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DEI Bootcamp 2021

Applied Innovation

Ideas, Challenges, Tools and Discussions

Learning Goals

  • Understand what Applied Innovation is

  • Understand the factors determining a successful business

  • Understanding the necessity of innovation

  • Getting to know structured methods for innovation

  • What to look out for when innovating a business (model)

  • Learn to design and innovate a business model

What is Applied Innovation?

Innovation is more than just a theoretical concept. In fact, seen from an organizational perspective, innovation is rather a mindset that should be part of the company's thinking and processes.

To become innovative, organizations need to adjust their thinking: just because something worked in the past doesn't mean that it will work in the future, given that organizational environments change constantly and often unexpected.

While the theoretical field of innovation research is broad and usually searches for new business, strategic techniques and methods as well as their processes and influence on an organization, the practical use of innovation in a real-world scenario is described a Applied Innovation.

Applied Innovation is the use of theoretical knowledge in practice situations regarding real-world problems. Those problems and the necessity to solve them can arise from internal company-factors such as from a business or technical challenge, or from external factors such as technological change.

 

Applied Innovation is a highly engaging process. It is important to notice that innovation should not be regarded as a single task, but as a process. Furthermore, the process never ends: once you have innovated a process, product, or service, the innovation cycle starts again and you can check for more necessities for innovation again.  

Innovation
  • Technology Essentials

  • Knowledge of Science & Engineering

  • Understanding the processes & influences on organizations

  • Techniques, methods

  • Skills to Develop

  • Skills to Build

  • Skills to find problems

Applied Innovation
  • Knowing the impact of change on processes

  • Generating ideas & evaluating them

  • Implementing ideas

  • Using skills & creative approaches to solve real-world problems

  • Generating value for company & customer

What's important when defining

Applied Innovation

500 Terry Francois Street, San Francisco, CA 94158

info@mysite.com  Tel: 123-456-7890

Innovation does not necessarily mean changing something existing to something better. In fact, there are many definitions about what innovation is exactly. Unsurprisingly, all of them are different.

The following tiles give you an overview of what can be regarded as innovation. Keep in mind that innovation is not only related to technology or entire business models, and is not dependent on the amount of change achieved through an innovation. Processes, products, or services can also be subject of innovation.

 

 

Invent

something new

 

 

Improve something existing

 

 

Keep something existing and add something new

 

 

Remove something existing and add something new

 

Remove something existing to make processes, products or services more efficient

 

 

Adopt a model from a different domain

Please go to the discussion board and post about an experience you have made with innovation. Consider the following questions in your post:

  • What was the subject of innovation?

  • What was the innovation?

  • Was it applied innovation, and why?

  • How was the innovation achieved?

Innovation can be

Random vs. Planned

Accidental innovations, as you may expect, are rather rare (which does not mean it can't happen!). To be on the safe side and not let the environment dominate one's business, but one's business dominate the environment, organizations should try to plan innovation and achieve smaller innovations on a regular basis. Of course, bigger innovations may also be targeted, but many small improvements are the backbone of innovation.

 

Why you ask? Click through the slideshow and reflect.

Many Small Steps

Many small, even incremental, innovations make one big innovation.

The mindset for innovating should be regarded as the innovation, and the sum of all innovations as the outcome.

 

Before we continue, let's take an excursion to the

Pareto Principle

First, watch the video about the Pareto Principle, which is often also known as the 80/20 rule.

The Pareto Principle states that 20% of your work account for 80% of your outcome or productivity. Inversely, this means that if you would like to achieve those last 20% of productivity, it will cost you four times as much work as you have already invested!

Think about it in a more relatable example: you are expecting people over in 3 hours for a party you're hosting, and it would take you 5 hours to clean your whole house. Now, you could clean 80% of it in 1 hour,  and you'd have 1 hour left to decorate it nicely and another hour to get ready in peace before people arrive. What would you do?

