Professor Rebecca Henderson
MIT Sloan School of Management Phone: (617) 253-6618, Email: [email protected],
http://www.mit.edu/people/rhenders/home.html
Material produced and owned byMaterial produced and owned by
Effective innovation strategies answer Effective innovation strategies answer three key questions:three key questions:
How will we Create value?
How will weCapture value?
How will weDeliver value?
How will we create value?How will we create value?– How will the technology evolve?How will the technology evolve?– How will the market change? How will the market change?
How will we capture value?How will we capture value?– How should we design the business model? How should we design the business model? – Where should we compete in the value chain? Where should we compete in the value chain? – How should we compete if standards are important? How should we compete if standards are important?
How will we deliver value?How will we deliver value?– How do we manage the core business and growth How do we manage the core business and growth
simultaneously?simultaneously?– How do we use our strategy to drive real resource allocation?How do we use our strategy to drive real resource allocation?
Why have a strategy?Why have a strategy?
Why have a strategy?Why have a strategy?
1. 1. To make choicesTo make choices
Is This Your Project Pipeline?
Overcommitment destroys Overcommitment destroys productivityproductivity
Average
Value-Added
Time on
Engineering
Tasks
Number of Projects per Engineer
100%
80%
60%
40%
0%
20%
65431 2
The Timing and Impact of Management The Timing and Impact of Management AttentionAttention
Phases
Index of Attention and
Influence
High
Low
ACTUAL
ACTIVITYMANAGEMENT
PROFILE
KnowledgeAcquisition
ConceptInvestigation
BasicDesign
Prototype Building
PilotProduction
Manufacturing Ramp-Up
ABILITYTO INFLUENCEOUTCOME
Why is it so hard to kill Why is it so hard to kill project #26?project #26? It’s a “good” project!It’s a “good” project!
– It meets NPV, ROI goalsIt meets NPV, ROI goals
– An important customer wants itAn important customer wants it
– The CEO/my boss wants itThe CEO/my boss wants it
– It’s Frank’s projectIt’s Frank’s project
– It might be the project that saves my baconIt might be the project that saves my bacon Good managers can meet stretch goals (and I’m a Good managers can meet stretch goals (and I’m a
good manager)good manager) Making difficult decisions takes time Making difficult decisions takes time
and eats energyand eats energy
What can be done?What can be done?
Measure capacity, track resourcesMeasure capacity, track resources Make real decisions with real dataMake real decisions with real data Use decision tools that allow you to view initiatives in Use decision tools that allow you to view initiatives in
comparison to each other and within the context of comparison to each other and within the context of your strategic objectivesyour strategic objectives
Measure capacity,Measure capacity,track resourcestrack resources
Track Resources Over TimeTrack Resources Over Time
0
1500
3000
4500
6000
11-Sep
1-Jan
23-Apr
13-Aug
3-Dec
24-M
ar
14-Jul
3-Nov
HOURS PER MONTH
Exploratory projects
Innovation projects
Product Support
Administration
CAPACITY
Making real decisionsMaking real decisionswith real datawith real data
Technology Strategy in PracticeTechnology Strategy in Practice
Strategies are worthless unless they are linked to real Strategies are worthless unless they are linked to real resource allocation decisionsresource allocation decisions
DecideDecide– Who will make the decisionsWho will make the decisions
– How oftenHow often
– By what criteriaBy what criteria
An Assignment Given to Small Groups An Assignment Given to Small Groups of Managers at XYZ Co.of Managers at XYZ Co.
1.1. Identify the salient characteristics of your Identify the salient characteristics of your organization’s “innovation funnel”organization’s “innovation funnel”
1.1. Where do new ideas come fromWhere do new ideas come from
2.2. When are decisions made?When are decisions made?
3.3. Who is involved in these decisions?Who is involved in these decisions?
2. Draw a diagram of the innovation funnel that captures 2. Draw a diagram of the innovation funnel that captures these characteristicsthese characteristics
The innovation funnelThe innovation funnel
Phase I Phase II Phase III Launch
The Innovation Funnel:The Innovation Funnel:
Defined separation between stages: Clearly defined criteria: a Defined separation between stages: Clearly defined criteria: a way to kill “living dead” projectsway to kill “living dead” projects
Senior managers engaged Senior managers engaged at the right timeat the right time Capture ideas from everywhere, manage ideas in an organized Capture ideas from everywhere, manage ideas in an organized
way so that they turn into productsway so that they turn into products A continuous process: A continuous process: Does this fit with our strategy?Does this fit with our strategy? A picture of the business: an overview of the shape of the A picture of the business: an overview of the shape of the
pipelinepipeline Give teams the freedom they need between gatesGive teams the freedom they need between gates
An Innovation Funnel Example An Innovation Funnel Example
Initial marketing and technical
concepts
Idea
Generation
CharterContract
Launch Proposal
Post Launch Review
GatekeeperGatekeeper
Gatekeeper
Gatekeeper
Feasibility
Concept refinement and
prototype creation
Product optimization
Commercialization Production & Distribution
CapabilityLaunch &
Rollout
One page description of proposed project including objective, rationale and development routes. Early Commercial Assessment
Cross-functional development plan including project plan as contract between team and Gatekeeper.
