Core Course Innovation Session 1 PPT 1c

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RCM Corinne Grenier 
INNOVATION STRATEGY OF 
COMPETITIVE COMPANIES AND 
ENTREPRENEURSHIP
Professeur RCM : Corinne Grenier
Track One – What innovation is
PPT 1c – Why Innovation is critical – strategy, risks and 
obstacles
RCM Corinne Grenier 
Why Innovation is critical 
Main ideas
 Economic BUT ALSO social and societal growth and change are 
rooted in innovations
 Innovation (either planned or induced) results in modifying the 
main rules of any sector (i.e. the 5 forces of Porter’s model)
 Innovating companies success when they are able to capture 
added-value from markets
Innovating is risky… but not innovating is riskier
RCM Corinne Grenier 
Why Innovation is critical 
Outline of PPT 1c
 Creation of value – general overview 
 Innovation and strategic advantage
 Risks and obstacles to innovation 
RCM Corinne Grenier 
Innovation creates monopolistic situations
• According to Schumpeter, 
innovation launching by 
entrepreneurs creates first 
monopolistic area with strategic and 
technological barriers 
Stimulation of investment.
• After, competition growing leads to 
price battler and to monopolistic 
situation disappearing, until a new 
innovation cycle launched by another 
innovators 
• « First mover advantage »
• Patents 
• Preemptive distribution channel 
• Build the economies of scale/ the 
network
Creation of value – general overview
5
8
10
11
11
12
17
24
Rising consumer awareness and
activism
More capable competitors
Rate of technological change
Expanded access to talent and labor
pools
Reduction in trade barriers
Plentiful, cheap, mobile capital
Greater ease of obtaining information,
developing knowledge
Innovation in products, services,
business models
% of respondents who say pace of change in global business environment is
accelerating (n=3,453)
What single factor contributes most to the accelerating pace of change in the 
global business environment today? 
RCM Corinne Grenier 
Creation of value – general overview
The importance of NPD
0%
5%
10%
15%
20%
25%
30%
35%
40%
1998 2003 2006
New products introduced in
last 3 years as a % of sales
New product revenue continues its upward trend
(source: Deloitte Research, 2003)
RCM Corinne Grenier 
Creation of value – general overview
The importance of NPD
0
2
4
6
8
10
12
14
16
18
2000 2003 2006
Average elapse time from
concept to launch (in
months)
Ever-shrinking product development cycle time
(source: Deloitte Research, 2003)
RCM Corinne Grenier 
Creation of value – general overview
How to innovate in milk?
• Form (powder,…)
• Taste (strawberry,…)
• Content (vitamins,…)
• Size (liter, 30cl,…) 
• New markets (Russia,…)
• New segments (soybean milk for vegetarians,…)
RCM Corinne Grenier 
Illustration 
Creation of value – general overview
4,80
Actimel
• 6 units
• 2.70 €
2,70
La Laitière
• 8 units
• 2.70 €
1,55
Danone nature
• 12 units
• 2.30 €
2,19
Yop
• 1 bottle
• 1.64 €
1,89
Bio
• 12 units
• 2.84 €
Price
(€/kg)
Source(s): Store check
0,78 Distributor brand
• 16 units
• 1.56 €
Example : Actimel – « There’s one tiny big difference »
Illustration 
RCM Corinne Grenier 
Creation of value – general overview
• Strategy
– The art of building and developing a sustainable competitive 
advantage (SCA)
– This SCA relies on the distinctive characteristics of the firm’s offer
• Innovation is a major differentiation tool
– Positively impacts the firm’s competitive position
– Whether the firm has chosen a differentiation or cost strategy
• Differentiation can take different forms
– Being first
– Being best
– Being the only one
– Being different
RCM Corinne Grenier 
Innovation and strategic advantage
Innovation and strategic advantage
• Novelty in product/service (be first)
– Introducing the first…walkman, camera, telephone bank, on-line retailer,…
– First mover advantage but also…disadvantage
– e.g. Sony’s Walkman®
• Novelty in process (be best)
– Producing faster, cheaper, more customized 
– e.g. Amazon, Benetton,…
• Legal protection (be the only one)
– Offering something others cannot do (unless they pay you a license or other fee)
– e.g. drugs like Zantac®, Viagra®,…
• Shaping the game (be different)
– Changing the players, added value, rules, tactics or scope (PARTS) of the game; 