Exercise

Now, how does this concept apply to Innovation? Ask yourself how the Pareto Principle connects to innovation. Post a thought on the discussion board if you think the principle applies, and why a company should or shouldn't keep the method in mind when thinking about innovation.

What we have learned so far about

Applying Innovation

After discussing the theory, we can say that Innovation is

  • not only a matter of quality, but also quantity of ideas

  • rare to happen randomly, but can be directed

  • a process to make part of your routine

Picture1.tif

If we want to be successful at Applied Innovation, we need to think about

Who We Innovate For

Generally speaking, we can say there are only two players in the game we can innovate for: ourselves, and not ourselves. Mind-blowing, right? But it is more complex than it sounds, as both is interdependent at any time, and can be influenced by third parties, for example the competitive market environment or technological evolution, when brought together.

Let's look at one scenario: we innovate for ourselves by making a process more cost efficient. Our costs go down, everyone is happy. Right? But what is the price of reducing our costs? We might have created a terrible customer experience, and our clients are starting to migrate over to our competitors.

The inter-dependencies for innovation interaction can look as follows:

Company

would like to make products, processes and services more cost efficient & raise profits

The customer changes their needs, leading to a necessity to innovate

Customers have the power to pressure companies into innovation by changing suppliers

The company innovates and can stay successful in the market, or fails to innovate and potentially goes out of business

Maybe, the innovation is game-changing, and the unexpected changeled to a market domination

Customer

Would like to have an ideal value for a product or service, has needs and expectations

The environment changes: Legal restrictions prevent customers from getting the company's products/services as they used to

Environment

Can be competitors with new products, new technologies, new legal restrictions, or, well, a pandemic

Exercise

Think about a different scenario: what if the customer starts this cycle by changing needs or demanding a better product/service, or the company starts this cycle with an innovation?

If you like, post about your ideas or challenges you might encounter in the discussion board.

In any case, we have learned that Applied Innovation requires us to

Design an Innovation

When we innovate, we always think about the technological side. But when technology, products, processes or others change, it might automatically affect our whole business model.

In order to effectively innovate, we need to understand how our product meets exactly what we can do, what the customers needs, and what the environment allows. All of these are part of our business model and allow us to design an innovation to our needs:

  • A business needs to consider Who, What, How, and Why: What do we do, who do we do it for, how do we deliver it to them, and why are we the best ones to do so?

  • Aversa & Baden-Fuller (2015) discuss a simplified view of Business Modelling as a continuous design circle between Value Creation, Value Delivery, and Value Capture

  • Click through the slideshow to learn more about how value should be created, delivered, and captured

Who

Customer Scope

  • Think back to the customer development module: what problems do they need solved?

  • Imagine who your customers are: what demographic are you targeting, what makes them different from others, what do they need, and when do they need it?

  • Use personas to describe your customers

  • Use the Value Proposition Canvas to describe your target customer's pains and gains

  • To dive deeper into your customer's minds, you can use tools such as the Kano model on customer preferences and satisfaction

  • Try to think about the market you will target

Optional Readings

Understanding the

Customer

Applied Innovation requires additional skills to knowing how a technical change in our product affects our finances. We need to understand the customer, and that has various reasons.

 

The, arguably, best reason: we can make the most beautiful innovation in our product, but if the customer doesn't like it, they don't buy it, and our business model breaks apart.

One way to do this is by creating a persona. We build an image in our mind of how the customer group that buys our product looks like:

  • Who is our target customer?

  • What does she/he like?

  • Are we targeting a specific demographic?

  • What are their motivations and goals?

  • What is their typical spending power/salary?

  • How can we help?

When creating a persona, keep in mind that the solution we are designing should meet the VRIN criteria mentioned in 'Design an Innovation': Valuable, Rare, In-Imitable, Non-Substitutable. 

