Innovation Management and Business Modeling
Chapter 1: Introduction
o What is innovation ? Products & services, improvement, always a user
o Different types: disruptive, sustainable…
o Non-technological innovations: new business model (money by ads or subscription)
o Business model innovation: eliminating the retailer
• E.g. pays per month for 1 blade → 5 blades in store
o Discussion questions
• Why is innovation so important for firms to compete in many industries?
• What are some of the advantages of technological innovation? Disadvantages?
• Why do you think so many innovation projects fail to generate an economic return?
Invention vs innovation
o Invention = formulation of new ideas for products or purposes → patent
o Innovation = practical application of new inventions into marketable products or services
1.1 Innovation circle
o Customer desirability: users always need to be users,
people who willing to pay for your innovation, ‘’get
that technology’’ → desirability
• Who needs it?
• What are their preferences?
o Technology feasibility: need a good user interface,
use apps in proper way
• Can we make it? Need to be unique, create
uniqueness by patents (creating monopoly)
• Is it unique? Protectable
- Patent life is 20 years by the most companies → period you can profit from your
patent is less, you discover sth new so create patent but after that you need to
go to a lot of diff stages (about 10 years) before you actually creating profit
o Business viability: you need customers who want to pay for your innovation, e.g. Spotify with
ads: get rid of the ads by paying
• Can you make money with it?
What is the market gap?
o = Unmet need = need that is not satisfied
o People would like to do a certain job… but it’s not being done (nobody is providing them with
means of doing it or they are compensating with workarounds)
o = definition of a job that people would like to get done that is not being done satisfactorily
o “People don’t want to buy a quarter-inch drill. They want to buy a quarter-inch hole!” (Levitt,
1960)
o “What the customer buys and considers value is never a product; it is always utility- that is- what
a product does for him.” Drucker, 1974
o → People don’t want the product, but the use of the product
1
,1.2 Importance of Technological Innovation
o Technological innovation now the single most important driver of competitive success in many
industries
• Many firms earn over one-third of sales on products developed within last five years
• Product innovations help firms protect margins by offering new, differentiated features
• Process innovations help make manufacturing more efficient
o Advances in information technology have enabled faster innovation
• CAD/CAM systems enable rapid design and shorter production runs
o Importance of innovation and advances in information technology have led to:
• Shorter product lifecycles (more rapid product obsolescence)
• More rapid new product introductions
• Greater market segmentation
o When monopoly is gone, prices will drop and more competitors and more price competition
• E.g. Cars are commodities, price battle, price car drops when there is a recession but
why? Because the fixed costs, investing a lot of money in the R&D, before you make the
first car you already spent 100 mill, try to sell cars as long as the price > var cost, high
fixed cost → high price swings during recessions
o Product innovation → process innovation = innovation in process of making products, make
manufacturing more efficient, dropping prices, cost efficient
o Customer insides gives information that is very profitable, selling data to advertisers so that they
customize their ads, amazon gets a lot of money from advertisers from this data
1.3 Impact on Society
o Innovation enables a wider range of goods and services to be delivered to people worldwide.
o More efficient food production, improved medical technologies, better transportation, etc.
o Increases Gross Domestic Product by making labor and capital more effective and efficient
o However, may result in negative externalities
• For example, pollution, erosion, antibiotic-resistant bacteria
• Medical care
1.4 Innovation by Industry: The Importance of Strategy
o Successful innovation requires carefully crafted strategies and implementation processes
→ Innovation funnel
The innovation funnel
o Most innovative ideas do not become successful new products
o For example, The New Product Development Funnel in Pharmaceuticals
o Medical care too expensive, need to be cheaper
o Innovation has to be managed carefully → funnel: start with a lot
of ideas, projects → less leads → a few tested → 1 product
o Really long process, if this process is too long, some cases will go
to animals (save time, shorter process), is not always an option
but sometimes
• E.g. voice recognition since 2000, better over the years
o All the big innovations need to be implemented in the earlier
stage (when it does not work so good) that is the only way we can make money and make it
better and better, you cannot wait 20 years for making profit and making your product ‘better’’
2
,1.5 Business model innovation
What is a business model?
o A business model describes the rationale of how an organization creates, delivers, and captures
value. ‘’ What I propose to you with my product.
• Creating value (customer’s point of view)
• Capturing value (how the supplier makes a profits): part of you create should be
appropriated by yourself (should be profitable)
Business model canvas
1. Customer Segments (klantsegmenten)
• Determining the right target audience is essential. That's why you decide who you're
going to target.
