INNOVATION

MANAGEMENT
 Lesson 1

Introduction
Basic concepts
Importance of innovations
 CHARACTERISTICS OF SUCCESSFUL
INNOVATING COMPANIES - 1
Systematic collection of all impulses that
could lead to innovation
Creativity of employees
Ability to evaluate the possibility of the
innovation idea
Good team work
Project-based approach and ability to
manage projects
 CHARACTERISTICS OF SUCCESSFUL
INNOVATING COMPANIES - 2
Cooperation with external experts
(universities, research laboratories)
Proper rate of risk-taking
Employees motivation (the employees are
willing to improve the product and the
operation of the whole company)
Continued education of employees
Ability to finance the innovation activities
 Definition of innovation - 1
Technological innovations are defined as new
products and processes and major technological
modifications to products and processes. An
innovation is considered performed if it is
introduced to the market (product innovation)
or implemented in the production process
(process innovation). Innovation includes
many research, technological, organizational,
financial and commercial activities.
 Definition of innovation - 2
R&D represents only one of these activities and
can take place during various stages of the
innovation process. It can play not only the role
of the original source of the innovation ideas but
also the role of problem solution framework,
which can be turned to at any stage of the
implementation.
 Product innovation
A good or service that is new or significantly improved. This
includes significant improvements in technical specifications,
components and materials, software in the product, user
friendliness or other functional characteristics.
Process innovation
A new or significantly improved production or delivery method. This
includes significant changes in techniques, equipment and/or
software.
Marketing innovation
A new marketing method involving significant changes in product
design or packaging, product placement, product promotion or
pricing.
Organisational innovation
A new organisational method in business practices, workplace
organisation or external relations.
 Technological innovations based on
specific technology, invention, discovery,
Social innovations in critical historic
periods more important than technological
ones (mail, educational systm, social
systm, health care, )
 DEGREE OF NOVELTY
Incremental innovations
Radical innovations
Systemic innovations
 Classification of innovations
SYSTEM New series of New generation Steam engine,
cars, planes, (MP3 and ICT,
computers, TV download as biotechnology,
substitution of nanotechnology
CD)
Improvement of New Advanced
components components for materials
existing systems improving
component
COMPONENT properties
INCREMENTAL RADICAL
do better what new for the new for the
we already do company world
 INNOVATION PROCESS
Research and development (R&D)
Production
Marketing
Innovation is an opportunity for something
new, different. It is always based on change.
Innovators do not view any change as a
threat but as an opportunity
 FOCUS
Use the limited resources in the most
effective manner; focus on one of the
following:
Operational output
Top-quality products
Perfect knowledge of customers
 RECOMMENDATIONS
Solve the correct problem correctly be
effective and efficient
Manage innovation as a project
Analyze risks
Use models, scenarios, computer
simulation
Study examples of succesful and
unsuccesful innovation projects
 WHAT TO DO
1. Start with analysis and study of opportunities.
2. Go among people, ask questions, listen
3. Effective innovations are surprisingly simple.
They must be focused on specific needs and
on specific final products.
4. Effective innovation start on a small scale.
5. A successful innovation always tries to win a
leading position, otherwise you create
opportunities for your competitors.
 WHAT TO AVOID
1. Dont try to be too clever. All that is too
sophisticated will almost certainly go
wrong.
2. Dont try to do too many things at once.
Focus on the core of the problem.
3. Dont try to make innovations for the
future but for today. An innovation can
have a long-term impact but there must
be an immediate need for it.
Three conditions for innovations
1. Innovation means work, hard, concentrated
and thorough work. If these qualities are
lacking then there is no use for the big talent,
cleverness or knowledge.
2. Successful innovations must build on your
strong points. The innovation must be
important to the innovator.
3. Innovation must focus on a market, must be
controlled by the market (market-pull).
 The most important innovations
in last 30 years

http://www.pbs.org/nbr/site/features/specia
l/subdir/top-30-innovations_slide-show/
 Lesson 2