 

We can also summarize the findings in a Value Proposition Canvas, such as the following template created by Strategyzer:

dbb_Value_Proposition_Canvas-768x543.jpg

Thinking Exercise

Think about a product in your life that you have bought, maybe the laptop right in front of you, a car, software or anything else. Imagine how it:

1) gets your job done, relieves your pains, and brings you gains

2) what product or service the company created that meets your gains, relives your pains, and how it helps you to get your job done

You do not need to post anything, but questions are always welcome!

Thoughts on Business Model Design

Prof Moment

Applied Innovation, as we learned, involves designing a story around your ideas, may it be for product, service, or process innovation.

But how much do innovation and design actually have in common? Are there parallels, or could the disciplines profit from each other?

Watch the video and draw your own picture of the connection.

There is only one constant in the world. It is called change.

Daniel Borel

Co-Founder, Logitech

Stand out from the crowd

How to be VRIN

In 'Designing your Business', we talked about being valuable, rare, inimitable, and non-substitutable (VRIN) to keep a competitive advantage.

Read the excerpt from "An Assessment of Resource-Based Theorizing on Firm Growth and Suggestions for the Future" (Nason & Wiklund, 2015) on the importance of VRIN-criteria from a Resource-based view (RBV)

RBV Characteristics of Resources: VRIN

According to RBV, firms which possess bundles of resources that are VRIN will enjoy sustained competitive advantages and, consequently, superior firm performance (Barney, 1991; Wernerfelt, 1984). The value and rarity of resources allow firms to create new economic value, while inimitability and non-substitutability provide the isolating mechanisms that lock in rents associated with those resources (Barney, 1991; Peteraf, 1993; Rumelt, 1984). Recent studies assessing the resource-based view have been largely supportive of its predictive power on performance. While Newbert (2007:121) suggested that RBV “has only received modest support overall,” Crook and colleagues (2008) employed meta-analysis and found a substantial correlation (r=.29) between VRIN resources and performance.

    While growth studies are often silent on precisely how VRIN resources are connected to growth, conceptually, RBV proposes several avenues. First, VRIN resources allow firms to exploit extant opportunities inaccessible to firms with non-VRIN resources. For instance, special knowledge or technical capabilities may allow for the development of new products or the entry into new markets (Prahalad & Hamel, 1990). Firms lacking these valuable and inimitable resources will be unable to pursue similar growth strategies to the same extent (cf. Barney, 1991). Alvarez and Busenitz (2001) argue that the cognitive ability of entrepreneurs is an inimitable resource that facilitates opportunity recognition and exploitation. Individuals without this VRIN cognitive ability will be unable to match the same level of success in their pursuit of new opportunities. Beyond creating the potential for first-mover status (cf. Lieberman & Montgomery, 1988), VRIN resources should allow firms to achieve sustained growth. If a firm possesses VRIN resources, the same isolating mechanisms that preserve rents may also allow firms to continue to generate value in a new sector without the threat of market erosion. These ex-post limits to competition (Peteraf, 1993) are absent in imitable resources and are cornerstones of sustainable competitive advantage. While firms with non-VRIN resources also pursue opportunities, both the ex-ante type of opportunity and the ex-post competition protection will be limited. Firms that pursue opportunities based on VRIN resources will be able to gain first mover advantages in unique markets and enjoy sustained growth as the market develops.

    Second, VRIN resources enable firms to grow their existing products and services. Firms with VRIN resources can generate more value for customers than competitors with non-VRIN resources (Peteraf & Barney, 2003). Increased customer value from VRIN resources drives subsequent demand for the use of those VRIN resources (Peteraf, 1993). Because VRIN resources are rare and inimitable, those few firms who control them and supply them to the market have greater growth opportunities (Peteraf & Barney, 2003). VRIN resources also allow firms to implement efficient strategies (Barney, 1991), enables firms to lower prices and drive market expansion. While firms with non-VRIN resources may pursue similar strategies, their inability to match the strategic initiatives of firms with VRIN resources or to protect gains from their own initiatives will limit their growth prospects relative to firms with VRIN resources.

