INNOVATION MANAGEMENT
TABLE OF CONTENTS
MODULE 1: INTRODUCTION 3
1.1: What is innovation? 3
1.1.1 Changing the basis of competition through innovation 3
1.1.2 Four types of innovation and their dynamics 5
1. Four types of innovation 5
2. New to the Firm versus New to the World 6
3. The dynamics of innovation 7
1.2: The drivers of innovation 8
1.2.1 Why the market for innovation fails & why monopolists are not necessarily bad 8
1. Economic Growth: The ingredients 8
2. The failing market for R&D 9
3. Does Monopoly encourage innovation? 10
1.2.2 Patterns underlying successful innovation 12
1. Technology-push versus demand-pull 12
2. Small versus large firms 12
1.2.3 The innovator's dilemma 14
1. The importance of balance: Case study 14
2. Four Elements of the Theory of Disruptive Innovation 15
1.2.4 Solutions for the innovator’s dilemma 16
1. Can firms Adapt? 16
2. Dealing with innovator’s Dilemma 16
3. The managerial Challenge of doing both 17
1.2.5 The Triple Helix 18
MODULE 2: EXPLORATION 20
2.1: Tapping into Diverse Sources of Innovation 20
2.1.1 Sources of innovation 20
1. What are Sources of Innovation? 20
2. Examples sources of innovation 20
2.1.2 Selecting new product ideas and predict their demand in the market: Prediction markets 21
1. Why predict & how it is typically done 21
2. The set-up of a prediction market 22
3. Pros & cons + business examples 24
2.1.3 Integrating user needs in new product development: Lead user innovation 26
MODULE 3: EXECUTION 28
3.1: Project Selection 28
3.1.1 The battle with uncertainty: the innovation funnel 28
3.1.2 Valuation of R&D Projects as a recurring theme throughout the funnel 30
3.1.3 Beyond NPV: real option valuation 31
1. Why R&D projects can be viewed as “real options” 31
2. Valuing an R&D project using the binomial model 32
3. Wrap-up: benefits of real option value 39
3.1.4 Computer lab: Real option value 39
1
,3.2: Managing teams and ‘stars’ 40
3.2.1. The Scarcity of Star Performance à not a lot exam material 40
3.2.2 Why do Stars Matter? 41
1. Individual Effect 41
2. The Effect of Stars on Others 41
3.2.3 Challenges in Managing Stars 46
1. Star-Studded Teams 46
2. Persistence of Star Performance 49
3.3: Innovation networks 50
3.1.1 Six degrees of separation: The small-world phenomenon 50
3.3.2 Basics of social network analysis (SNA): Small world networks 51
1. Building blocks of networks 51
2. Small world networks 52
3.3.3 Networks as social capital 54
3.3.4 Why small world networks foster creativity 57
1. Why “Small Worlds” Promote Creativity 57
2. Managerial Implications of “Small Worlds” 59
3.3.5 Networks as social capital for innovation 60
1. Design of a Strategic Innovation Network 60
2. Testing the Theory 61
3.4: System thinking 64
3.4.1 The Wide Lens Framework 64
1. Co-innovation Risk: The lessons from 3G 64
2. Adoption Chain Risk : The lessons from digital cinema 66
3. The value of systems thinking 68
3.4.2 Mapping Ecosystems 71
1. Value Blueprints 71
3.4.3: Reconfiguring ecosystems 76
MODULE 4: EXPLOITATION 79
4.1: Intellectual Property Rights 79
4.1.1 Fixing the failing market for innovation 79
4.1.2 Key Intellectual Proprety (IP) Instruments 80
4.2: The Patent System & Firms’ Strategic Patenting Behavior 81
4.2.1 What is a patent? 81
1. Rights Conferred by a Patent 81
2. What Does a Patent Look Like? 82
3. What Can Be Patented at the European Patent Office? 83
4.2.2 The worldwide patent database 83
4.2.3 How to apply for a patent 84
1. Where to File a Patent Application 84
2. Patent Priority Right 84
4.2.4 Who uses patents 87
4.2.5 Strategic patenting by firms 90
4.2.6 The patent system 93
1. Negative Effects of Patents 93
2. Taking Stock of the ‘Pros’ and ‘Cons’ 96
`
2
, Module 1: Introduction
Course Syllabus is really important = ‘holy bible’
Assignment Guidelines = ‘holy bible part 2’
Evaluation :
- 50% Exam
- 40% Assignement
- 10% Questions & Quizzes
1.1: What is innovation?
