compaq)
• Discount retailing (Wal-Mart, Target) vs. traditional (Sears)
• Small motorcycles (Honda, Yamaha, Kawasaki) vs. big bikes (BMW, Harley 
Davidson, Norton)
• Transistors vs. vacuum tubes
• Internet appliances (Apple iPod) vs. PC
• Play consoles (Wii) vs. graphic game consoles (X-Box, Playstation)?
Illustration 
Main references:
Bower, J.L., Christensen, C.M. (1995) “Disruptive technologies: catching the wave”, HBR, 
Jan-Feb, 43–53
Christensen, C.M. (1997) “The innovator’s dilemma: when new technologies cause great 
firms to fail”, Harvard Business School Press
Christensen, C.M. (2000) “Meeting the challenge of disruptive change”, HBR, March-April, 
67–76 
Synthesis - Categories/types of innovation
Service Process Product Component Material
Incremental Modifications, refinements, enhancements, simplifications
Discontinuous Obsoletes technologies, processes, and people
Systems Dominated by societal and government regulations
Radical Develops into major new business or spawns an industry
Disruptive Brings the user a new value proposition
Breakthrough Moments in industry that set the stage for the future
A comprehensive classification (Gaynor, 2002)
RCM Corinne Grenier 
Service Process Product Component Material
Incremental Modifications, refinements, enhancements, simplifications
e.g. BMW 325i convertible
Discontinuous Obsoletes technologies, processes, and people
e.g. 16 bit consoles vs. 8 bit
Systems Dominated by societal and government regulations
e.g. pharmaceutical distribution in Europe
Radical Develops into major new business or spawns an industry
e.g. digital photo
Disruptive Brings the user a new value proposition
e.g. i-Pod
Breakthrough Moments in industry that set the stage for the future
e.g. Internet
A comprehensive classification (Gaynor, 2002)
RCM Corinne Grenier 
Synthesis - Categories/types of innovation