new business model
– e.g. Dell, IKEA
RCM Corinne Grenier 
Innovation and strategic advantage
Illustration 
Four types of strategies based on Innovations
RCM Corinne Grenier 
Innovation and strategic advantage
Change in 
the Value 
Proposal
Strong / radical Strategic innovation 
based on offer
(ex. Formule 1)
“whole” strategic 
innovation
(ex. Zara, Ikea) 
Incremental / 
moderate
Innovation of 
improvment
(ex. Benetton)
Strategic innovation 
based on 
organization model 
(ex. Ryanair)
Incremental 
/moderate
Radical / strong
Change in the Value Structure 
From Strategor, Chapter 6
Constraints in choosing innovation strategy
• Firm size
– Influences choice between broad front and focused innovation strategies
– Small firms are ‘focused’
• Firm’s established product base and related competencies
– Influences the range of technological fields and industrial sectors in which it can hope 
to compete 
– e.g. chemical firms do not innovate in computers…
• Firm’s nature of products and customers
– Influences degree of choice between quality and cost
– Food firms have wide choice between cost and quality innovation strategies; drug or 
aircraft firms require large scale expenditure on product development and rigorous 
testing
RCM Corinne Grenier 
Innovation and strategic advantage
Creating value
• Understand the future
– Predicting change?
• Understand how technologies will evolve
– The role of technology
– Both your own and those on which you rely (complementary technologies)
– Role (and weaknesses) of experts
• Understand your competitors’ strategy
– Future products and services
• Understand how customer needs will evolve (see PPT Track Three)
– But what about disruptions?
– Market segmentation and customer innovativeness
– New markets, new needs: the innovator’s dilemma (see PPT 1b)
• Capturing created value 
RCM Corinne Grenier 
Innovation and strategic advantage
• “There is no reason anyone would want a personal computer in their home” 
(Ken Olson, CEO, Digital Equipment Corp., 1977)
• “I think there is a world market for maybe five computers” 
(Tom Watson, CEO, IBM, 1948)
• “640 Kbytes of memory ought to be enough for anybody”
(Bill Gates, Microsoft, 1980)
• “The war in Vietnam is going well and will succeed”
(Robert MacNamara, 1963)
• “Gaiety is the most outstanding feature of the Soviet Union” 
(Joseph Stalin, 1935)
• “I cannot conceive any vital disaster happening to this vessel” 
(Captain of Titanic, 1912)
• “Prediction is very difficult, especially about the future”
(N. Bohr)
RCM Corinne Grenier 
Innovation and strategic advantage – Predicting change? 
• Technology and R&D play a strong role in creating value
– In the 90’s ‘business process reengineering’ used computer and IT 
to lower costs (e.g. in order processing)
– Flexible production technologies have allowed firms to custom 
design certain products to fit specific customer needs better (e.g. 
Benetton)
– Computer and IT also used to reduce the cost of transacting with 
suppliers (e.g. EDI, internet buying platforms) and customers (e.g. 
CRMsoftware, internet B2C) 
– In general, technology has been the major driver to facilitate 
(reduce costs of) communication and transactions (internet, mobile 
phones, fax,…)
RCM Corinne Grenier 
Innovation and strategic advantage – Understanding how 
Technologies evolve
• The story of Polaroid
– 1948: introduce first instant camera
– 1948-72: continuous improvements (e.g. color photos). In 1972, launch the 
SX-70
– 1972: in the top 50 companies of Fortune 500 (worth 90 times earnings)
– 1972-90: series of flops, incl. Polavision, moving version of instant 
photography, but inferior to video
– 1990’s: digital imaging technology broadly available
– 2001: files for Chapter 11
• Morale
– Successful firms develop wetware that leads to innovative products which 
satisfy customer demands
– Competition (often arising from new technologies) erodes profitability of 
firms that fail to innovate continuously
RCM Corinne Grenier 
Innovation and strategic advantage – Understanding how 
Technologies evolve
Illustration 
Performance
Time
Maturity
Takeoff
Ferment
Discontinuity
The Industry Life Cycle 
as a S curve
The evolution of any 
industry is represented 
trough this S curve. 