Launch Plan including CEP approval request.
Tracks success of and key learnings from launched products
KEY
= GATE
= DOCUMENT
Gates:Gates: are major milestonesare major milestones are intended to allow passage of the projects are intended to allow passage of the projects more likely to more likely to
succeed succeed by sacrificing projects by sacrificing projects more likely to fail more likely to fail as early as as early as possiblepossible
focus decision-making. At a gate, a decision is made to either:focus decision-making. At a gate, a decision is made to either:
– Continue working on the project, moving it along to Continue working on the project, moving it along to the next stage in the funnel; orthe next stage in the funnel; or
– Stop working on the project, shelving it or canceling Stop working on the project, shelving it or canceling it; orit; or
– Get additional information and reconsider the project Get additional information and reconsider the project for passage through the same gate once that for passage through the same gate once that information becomes availableinformation becomes available
Example: The Key Questions Example: The Key Questions Answered By Each PhaseAnswered By Each Phase
PhaseReview 1 Phase
Review 2 PhaseReview 3
PortfolioReview
Phase 1:Concept
Investigation
Phase 2:Feasibility
Phase 3:Development
Phase 4:Post
Release
CurrentProductSupport
ENTER
EXIT
•Does the product make sense from marketing, technical & financial perspectives?
If yes, thenconcept
approved& full teamallocated
•What is the product spec?
•Can we develop it within budget and schedule?
•Can we produce it at the required cost & volume?
If yes, thenprototypeapproved
& full teamallocated
•Has the product been fully verified and validated?
•Have production objectives been met?
If yes, thenfull manufacturing
approved& sub-team
allocated
•Does the idea fit roughly with our strategy and resource availability?
If yes, thenconcept documentapproved
& sub-team allocated
•Is the product meeting safety, efficacy and business targets in the market?
If yes, thencloseoutapproved
& handoff toproduct support
PhaseReview 4
IdeaGeneration
Reasons to have a strategy:Reasons to have a strategy:
22. . To be able to change itTo be able to change it
Initially, PDAs did not seem to be a Initially, PDAs did not seem to be a threat to PCs:threat to PCs:
Speed,Power,Memory
Time
PCs
PDAs
?
PDAs sold to customers with different PDAs sold to customers with different needs:needs:
Speed,Power,Memory
Weight/cost
PCs
PDAs
But as PDAs improve they may come to But as PDAs improve they may come to challenge PCschallenge PCs
?Speed,Power,Memory
Weight/cost
PCs
PDAs
Or consumer preferences may changeOr consumer preferences may change
?
Speed,Power,Memory
Weight/cost
PCs
PDAs
How shall we capture How shall we capture value?value?
Uniqueness, Complementary Assets & Uniqueness, Complementary Assets & the Structure of the Value Chainthe Structure of the Value Chain
The second of two key questions:The second of two key questions:
How will we Create value?
How will weCapture value?
How will weDeliver value?
How shall we capture value?How shall we capture value?
How should we design the business model? How should we design the business model?
Where should we compete in the value chain?Where should we compete in the value chain?
How should we compete if standards are How should we compete if standards are important? important?
Three key ideas:Three key ideas:
UniquenessUniqueness– Controlling the knowledge generated by an innovationControlling the knowledge generated by an innovation
Complementary assetsComplementary assets– Controlling the assets that maximize the profits from Controlling the assets that maximize the profits from
innovatinginnovating
Understanding the dynamics of the value chainUnderstanding the dynamics of the value chain– Should we buy our suppliers? Distributors?Should we buy our suppliers? Distributors?– Should we outsource our manufacturing… Should we outsource our manufacturing…
distribution… sales… capability?distribution… sales… capability?
Sources of UniquenessSources of Uniqueness
Intellectual property protectionIntellectual property protection– PatentsPatents
• Finite lengthFinite length• The right to prohibit “producing”The right to prohibit “producing”
– CopyrightsCopyrights• The right to prohibit “copying”The right to prohibit “copying”
SecrecySecrecy– Trade secrets & non compete clausesTrade secrets & non compete clauses
– ““Tacit” knowledgeTacit” knowledge SpeedSpeed
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