2. Value Proposition (waardepropositie)
• What is the distinctive or added value that you offer to the customer?
Define what really sets you apart from the competition. So determine in which market
your company operates and specify in it what you offer
3. Customer Relationships (klantrelaties)
• See how you are in contact with customers. Invest in the relationship with the customers
that earn you the most.
4. Channels (kanalen)
• (sales) channels through which you come into contact with customers. Here you
describe, among other things, the marketing and distribution strategy.
Combine the offline and online channels to reach as many customers as possible.
5. Revenue Streams (inkomstenstromen)
• It's about creating added value, usually money, but this can also be pleasure or
satisfaction. With the revenue streams you make clear where your income comes from.
Not only now, but also in the future.
• What is in it?
- How many customers you need
- How much sales you need to make a profit
- How you earn from the customers
- Whether you have determined the selling price correctly
3
, 6. Key Resources (hulpbronnen)
• Understand the most important business assets needed to realize the value proposition.
• Physical assets (business equipment such as a computer or a camera), Intellectual
resources (a patent or a trademark), Human resources (personnel)
→ This requires an investment that can be financed in different ways
7. Key Activities (kernactiviteiten)
• Describing core activities makes it clear how you add value to the quality of your
product, to maintaining customer relationships and to recruiting new customers.
8. Partners
• Useful to work with partners as a starter to compete. Which partnerships you have
entered into or are about to start, to be successful and to be able to grow and be
competitive.
9. Cost Structure (kostenstructuur)
• Determine costs of the above 8 elements. Which operating costs are fixed (company
premises, machines) and which are variable (purchase products)? See which operating
resources are expensive and where there is still (scale) advantage to be gained, or where
savings are possible.
2 sides of the canvas…
2. Value Proposition
o A Value Proposition creates value for a Customer Segment through a distinct mix of elements
catering to that segment’s needs.
o Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. customer experience)
o Elements from the following list can contribute to customer value creation.
• Newness
• Performance
• Customization
• “Getting the job done”
• Design
• Brand/Status
• Price
• Cost reduction
• Risk reduction
• Accessibility (Netjets: fractional private jet ownership, sharing expensive assets, hiring a
private jet)
• Convenience/Usability (iPod – iTunes)
4
Chapter 1: Introduction
o What is innovation ? Products & services, improvement, always a user
o Different types: disruptive, sustainable…
o Non-technological innovations: new business model (money by ads or subscription)
o Business model innovation: eliminating the retailer
• E.g. pays per month for 1 blade → 5 blades in store
o Discussion questions
• Why is innovation so important for firms to compete in many industries?
• What are some of the advantages of technological innovation? Disadvantages?
• Why do you think so many innovation projects fail to generate an economic return?
Invention vs innovation
o Invention = formulation of new ideas for products or purposes → patent
o Innovation = practical application of new inventions into marketable products or services
1.1 Innovation circle
o Customer desirability: users always need to be users,
people who willing to pay for your innovation, ‘’get
that technology’’ → desirability
• Who needs it?
• What are their preferences?
o Technology feasibility: need a good user interface,
use apps in proper way
• Can we make it? Need to be unique, create
uniqueness by patents (creating monopoly)
• Is it unique? Protectable
- Patent life is 20 years by the most companies → period you can profit from your
patent is less, you discover sth new so create patent but after that you need to
go to a lot of diff stages (about 10 years) before you actually creating profit
o Business viability: you need customers who want to pay for your innovation, e.g. Spotify with
ads: get rid of the ads by paying
• Can you make money with it?
What is the market gap?
o = Unmet need = need that is not satisfied
o People would like to do a certain job… but it’s not being done (nobody is providing them with
means of doing it or they are compensating with workarounds)
o = definition of a job that people would like to get done that is not being done satisfactorily
o “People don’t want to buy a quarter-inch drill. They want to buy a quarter-inch hole!” (Levitt,
1960)
o “What the customer buys and considers value is never a product; it is always utility- that is- what
a product does for him.” Drucker, 1974
o → People don’t want the product, but the use of the product
1
,1.2 Importance of Technological Innovation
o Technological innovation now the single most important driver of competitive success in many
industries
• Many firms earn over one-third of sales on products developed within last five years
• Product innovations help firms protect margins by offering new, differentiated features
• Process innovations help make manufacturing more efficient
o Advances in information technology have enabled faster innovation
• CAD/CAM systems enable rapid design and shorter production runs
o Importance of innovation and advances in information technology have led to:
• Shorter product lifecycles (more rapid product obsolescence)
• More rapid new product introductions
• Greater market segmentation
o When monopoly is gone, prices will drop and more competitors and more price competition
• E.g. Cars are commodities, price battle, price car drops when there is a recession but
why? Because the fixed costs, investing a lot of money in the R&D, before you make the
first car you already spent 100 mill, try to sell cars as long as the price > var cost, high
fixed cost → high price swings during recessions
o Product innovation → process innovation = innovation in process of making products, make
manufacturing more efficient, dropping prices, cost efficient
o Customer insides gives information that is very profitable, selling data to advertisers so that they
customize their ads, amazon gets a lot of money from advertisers from this data
1.3 Impact on Society
o Innovation enables a wider range of goods and services to be delivered to people worldwide.