Disruptive and open

innovations
 Innovation categories
sustaining better products that can be
sold with higher margin to demanding
customers; incumbents win
disruptive commercialization of simpler,
more user-friendly products, which are
chepaer and targeted to new or less
demanding customers; new entrants win
 Key elements of disruption
Customers at each market has limited
absorption capacity
Technological progress usually is faster
that the ability of the market to employ it.
Companies focus on better products to
be sold with higher margin to unsatisfied
customers.
 Sustaining vs. disruptive
Sustaining: focused on demanding customers;
both incremental and radical. Incumbents have
resources and motivation.
Disruptive: introduce products and services not
as advanced as existing ones, but offering other
advantages (simpler, cheaper, more user
friendly, ...) and focus on new or less demanding
customers.
 Conditions of success - 1
Disruption is successful, as it is easier to
defeat competition that tries to escape
than the competition who fights
Innovation must be disruptive for all
companies in the industry
Ex. Internet for Dell sustaining, they
sold computers formerly by mail, phone,
etc.
 Conditions of success - 2
Following the trajectory upwards to market tiers
where it is possible to attain higher margins is
what good manager is expected to do.
Each company therefore prepares its own
disruption. This is the innovators dilemma, but
also the start of innovators solution.
The advice to new, growing firms: focus on
products and markets ignored or neglected by
incumbents.
 Two types of disruption
New markets: compete with non-
consumption: simpler, more user frindly,
can be used by less sophisticated
customers (PC, transistor radio, desk
copiers).
Low-end: focus on lower tiers of main
markets (minimills, discount stores,
Korean auto-makers); motivate
incumbents to leave the market
 OPEN INNOVATION
Chesbrough, H., Open Innovation, Harvard
Business School Publishing, Boston MA, 2003
Closed innovation - requires control
Open innovation
companies use external as well as internal ideas and
both external and internal ways to market
internal ideas can be taken to the market through
external channels to generate additional value
Chesbrough H.W.: The Era of Open Innovation,
MIT Sloan Management Review, Spring 203, p.
35 - 41
Closed innovation Open innovation
All the best people are working for us Not all the best people are working for us .
We must work with clever people within
and outside our company.
R&D creates profit only when we invent, External R&D can create remarkable value;
develop and market everything ourselves. to employ it, we need absorption capacity,
often as internal R&D.
If we develop the product ourselves, we will R&D can create profit even if we do not
be the first on the market. initialize and perform it ourselves.

Winner is who gets the innovation to the To develop better business model is more
market first. important than to be the first in the market.

We will win if we develop most of the ideas We will win if we make best use of internal
(an the best of them). and external ideas.

We must have our intellectual property We must be able to profit from others using
under control so that our competitors can our intellectual property and we must
make advantage of it. license the intellectual property if it
supports our business model.
Closed innovation Open innovation
Examples: nuclear industry, Examples : PC, movies
mainframe computers

Mostly internal ideas Many external ideas

Low workforce mobility High workforce mobility

Low role of the venture capital Active venture capital

Few new businesses, weak ones Many new businesses

Universities are not important as the Universities are not important as the
sources of ideas sources of ideas and people
 Business model
Formulate value proposition, i.e. the value delivered
to the customer by the product based on specific
technology.
Identify market segment, ie. users to whom the
technology brings value and performs the job to be
done.
Define structure of the value chain, required for the
product creation and distribution. Value creation is
necessary, however not sufficient condition of
profitability; value creation is conditioned by:
balance of forces among our business, suppliers and
competitors
presence of complementary assets (e.g. in production,
distribution, etc.) necessary for supporting the company
position in the value chain.
 Business model contd
Specify the mechanism of profit creation and
evaluate product cost structure and target
margin
Describe the company position in the value
network that connects suppliers and
customers, including identification of potential
alternative producers and competitors.
Formulate competitive strategy enabling to
the innovative company to gain and keep
competitive advantage.
 Lesson 3

Assessment of company
innovation potential
 COMPANY INNOVATION POTENTIAL

A company with high innovation potential

scores high in the following areas:
Strategy and planning
Marketing
Technological process
Quality management
Logistics
Human resources
INNOVATION POTENTIAL ASSESSMENT

For a company, it is important to know its

innovation potential. It can use the
questionnaire
For every of the six areas, there are six
question, each with four possible answers.
The answers are formulated so that they
reflect the existing situation in the
company.
 A. STRATEGY AND PLANNING