    Finally, while growth and competitive advantage are generally considered concomitant in the RBV literature, recent research has elaborated on VRIN resources’ value creation capacity independent of the resources’ ability to capture value (Peteraf & Barney, 2003). While it is generally agreed that VRIN resources provide limits on appropriation by competitors in ways that non-VRIN resources do not (cf. Barney, 1991; Peteraf, 1993), how different internal stakeholders may appropriate the value created by VRIN resources remains an open question. The value creation perspective has argued that, unlike other performance outcomes that need to be negotiated amongst a complex web of potentially powerful stakeholders (Coff, 1999), growth may not be subject to the same appropriability concerns. Growth directly reflects the value created by a firm, whereas many other aspects of performance (i.e. profitability) are recorded after value has been distributed among different stakeholders (Crook et al., 2008). Thus, it can be argued that growth provides a particularly salient performance outcome for testing the competitive advantage predictions of RBV.

Nason, Robert & Wiklund, Johan (2015), "An Assessment of Resource-Based Theorizing on Firm Growth and Suggestions for the Future". Journal of Management. DOI: 10.1177/0149206315610635

Read the full text here (optional)

Watch a short clip on how to

Stand Out as a Business

The video demonstrates the importance of being innovative

and staying competitive in the market.

Exercise

In your opinion, what can a start-up company do to keep being

innovative rather than being at risk of disruption? Is this applicable to the product you thought of earlier?

Make a discussion board post.

You may refer to points made in the reading or video clip.

Of course, standing out is hard. One thing that can help:

Structured Creativity

We have learned that innovation is a cycle rather than a one-way-street. To be innovative, we need ideas, select them, and implement them.

The best approach is to be open: when generating ideas, it is more about quantity than quality. We can follow a few rules:

No Idea Is Wrong

Ideas are never bad. They will not initially solve all the problems, but they might act as a basis for new ideas.

Ideas that only partially meet a requirement might be combined to form a better solution approach.

The cycle of

Creative Problem Solving

After collecting ideas as diverse as possible, we need to narrow them down to the best ones for our problem. While we think divergent when generating ideas, we need to become convergent and selective when deciding for an idea.

 

Remember: deciding does not mean it has to be one single idea from a pool of hundreds. We can merge ideas and combine features. Everything is possible with the targeted solution in mind.

Picture2.tif

Finding ideas through

Creativity for Innovation

You might get stuck trying to find ideas for your challenge. ​Structured approaches for creative idea generation, Creativity Techniques, can help you find lots of ideas. To analyze those ideas, you can use Quality Management Measures, which give you a defined process of sorting and deciding on approaches.

There are plenty of approaches out there and it would take us too long to discuss. The following picture gives you an overview of some of the methods for generating and evaluating ideas.

Picture3.tif

Thinking Exercise

Think about creativity with and without structured approaches. Imagine for yourself how a creativity tool can help you find a solution to a challenge.

 

Remember the product you thought about in the earlier exercises: If you were to find that solution, which perspectives would you include in the idea generation process in addition to your own expertise? Would you take a creative approach to idea generation and problem solving?

With our basis, let's apply innovation approaches to design and innovate a

Business Model

We now have, ideally, generated many ideas. We discussed them all, and picked out the best one or combined many into one idea we would like to pursue.

  • After finding the framework for your business model, a more detailed description of your offering needs to be created

  • The Business Model Canvas offers an easy-to-use tool that displays the parts of your business model in a graphic way

  • It functions as a description and innovation tool which is easy to change and a good basis for a written business plan

 

Watch the video explaining the Business Model Canvas, what it does, and how to use it to describe, develop and innovate a business model

After finding an approach to solve our problem, we need to apply it to our

Business Model

The idea, or the solution approach for our problem, is the basis for our Value Proposition we talked about earlier.

The Value Proposition in combination with our target customers and their needs will determine the necessities of our business model.