Depending on the dynamic 
of innovation (and 
especially technologies 
innovations and new users 
expectations) as well as the 
dynamic of competition, 
each phase of the S curse 
lasts more or less.
RCM Corinne Grenier 
Innovation and strategic advantage – Understanding how 
Technologies evolve
Performance
Time
Be responsive
and flexible
but controlled
Can we make
$100K?
And service them?
Will it work?
Exploration, fun, 
creativity key
Will it work?
Exploration, fun, 
creativity key
Core idea:
Forecasting S curves?
(Source: R. Henderson, Technology Strategy, MIT)
Illustration: the nature of technical work changes 
RCM Corinne Grenier 
Innovation and strategic advantage – Understanding how 
Technologies evolve
RCM Corinne Grenier 
Innovation and strategic advantage – Understand your 
competitors’ strategy
Rivalry 
Among
Competitors 
Threat of
Potential 
Entrants
Bargaining
Power of
Customers
Threat of
Substitute 
Products
Bargaining 
Power of
Suppliers
Main ideas
 Innovation modifies the 
competition rules within sector 
and especially the Key Success 
Factors of the sector
 the strategy for innovation 
consists in creating new 
competition rules by modifying 
one or more of the 5 forces which 
structure any sector (see Porter’s 
model)
RCM Corinne Grenier 
• Players
– Bring a new player
– e.g. NutraSweet and Holland Sweetener
• Added Values
– Raise your added value or lower added value of others
– e.g. Dell
• Rules
– Change rules that determine what actions are possible
– e.g. Meet-The-Competition (MTC) clause, Most-Favored-Customer (MFC) clause
• Tactics
– Influence perceptions by other players
– e.g. Wal-Mart
• Scope
– Adding range of competitive factors (e.g. Sega’s Sonic new 16-bit console vs. Nintendo 8-bit 
Mario, or Japanese car industry moving the scope of competition from price to quality to 
flexibility and choice)
– Transferring across different application contexts (e.g. polycarbonate wheels from rolling 
luggage into children’s toys, micro-scooters…)
RCM Corinne Grenier 
Innovation and strategic advantage – Understand your 
competitors’ strategy
Various ways to “shape the 
game” by modifying the 
structures and rules of one or 
more of the 5 forces on any sector 
Innovation and competitiveness 
Bargaining 
Power of
Suppliers
Threat of
Substitute 
Products
Bargaining
Power of
Customers
Threat of
Potential 
Entrants
Rivalry 
Among
Competitors 
Innovation
 reduced EOS 
(telecoms, publishing)
Innovation 
(aluminum for steel cans,
PC vs minis) 
- ‘Lock-in’ to technological 
standards (VCD players)
-Patent protection 
(pharmaceuticals)
Innovations essential to 
firm’s input
(microprocessors
for computers)
Innovations 
that reduce technological
dependence (engineering
material)
Firms can establish monopoly
position through innovation
(Polaroid with instant photography)
Firms can destroy monopoly
position through imitation (GE in 
brain scanners)
RCM Corinne Grenier 
Illustration 
Innovation and strategic advantage – Understand your 
competitors’ strategy
• 1. Uniqueness
– Do great ideas make great riches?
• 2. Complementary assets
– Can we make money without being unique?
• 3. Power in the value net
– What determines the inventor’s share in the value net?
RCM Corinne Grenier 
Innovation and strategic advantage – Capturing created 
value
How to capture value? 
Uniqueness – Do great ideas make great riches?
• Controlling the knowledge generated by an invention
– Accumulated tacit knowledge
• e.g. product design skills (Rolls-Royce)
– Product complexity
• e.g. IBM and mainframes (not true with PCs), Airbus
– Secrecy
• but no total protection, sharing knowledge sometimes more effective
• e.g. open source software
– Intellectual Property rights
• e.g. pharmaceuticals
– Developing or acquiring technology?