1. Idea about the company future

2. Vision and employees
3. Company innovation programs
4. Plan modifications
5. Financial indicators of the plan
6. Project management
 B. MARKETING

1. Monitoring of current market trends

2. Evaluation of the market competition
position
3. Customer-orientation
4. Monitoring of customers attitudes to
the company product
5. Market information flow inside the
company
6. Marketing and financial control
 C. TECHNOLOGICAL PROCESS

1. Future companys competitiveness in the

industry
2. Changes of technologies
3. Collection of impulses for implementation
of technology changes
4. Evaluation of the return on investment
5. Calculation of production costs and their
monitoring
6. Creation of resources for development
 D. QUALITY, ENVIRONMENT
1. Monitoring of changes conditioning the quality
management in the company
2. Employees personal contribution to the quality
system
3. External quality audit in the company
4. Monitoring of the environmental impact
5. Impact of quality monitoring on the company
processes
6. Covering of costs resulting from modifications of
standards, regulations and legislation in the
sphere of quality and environment
 E. LOGISTICS
1. Organization of purchase and distribution
channels in the company
2. Optimization of the company logistics
3. Information and communication flows between
the company and its partners
4. Flexibility of logistics processes
5. Introduction of innovations in logistics
6. Logistics and financial control
F. ORGANIZATION AND HUMAN RESOURCES

1. Employees satisfaction
2. Employees motivation
3. Management and communication
4. Conflict resolution
5. Company information system
6. Company culture
 Lesson 4
STRUCTURING THE NEW PRODUCT
DEVELOPMENT PROCESSES

EVALUATION OF THE NEW PRODUCT

DEVELOPMENT AND R&D PROJECTS

HOW TO SELECT THE PORTFOLIO

OF NEW PRODUCT DEVELOPMENT PROJECTS
 Two kinds of risks
specific risk
market risk
 Specific risk
Specific for the partial situation
At lest partly under your control (e.g. risk of a fire or risk
of project failure)
Can be diversified - we can use insurance to share fire
risk and maintain the diversified project portfolio to
protect against the risk of project failure
Therefore the market does not pay any premium for
specific risks
Specific risk can be often characterized by its probability.
Better management of specific risk can help us to
achieve the competitive advantage.
 Market risk
Is not under your control
Cannot be diversified. The pharmaceutical
company, as a part of health care sector, can do
little to diversify the market risk.
Traditionally, market risk increases the capital
expenses and therefore decreases the project
value.
However, the situation is different with options:
here the higher market risk, expressed as
volatility, increases the option value, which can
be quantified using the Black-Scholes algorithm,
well known from financial options.
 Volatility
Quantifies the rate of change of market value of the
underlying asset, i.e. the asset to its ownership we are
entitled by buying the option (technology, database of
customers ).
Is usually specific for the industry and can be estimated
on the basis of information available from e.g. stock
market, industry statistics, etc.
The higher the volatility, the more advantageous is to
hold the respective option.
The higher volatility means the higher potential of both
the increase and decrease of the related asset price. As
the option holder we can fully exploit the increase, while
in the case of decrease we do not realize the option and
the maximum loss is limited by the option cost.
 Application
Boer [Boer 2003] applies the real option model (OPT)
with volatility equal to 50% to the example from Fig. 3
He shows that using this method the project value is
$0,171M, i.e. it is positive and the project is feasible.
The difference in project value assessed by ECV and
OPT models is $0,279M, what is enough to justify the
project. The difference is caused by market volatility.
Boer also proves that in case of the zero market risk, i.e.
the zero volatility, both methods give the same result.
The method of real options brings the most significant
effect to projects with high level of risk having
slightly negative net present value determined by
ECV or other models based on the discounted cash flow.
 Conclusion
Illustration of the often neglected side of the new
product development and R&D projects.
The researchers, engineers, designers must
work together with investors to determine before
the project launch and in the gates how
efficiently the capital invested into the effort is
used.
It is not an easy task; however, we hope that we
succeeded to persuade the auditorium that this
important task cannot be avoided.
 Lesson 5