We can simplify a business model, as we learned, by looking at four factors: Who, What, How, and Why. What do we do, who do we do it for, how do we deliver it to them, and why are we the best ones to do so?

We have answered the 'Who' in our Customer Perspective, and the 'What' by finding an idea for our innovation. By combining them and making all four factors visible in a simple tool, we can work out the 'How' and 'Why' as well.

A practical example - using the canvas to describe the

Shopify Business Model

Remember the key factors when designing your business​

Who

Customer Scope

What

Value Proposition

How

Value Delivery

Why

Value Capture

Key Partners

  • Business Angels

  • Payment Gateway Companies

  • Integration with vendors, e.g. Amazon

  • Mergers & Acquisitions such as Boltmade

  • Integrators

Key Activities

  • Tech Support

  • Software Development

  • Marketing, Sales, Blogging

Key Resources

  • Venture Capital

  • Platform (soft- and hardware)

  • Multi-vendor marketplace

Value Proposition

  • E-commerce host and build

  • Enhance digital commerce

  • Simplify merchant tasks

  • Improve flash sales

  • Software for online-stores and retail point-of-sale systems 

Relationships

  • Platform

  • Clean, Simple, Easy to Use

  • Automated- & Self-Service

Channels

  • Website

  • Blog & Social Networks

  • Web and mobile storefronts

Customers

  • Brands (e.g. Tesla, Red Bull, Nestle)

  • SME companies

  • Entrepreneurs

  • Retailers

  • Merchants

Cost Structure

  • Platform development and maintenance

  • Employees and Offices

  • Legal costs and taxes

  • Marketing and Integrations

Revenue Streams

  • Subscription starting at $29/month

  • Add-on features

Thought

While the Business Model Canvas offers a great basis for a written business plan, it should not be used to present to potential investors as it is rather an generation and innovation tool than a concrete, detailed business plan.

Exercise

Imagine you would like to make a change in the Shopify business model canvas, for example by adding private people as customers, or anything else you can think of. Think of one change you would implement using the sticky note method from the video. Post your change in the discussion board, name the field of the canvas and explain the innovation.

Summary

  • Applying Innovation is a dynamic and ongoing process that lives from creativity, openness, and ideas

  • To innovate, we need to respect the impact on our business model, we need to know who our customers are, what value we offer, how we create the value, and why we stand out from the competition

  • To gain and maintain a competitive advantage, our innovation should be Valuable, Rare, Inimitable, and Non-Substitutable (VRIN)

  • A Business Model Canvas is an easy tool to visualize a business model, make quick changes, innovate processes, products or services, and have a basis for a business plan

From Here

Outlook, Thoughts and Optional Readings

Outlook

In DEI, you'll learn a lot more about creativity, design, strategies to innovate and build business models, and react to internal and external change through innovation. Innovation and Marketing as well the influence of technological change will also play a role in the program.

Something to think about

  • How would you define Innovation after this lecture? Has your view changed from before?

  • Where would you start the innovation process?

  • How do cultural backgrounds and limitations affect innovation?

Optional reading on the connection of design and business models

Nancy M. P. Bocken, Ingrid de Pauw, Conny Bakker & Bram van der Grinten (2016). Product design and business model strategies for a circular economy. Journal of Industrial and Production Engineering, 33:5, 308-320, DOI: 10.1080/21681015.2016.1172124

References

References

Fang Zhao, (2005). Exploring the synergy between entrepreneurship and innovation. International Journal of Entrepreneurial Behavior & Research, Vol. 11, Iss. 1, pp. 25 - 41.

 

Paolo Aversa, Stefan Haefliger, Alessandro Rossi, & Charles Baden-Fuller (2015). From Business Model to Business Modelling: Modularity and Manipulation. In: Business Models and Modelling. Published online: 27 Oct 2015; 151-185.

Robert Nason & Johan Wiklund (2015). An Assessment of Resource-Based Theorizing on Firm Growth and Suggestions for the Future. Journal of Management. DOI: 10.1177/0149206315610635.

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