Learning objectives
1. Understand that innovation-based strategies are ultimately about changing the
basis of competition in an industry as opposed to competitive strategies that
take the existing industry structure and factors of competition as given.
2. Understand that innovation is not merely about technology, but that there also
exist other types of innovation.
3. Understand that innovation is a dynamic process in which industries tend to
shift their focus between types of innovation.
1.1.1 Changing the basis of competition through innovation
Michael Poorter: 5 forces of competition
1. Barriers to entry
2. Threat of substitutes products
3. How strong is de bargaining power of the buyers
4. How strong is de bargaining power of the buyers
5. Competitive Rivalry = how fierce is the competition among the entreprises
The US Wine Industry
Budget segment Premium Segment
Barriers to entry High (huge capital investment) Low
Substitutes High (beer, cocktails,…) Low
Buyer Power High (a lot of choice) High
Supplier Power Low (oversupply of grapes) Not relevant
Competitive rivalry High High
3
, OVERALL ASSESSMENT
Advice for Competitive Strategies :
Small Firm Large Firm
Differentiation strategy Cost Leadership
focused on a niche product in - Combined with a focus on the budget segment
the premium segment - Combined with a more extensive segmentation
strategy (build a portfolio of differentiated
products, each focused on a narrow customer
segment
Exit / don’t enter Exit /don’t enter
‘Le pin’ = high differentiated ‘Forster’ = segmentation strategy (different brands),
product, premium product at a targeting, large production but not particularly successful
premium price
Decision factors :
- Price
- Terminology
- Above the line marketing = how the company
position itself
- Aging quality = how long you can keep it
- Vineyard prestige
- Wine Complexity = what kind of flavors it have
- Wine range = 5/6/7 different varieties or only 2 types
CASE: Yellow Tail
How did Casella wines position (yellow tail) with respect to
these factors? Raise / Reduce / Eliminate ?
KEY LEARNING = They didn’t just reduce but put something
in return (created new factors)
à Not necessary related to technology but can also be
related to marketing for example
= they reached beyond existing demand
à competing with non-consumption
Takeaway point: Innovation-based strategies aim to change the basis of competition in an
industry
4
TABLE OF CONTENTS
MODULE 1: INTRODUCTION 3
1.1: What is innovation? 3
1.1.1 Changing the basis of competition through innovation 3
1.1.2 Four types of innovation and their dynamics 5
1. Four types of innovation 5
2. New to the Firm versus New to the World 6
3. The dynamics of innovation 7
1.2: The drivers of innovation 8
1.2.1 Why the market for innovation fails & why monopolists are not necessarily bad 8
1. Economic Growth: The ingredients 8
2. The failing market for R&D 9
3. Does Monopoly encourage innovation? 10
1.2.2 Patterns underlying successful innovation 12
1. Technology-push versus demand-pull 12
2. Small versus large firms 12
1.2.3 The innovator's dilemma 14
1. The importance of balance: Case study 14
2. Four Elements of the Theory of Disruptive Innovation 15
1.2.4 Solutions for the innovator’s dilemma 16
1. Can firms Adapt? 16
2. Dealing with innovator’s Dilemma 16
3. The managerial Challenge of doing both 17
1.2.5 The Triple Helix 18
MODULE 2: EXPLORATION 20
2.1: Tapping into Diverse Sources of Innovation 20
2.1.1 Sources of innovation 20
1. What are Sources of Innovation? 20
2. Examples sources of innovation 20
2.1.2 Selecting new product ideas and predict their demand in the market: Prediction markets 21
1. Why predict & how it is typically done 21
2. The set-up of a prediction market 22
3. Pros & cons + business examples 24
2.1.3 Integrating user needs in new product development: Lead user innovation 26
MODULE 3: EXECUTION 28
3.1: Project Selection 28
3.1.1 The battle with uncertainty: the innovation funnel 28
3.1.2 Valuation of R&D Projects as a recurring theme throughout the funnel 30
3.1.3 Beyond NPV: real option valuation 31
1. Why R&D projects can be viewed as “real options” 31
2. Valuing an R&D project using the binomial model 32
3. Wrap-up: benefits of real option value 39
3.1.4 Computer lab: Real option value 39
1
,3.2: Managing teams and ‘stars’ 40
3.2.1. The Scarcity of Star Performance à not a lot exam material 40