Innovation impulses
 SOURCES OF INNOVATION IMPULSES
Internal environment

Own R&D
Technical divisions design, technology
Production divisions (production, provision of
services)
Marketing and sales
Logistics (purchase and supplies)
Guarantee and post-guarantee service
Owners
 SOURCES OF INNOVATION IMPULSES
External environment

Customers Advertising agencies

Suppliers Investors
Competitors Media
Consultants, R&D Authorized testing
institutions
laboratories, certification
Schools, universities agencies
Professional publications,
Internet State institutions, public
sector
Exhibitions, fairs,
specialized seminars and Legislation
conferences Globalization
 MARKET PULL - R&D PUSH
Market pull
looking for the best way of satisfying a newly
emerging customer demand
improvement of the existing products, extension of
the existing offer or decrease of price
impulses for continuous, incremental innovations or
for process innovations
Research and development push
looking for commercial use of new impulses resulting
from the R&D results
generating of new markets for conceptually different
products
7 SOURCES OF INNOVATION IMPULSES
(Drucker)
INTERNAL
1. unexpected event
2. contradiction
3. change of work process
4. change in the structure of industry or market
EXTERNAL
5. Demographic changes
6. Changes in the world view
7. New knowledge
 1. Unexpected event
Unexpected success
1. What will the use of the offered opportunity mean to us?
2. Where will its introduction take us?
3. What do we need to do for its implementation?
4. How can we achieve that?

Unexpected failure
Unexpected external event
 2. Contradiction
Non-compliance with economic reality
Contradiction between reality and
anticipations about it
Contradiction between the anticipated and
real behavior of customers and their
values
 3. Change of process
realize the necessity of change, identify
the weak point of the chain
be convinced that if something does not
work the way it should, then it is necessary
to attempt a change
the solution must be convenient for those
who will implement it. It must place
moderate and feasible requirements
 4. Change in the structure of
industry and market
Rapid growth of the industry
Identification of new market segments
Convergence of technologies (e.g. use of
computers in telecommunications)
Rapid change of the industry and resulting
need of a structural change
 5. Demography
easiest to describe and to predict
influence what will be bought, who and in
which amounts will purchase
 6. Change of attitudes
change in the approach to health: health-
care, food, spending the leisure time
upper-middle class: a chance to offer
non-standard services at non-standard
prices
increasing migration, feminism,
regionalism etc
Timing is essential - to be the first
 7. New knowledge
Based on convergence or synergy of various
kinds of knowledge, their success requires, high
rate of risk
Thorough analysis of all factors. identify the missing
elements of the chain and possibilities of their
supplementing or substitution;
Focus on winning the strategic position at the market.
the second chance usually does not come;
Entrepreneurial management style. Quality is not
what is technically perfect but what adds the product
its value for the end user
 IMPULSES FROM THE MARKET
ENVIRONMENT
Customers
product presentation
realistic
simple, demonstrative and precise
moderate
representative sample of customers
Suppliers
Competitors
 INNOVATION IMPULSES OF THE R&D

identification research: to monitor the scientific,

technical and economic information and identify
innovation impulses applicable in the company
basic research
applied research: acquire knowledge and means
applicable for the meeting of specific, beforehand-
defined goals
development: systemic use of knowledge and means
acquired in the applied research for the creation of a new
or improvement of the existing product or for the creation
or modification of processes
 INTERNAL IMPULSES

usually combined with external sources

supported by
creative techniques
innovation tools

REGISTER OF IMPULSES
 Lesson 6

Innovation management tools

INNOMAT
http://www.inno-pro.com/aainn0.htm
General Innovation Tools
BENCHMARKING
BRAINSTORMING
REENGINEERING
CHANGE MANAGEMENT
Specific techniques useful at the different
change management process steps.
CHANGE MANAGEMENT STEP SPECIFIC TECHNIQUE
Making time time management techniques
Preparing a vision statement SWOT analysis
Identify what factors will hinder force field analysis
change
Selling the change internal marketing techniques
Developing a plan strategic planning techniques
Learning
Monitoring effectiveness