o More efficient food production, improved medical technologies, better transportation, etc.
o Increases Gross Domestic Product by making labor and capital more effective and efficient
o However, may result in negative externalities
• For example, pollution, erosion, antibiotic-resistant bacteria
• Medical care
1.4 Innovation by Industry: The Importance of Strategy
o Successful innovation requires carefully crafted strategies and implementation processes
→ Innovation funnel
The innovation funnel
o Most innovative ideas do not become successful new products
o For example, The New Product Development Funnel in Pharmaceuticals
o Medical care too expensive, need to be cheaper
o Innovation has to be managed carefully → funnel: start with a lot
of ideas, projects → less leads → a few tested → 1 product
o Really long process, if this process is too long, some cases will go
to animals (save time, shorter process), is not always an option
but sometimes
• E.g. voice recognition since 2000, better over the years
o All the big innovations need to be implemented in the earlier
stage (when it does not work so good) that is the only way we can make money and make it
better and better, you cannot wait 20 years for making profit and making your product ‘better’’
2
,1.5 Business model innovation
What is a business model?
o A business model describes the rationale of how an organization creates, delivers, and captures
value. ‘’ What I propose to you with my product.
• Creating value (customer’s point of view)
• Capturing value (how the supplier makes a profits): part of you create should be
appropriated by yourself (should be profitable)
Business model canvas
1. Customer Segments (klantsegmenten)
• Determining the right target audience is essential. That's why you decide who you're
going to target.
2. Value Proposition (waardepropositie)
• What is the distinctive or added value that you offer to the customer?
Define what really sets you apart from the competition. So determine in which market
your company operates and specify in it what you offer
3. Customer Relationships (klantrelaties)
• See how you are in contact with customers. Invest in the relationship with the customers
that earn you the most.
4. Channels (kanalen)
• (sales) channels through which you come into contact with customers. Here you
describe, among other things, the marketing and distribution strategy.
Combine the offline and online channels to reach as many customers as possible.
5. Revenue Streams (inkomstenstromen)
• It's about creating added value, usually money, but this can also be pleasure or
satisfaction. With the revenue streams you make clear where your income comes from.
Not only now, but also in the future.
• What is in it?
- How many customers you need
- How much sales you need to make a profit
- How you earn from the customers
- Whether you have determined the selling price correctly
3
, 6. Key Resources (hulpbronnen)
• Understand the most important business assets needed to realize the value proposition.
• Physical assets (business equipment such as a computer or a camera), Intellectual
resources (a patent or a trademark), Human resources (personnel)
→ This requires an investment that can be financed in different ways
7. Key Activities (kernactiviteiten)
• Describing core activities makes it clear how you add value to the quality of your
product, to maintaining customer relationships and to recruiting new customers.
8. Partners
• Useful to work with partners as a starter to compete. Which partnerships you have
entered into or are about to start, to be successful and to be able to grow and be
competitive.
9. Cost Structure (kostenstructuur)
• Determine costs of the above 8 elements. Which operating costs are fixed (company
premises, machines) and which are variable (purchase products)? See which operating
resources are expensive and where there is still (scale) advantage to be gained, or where
savings are possible.
2 sides of the canvas…
2. Value Proposition
o A Value Proposition creates value for a Customer Segment through a distinct mix of elements
catering to that segment’s needs.
o Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. customer experience)
o Elements from the following list can contribute to customer value creation.
• Newness
• Performance
• Customization
• “Getting the job done”
• Design
• Brand/Status
• Price
• Cost reduction
• Risk reduction
• Accessibility (Netjets: fractional private jet ownership, sharing expensive assets, hiring a
private jet)
• Convenience/Usability (iPod – iTunes)
4