3.2.2 Why do Stars Matter? 41
1. Individual Effect 41
2. The Effect of Stars on Others 41
3.2.3 Challenges in Managing Stars 46
1. Star-Studded Teams 46
2. Persistence of Star Performance 49
3.3: Innovation networks 50
3.1.1 Six degrees of separation: The small-world phenomenon 50
3.3.2 Basics of social network analysis (SNA): Small world networks 51
1. Building blocks of networks 51
2. Small world networks 52
3.3.3 Networks as social capital 54
3.3.4 Why small world networks foster creativity 57
1. Why “Small Worlds” Promote Creativity 57
2. Managerial Implications of “Small Worlds” 59
3.3.5 Networks as social capital for innovation 60
1. Design of a Strategic Innovation Network 60
2. Testing the Theory 61
3.4: System thinking 64
3.4.1 The Wide Lens Framework 64
1. Co-innovation Risk: The lessons from 3G 64
2. Adoption Chain Risk : The lessons from digital cinema 66
3. The value of systems thinking 68
3.4.2 Mapping Ecosystems 71
1. Value Blueprints 71
3.4.3: Reconfiguring ecosystems 76
MODULE 4: EXPLOITATION 79
4.1: Intellectual Property Rights 79
4.1.1 Fixing the failing market for innovation 79
4.1.2 Key Intellectual Proprety (IP) Instruments 80
4.2: The Patent System & Firms’ Strategic Patenting Behavior 81
4.2.1 What is a patent? 81
1. Rights Conferred by a Patent 81
2. What Does a Patent Look Like? 82
3. What Can Be Patented at the European Patent Office? 83
4.2.2 The worldwide patent database 83
4.2.3 How to apply for a patent 84
1. Where to File a Patent Application 84
2. Patent Priority Right 84
4.2.4 Who uses patents 87
4.2.5 Strategic patenting by firms 90
4.2.6 The patent system 93
1. Negative Effects of Patents 93
2. Taking Stock of the ‘Pros’ and ‘Cons’ 96
`
2
, Module 1: Introduction
Course Syllabus is really important = ‘holy bible’
Assignment Guidelines = ‘holy bible part 2’
Evaluation :
- 50% Exam
- 40% Assignement
- 10% Questions & Quizzes
1.1: What is innovation?
Learning objectives
1. Understand that innovation-based strategies are ultimately about changing the
basis of competition in an industry as opposed to competitive strategies that
take the existing industry structure and factors of competition as given.
2. Understand that innovation is not merely about technology, but that there also
exist other types of innovation.
3. Understand that innovation is a dynamic process in which industries tend to
shift their focus between types of innovation.
1.1.1 Changing the basis of competition through innovation
Michael Poorter: 5 forces of competition
1. Barriers to entry
2. Threat of substitutes products
3. How strong is de bargaining power of the buyers
4. How strong is de bargaining power of the buyers
5. Competitive Rivalry = how fierce is the competition among the entreprises
The US Wine Industry
Budget segment Premium Segment
Barriers to entry High (huge capital investment) Low
Substitutes High (beer, cocktails,…) Low
Buyer Power High (a lot of choice) High
Supplier Power Low (oversupply of grapes) Not relevant
Competitive rivalry High High
3
, OVERALL ASSESSMENT
Advice for Competitive Strategies :
Small Firm Large Firm
Differentiation strategy Cost Leadership
focused on a niche product in - Combined with a focus on the budget segment
the premium segment - Combined with a more extensive segmentation
strategy (build a portfolio of differentiated
products, each focused on a narrow customer
segment
Exit / don’t enter Exit /don’t enter
‘Le pin’ = high differentiated ‘Forster’ = segmentation strategy (different brands),
product, premium product at a targeting, large production but not particularly successful
premium price
Decision factors :
- Price
- Terminology
- Above the line marketing = how the company
position itself
- Aging quality = how long you can keep it
- Vineyard prestige
- Wine Complexity = what kind of flavors it have
- Wine range = 5/6/7 different varieties or only 2 types
CASE: Yellow Tail
How did Casella wines position (yellow tail) with respect to
these factors? Raise / Reduce / Eliminate ?
KEY LEARNING = They didn’t just reduce but put something
in return (created new factors)
à Not necessary related to technology but can also be
related to marketing for example
= they reached beyond existing demand
à competing with non-consumption
Takeaway point: Innovation-based strategies aim to change the basis of competition in an
industry
4