INNOVATION MANAGEMENT TOOLS

http://www.wiley.co.uk/innovate/website/pages/atoz/atoz.htm
TECHNOLOGY AUDIT
TECHNOLOGY FORECAST
VALUE ANALYSIS
Product Innovation Tools
DESIGN FOR X

<>
 X - examples

Design for Manufacturing Design for Environment

and Assembly (DFMA) (DFE)

Design for Dimensional

Design for Inspectability
Control (DDC)

Design for Reliability

Design for Storability
(DFR)
Design for
Design for Disassembly
Electromagnetic
(DFD)
Compatibility
QUALITY FUNCTION
DEPLOYMENT
 House of Quality

Interrelationships
Technical Features
Voice of
the Relationship
between Customer Importance Assessment
Customer of Traits to of
Desired Traits and
Technical Features Customer Competition

Importance of
Technical Features
 House of Quality:
Steps for Generation

1. Identify Customer Attributes

2. Identify Supporting Technical Characteristics
3. Correlate Customer Attributes with Supporting Technical
Features
4. Assign Priorities to Customer Requirements and Technical
Features
5. Evaluate Competitors Stances and Products
6. Identify Technical Characteristics to Deploy in the Final
Product Design
Managerial Innovation Tools
FAILURE MODE AND EFFECT
ANALYSIS (FMEA)
INNOVATION MANAGEMENT TOOLS
http://www.wiley.co.uk/innovate/website/pages/atoz/atoz.htm
INNOVATION MANAGEMENT TOOLS
http://www.wiley.co.uk/innovate/website/pages/atoz/atoz.htm
PEER EVALUATION
TEAM BUILDING
 ISO 9000

ISO14000
refers to procedures for ensuring sustainable and
environmentally friendly operations
EIA Environmental Impact Assessment
TOTAL PRODUCTIVE
MAINTENANCE
Process Innovation Tools
DESIGN FOR MANUFACTURING
AND ASSEMBLY (DFMA)
LEAN THINKING
CONTINUOUS IMPROVEMENT
CONCURRENT ENGINEERING
JUST IN TIME (JIT)
INNOSKILLS
FASTER
 Lesson 10

CONFLICT RESOLUTION
 Conflict management
Conflict cannot always be avoided, but it can be
managed
Sources of conflicts:
Aggressive or conflict-prone personality
Ambiguous or conflicting roles, interdependence
Difference in objectives, values, perceptions
Inadequate authority, oppressive management
Inadequate resources
Unsatisfactory communication
 Conflict consequences
Positive:
Competition tends to enhance the general welfare, if
the conflict level is not too high
Loyalty increases when people unite against a
common foe
If problems are recognized, solutions may be
forthcoming
Negative:
Activities, not results, become important
Attack individual rather than problem
Blocked communication
Need of strong leaders
Two-dimensional model of a conflict
 Conflict resolution styles - 1
Avoidance: no assertiveness, no cooperation
problem solution postponed
Accommodation: no assertiveness, cooperation
give in
Collaboration: assertiveness and cooperation -
problem solving, win-win
Competition: assertiveness, no cooperation -
win-lose, adhere to rules, do not seek to harm
the others self-image, impulse to change and
improve the organization
Authoritarianism: aggression, no cooperation
 Conflict resolution styles - 2
Smoothing: low assertion, low cooperation
focus on similarities, seeks resolution, move
parties to a common goal
Superordinate goals: increasing assertiveness,
increasing cooperation attempt to find a
common set of objectives, forget the differences
Bargaining (compromise): moderate assertion,
moderate cooperation give-and-tak, both
parties satisfy some of their needs
 Lesson 11
COMPANY INNOVATION
CULTURE

Successful companies address the

human needs and give them priority
Thomas J. Peters, Robert H.Waterman
 COMPANY CULTURE

Organization culture: a pattern of ideas,

opinions and attitudes that majority of
people in the company understands,
respects, acknowledges, adopts and
relates to them.
Influences the companys economic
success and competitiveness
 Main elements of the company culture

Behavior standards
Key values
Management and leadership style
Roles
Organizational structure and diversification

Influenced by:
Organizations strategy
Organizations system
Level of cooperation between the individual organization
structures
Employees abilities
 Four types of company orientation