• Staying ahead of competition
– Learning curve
• e.g. semiconductors
– Lead-times
• e.g. pharmaceuticals, aerospace
RCM Corinne Grenier 
Innovation and strategic advantage – Capturing created 
value
Transition: … innovation is both essential and unwanted…
• Change is disruptive – to be avoided if possible
– And very often companies are reluctant to changes (see Track 4)
• Change obsoletes corporate expertise and production investments
– Polaroid produces instant film and cameras –not digital!
– Kodak produces film –not digital cameras!
• Change devalues personal ‘intellectual property’
– I know Cobol –not C++!
– I know tubes –not transistors!
– I know manned aircraft –not drones!
• Thus introducing major innovation is not easy, even when you understand 
the principles…
RCM Corinne Grenier 
Risks and Obstacles to Innovation
RCM Corinne Grenier 
Risks and Obstacles to Innovation
Type 1
Dacoda
Type 2Karavel
DominoPizza
Formule1
Banque Directe
Mobicarte
Type 3
Amazon
Smart
Low High
Low
High
MARKETING
UNCERTAINTY
TECHNOLOGICAL 
UNCERTAINTY
Example 
RCM Corinne Grenier 
Risks and Obstacles to Innovation
• Organizational
– Lack of clear strategic objectives
– Organizational instability
– Jobs/roles not clear
– Difficulty to attract competent people in SMEs
– Managing information on new technology
– Quantifying the cost of the innovation process
– Resistance to change
• Management
– Engineering/technology focus (especially in high-tech SMEs) vs. management
– Individual vs. team
– Tendency to make vs. buy, NIH syndrome
• Financing
• Market
– Demand uncertainty, market needs, diffusion
– Focus on existing vs. emerging markets
– Market structure, competitiveness
– Barriers to entry: norms, standards,…
• Technological
– Technological uncertainty
– Manufacturability
RCM Corinne Grenier 
Risks and Obstacles to Innovation
Potential responses to 
the risks of innovation
• Work up-front
– Clarify strategic objectives
– Motivate teams
– Prepare project
• Be careful
– Evaluate and quantify risks
• Create barriers to entry
– Economies of scale
– Cost and risks sharing
– Learning curve
– Product differentiation
– Switching costs
– Funding
– Localization
– Patents and brands
– Pricing policy
– Access to complementary assets (e.g. distribution 
network)
– Accessto raw material
– Norms and standards
– Government subsidies
Obstacles to innovation
(Source: BCG – BusinessWeek, 2006, ‘The world’s most innovative companies’)
8%
9%
17%
18%
18%
21%
21%
25%
26%
28%
32%
0% 5% 10% 15% 20% 25% 30% 35%
Competitors are more innovative
In-market performance is below expectation
Insufficient SR management support
Marketing or communication
Not enough great ideas
No good way to measure
Selecting the right ideas
Limited customer insight
Risk-averse culture
Lack of coordination
Development times too long
RCM Corinne Grenier 
Risks and Obstacles to Innovation
RCM Corinne Grenier
Illustration - Are you prepared to manage risk and innovation? - take 
a quick look using a simple version of the Innovation Readiness 
Assessment (IRA)
To go further: 
http://www.desai.com/our-
services/tools/innovation-readiness-
assessment-ira-
/tabid/88363/Default.aspx
Enablers Green Yellow Red Thoughts
We see our connections to the overall strategy
We understand the need and our mandate for 
innovation
Our team members work and communicate well 
with each other
Our team works and communicates well with 
other functions
We understand our roles
We embrace change
We have capacity for innovation (time & 
resources)
We are courageous and take appropriate risks
We are empowered by leadership
We know our customers and what they provide 
to their customers
We have a good flow of ideas
We continually ask "Why?" and look for better, 
faster, value, necessity
How it work?
. For each set of Enablers / Risks 
indicate your rating: Works in our 
favor (Green), Need to be aware of 
(Yellow), May be trouble(Red)
. Once you have indicated your 
rating, list your thoughts on 
(a) why and how to mimize (Red) 
and Maximize (Green)?
(b) What can you do to move items 
from(Yellow) to (Green)?
RCM Corinne Grenier 
Non compulsory reading : 
Victor Dos Santos Paulino, Najoua Tahri, « Les obstacles 
à l'innovation en France : analyse et recommandations 
», Management & Avenir 2014/3 (N° 69), p. 70-88.