INNOVATION STRATEGY

Setting the direction

AGENDA

READINGS• Mapping Your

Innovation Strategy• Creating New

Market Space• Case: Evolution of

the Circus Industry

LEARNING OBJECTIVES:• What is strategy? What is an

innovation strategy?• What is value innovation?• How can this be applied to

understanding the circus industry?

• What is a disruptive technology/innovation?

STRATEGY?

• A strategy is the way in which an organization chooses to meet its goals and objectives.

• A strategy defines appropriate decisions and actions.

INNOVATION STRATEGY?1. Innovation strategy determines to what

degree and in what way a firm attempts to use innovation to execute its business strategy and improve its performance.

2. What does an innovation strategy include?1. Target: What market?2. Ideation: What innovations?3. Conversion: How to plan, select and develop

innovations?4. Diffusion: How to commercialize?

Typology of Strategies(James Gardner )

Play-to-win strategy• Exploration• Expectation of a significant

competitive advantage• Relies on semi-radical and

radical innovations• New technologies and

business models for breakthrough innovations

• Lead the competition

Play-not-to-lose strategy• Exploitation• Maintaining existing

competitive advantage• Incremental innovation to

strengthen existing products• Keeping up with the

competition

An example of internal process innovation in PNTL Strategy

Example of Amazon, PTW

• Complete redesign of business model for delivery of books from publisher to consumer

• Heavy reliance on technology• Responsibility for shipping with publisher• Required heavy up front investment• Now has expanded beyond books• Challenge was that it took 10 years to turn a

profit.

VALUE INNOVATIONKim & Mauborgne

• Research showed that managers of high-growth companies think in terms of value innovation while managers of less successful companies think in terms of conventional strategic choices. And…

Represent…Incremental Innovations

Radical Innovations

% of launches.. 86% 14%

% of revenue.. 62% 38%

% of profits… 39% 61%

VALUE INNOVATION

• Creating products or services for which there are no direct competitors – and use those offerings to stake out and dominate new market space.

• Examples:– Quicken Software from Intuit– Starbucks– Home Depot

Comparing Conventional To Value Innovation Logic

Conventional Logic Value Innovation Logic

Industry assumptions

Conditions given Shape conditions

Strategic focus Beat the competition Create quantum leap in value

Customers Retain & expand, segment & customize

Serve masses, focus on commonalities

Assets & capabilities

Leverage existing Create what is needed

Product/Service Offering

Maximize value within traditional boundaries

Total solutions for customers regardless of boundaries

Discovering the Value Curve

Apply this analysis to the circus industry…

Traditional Circus Industry

1. How would you assess the attractiveness of the circus industry in the early 1980’s? What would you conclude from your industry analysis?

2. What were the factors the traditional circus companies competed on? What do you like or dislike about the traditional circus?

Origins of the Circus

Classic circus:1. Equestrian acts2. Clowns3. Acrobats4. JugglersCreated by Philip Astley in 1768

Evolved to the 19th & 20th CenturyRingling Brothers and Barnum & Bailey’s Circus• Three-ring format• Emphasis on spectacle• Mobile circus• Typical clowns• Star performers such as

Clyde Beatty, wild animal trainer

Tom Mix, Rodeo Rider

Revenue based on ticket sales and concessions (80/20)

• Logistical requirements of tearing down and setting up

• Core workforce supplemented with local hires

• Itinerant nature makes estimating ticket sales difficult

• Marketing and publicity usually happens when the circus arrives in town

Challenges

• Ringling Brothers Modernizes• But who is their target market?• In 1984 a new option is born• Who is the audience for the “non

Circus”, Cirque du Soleil?• What is different?• Even a Clown can do it!

Current State

• When you compare Cirque du Soleil with the conventional circus, which are the factors kept by Le Cirque? Which ones were downplayed and which ones were played up?

• Which factors were eliminated by Cirque du Soleil? What are the operational and financial implications?

• What factors were created by Cirque du Soleil? Where did the idea come from?

Questions

Cirque du Soleil challenged the assumptions of the industry:

Traditional Circus• 3 Ring• Star Performers• Seasonal• One Show• Child Audience• Animals• Unrelated Acts• No Music/Dance• Low Price• High Push for concession sales• Emphasis on fun/thrills• Functional watching

environment

Cirque du Soleil• One ring• Non-star Performers• Yearly• Multiple productions• Adult audience• No animals• Story/theme• Individualized Music/Dance• High price• Profits from tickets• Emphasis on artistery• Refined watching environment

• Create uncontested market spaces where the competition is irrelevant.

• Invent and capture new demand, and offer customers a leap in value while streamlining costs.

• As opposed to red ocean strategies which represent all industries in existence – the known market space. Industry boundaries are defined and accepted, and the competitive rules of the game are well understood.

BLUE OCEAN STRATEGYW. Chan Kim, Renée Mauborgne

• Cirque du Soleil invented a new industry that combined elements from traditional circus with elements drawn from sophisticated theater.

“We reinvent the circus”

Red Ocean Versus Blue Ocean Strategy

Red Ocean Strategy• Compete in existing

market space.• Beat the competition.• Exploit existing demand.• Make the value/cost

trade-off.• Align the whole system

of a company’s activities with its strategic choice of differentiation or low cost.

Blue Ocean Strategy• Create uncontested market

space.• Make the competition

irrelevant.• Create and capture new

demand.• Break the value/cost trade-

off.• Align the whole system of a

company’s activities in pursuit of differentiation and low cost.

Disruptive InnovationsClayton M. Christensen

1. An innovation (or technology) that disrupts an existing market.2. "Generally, disruptive innovations were technologically

straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.“Christensen, Clayton M. (1997). The innovator's dilemma: when new technologies cause great firms to fail. Harvard Business Press.

For example…

EXAMPLES OF DISRUPTIVE TECHNOLOGIES (from Wikipedia)

Innovation Disrupted market Innovation Disrupted market

8 inch floppy disk drive 14 inch floppy disk drive Steamships Sailing ships

5.25 inch floppy disk drive 8 inch floppy disk drive Telephones Telegraphy

3.5 inch floppy disk drive 5.25 inch floppy disk drive Automobiles Rail transport

Downloadable Digital Media CDs, DVDs Private jet Supersonic transport

Hydraulic excavators Cable-operated excavators Plastic Metal, wood, glass etc

Mini steel mills vertically integrated mills Light-emitting diodes Light bulbs

Minicomputers Mainframes Digital synthesizer Electronic organ and piano

Personal computersMinicomputers, Workstations. Mobile Telephony Mobile Discount Operators

Desktop publishing Traditional publishing LCD CRT

Computer printers Offset printing Digital calculator Mechanical calculator

Digital photography Chemical photography UltrasoundRadiography (X-ray imaging)

High speed CMOS video sensors Photographic film Podcasting Broadcast Radio & TV