Organizations preferring
power
roles
tasks
human side of their processes and people
 MANAGEMENT STYLES
shift from directive to participative style of
management

4 basic management styles:

Exploiting authoritative
Benevolent authoritative
Consultative
Participative
Motivation /
performance cycle
(MPC)
 Motivation / performance cycle (MPC)

1. Are the individualss needs satisfied? / Need

creation
2. Are organization and manager aware of
needs? Are they willing and able to offer need
satisfiers?
3. Organization and manager offer extrinsic and
intrinsic need satisfiers and rewards
4. The individual searches for alternatives,
evaluate the consequences of possible
actions, makes a decision
 MPC- continued
5. The individual is motivated to expend
effort and does so
6. Does the individual have appropriate training,
abilities, and tools, and know the objective?
7. Performance
8. Does the individual receive need
satisfier? Do the organization and manager
provide need satisfier?
 MPC- continued
9. Does the individual reassess the
situation?
10. Will the individual be motivated in the
same way?

Note:
normal individual
italic organization and manager
Hierarchy of needs (A. Maslow)
1. Physiological needs immediate survival,
food, shelter, clothing, bodily needs
2. Security needs stability, protection, freedom
from fear, provisions for the future
3. Social needs acceptance, affection,
affiliation, love, interaction
4. Esteem needs self-esteem, esteem of
others, status, power, autonomy, competence,
prestige, recognition
5. Self actualization achieving ones full
potential, personal growth, creative fulfillment
 Characteristics of peak performers

1. Vision and the ability to plan strategically

2. The drive to surpass previous level of
performance
3. High levels of self-confidence and self-
esteem
4. A high need for responsibility and control
5. Strong communication and salesmanship
skills
 Characteristics of peak performers - 2

6. The habit of mentally rehearsing before

critical events
7. Little need for outside praise or
recognition
8. A willingness to take risks
9. The ability to accept feedback and make
self-corrections
10. An ownership attitude toward their ideas
and products
 Need satisfiers
Frederick A. Herzberg
Hygiene factors dissatisfiers, extrinsic
(pay, supervision)
Motivators satisfiers, intrinsic
(achievement, recognition for
performance)
Maslow Herzberg

Self-actualization Work itself, achievement,

possibility of growth,
responsibility
Esteem Advancement, recognition,
status
Social Interpersonal relations

Safety and security Company policy, job security

Physiological Working conditions, salary,

personal life
 The management challenges
1. Recognizing needs
2. The changing nature of individual needs,
expectations
3. The impact of cultural diversity on a managers
ability to recognize needs
4. Being able to choose the right satisfiers and
then being able to obtain and offer them
5. Managing the process aspects of the cycle
 Lesson 12

INNOVATION PROGRAMS
AND EDUCATION
 Paradigm shifts
Information and knowledge society
Lifelong learning
Lean companies, networking

Information and communication

technologies (ICT)
e-business, e-commerce, e-learning, e-
government, e-, m-
 Learning organization
The education that does not follow the specific
objective and does not improve the results is a
luxury the company cannot afford.
Learning has been effective if a person knows
something he has not known earlier and he can do
something what he has not been able to do earlier
The mission of the managerial education is the
development of the competencies and performance
of managers
Learn by doing - follow what your more experienced
colleagues (but experiment as well)
 KEY COMPETENCIES
technical qualification - technical knowledge,
skill, talent and attitudes related technologic,
economic, financial, structural and procedural
aspects of work

Soft skills, behavior and acting - related to work

with people, influencing the communication and
dealing with individuals and groups both within
and outside the company.
 Company training programs
1. Training programs content, methods and goals
must take into account the basics of the
managerial work in real situations;
2. Attention should be paid to the improvement of
behavior and motivation and not only to
acquisition of technical skills;
3. The active training methods should be
preferred before passive ones. The abstract
concepts should be rooted in the practical
experience of companies.
 Design of training programs
Define before the start of the training:
What we want to achieve (goals)
How we want to achieve the goals
(methodology)
How the progress will be monitored
(monitoring)
How the results will be evaluated
(evaluation)