INNOVATION STRATEGY Setting the direction AGENDA READINGS • Mapping Your Innovation Strategy • Creating New Market Space • Case: Evolution of the Circus Industry LEARNING OBJECTIVES: • What is strategy? What is an innovation strategy? • What is value innovation? • How can this be applied to understanding the circus industry? • What is a disruptive technology/innovation? STRATEGY? • A strategy is the way in which an organization chooses to meet its goals and objectives. • A strategy defines appropriate decisions and actions. INNOVATION STRATEGY? 1. Innovation strategy determines to what degree and in what way a firm attempts to use innovation to execute its business strategy and improve its performance. 2. What does an innovation strategy include? 1. Target: What market? 2. Ideation: What innovations? 3. Conversion: How to plan, select and develop innovations? 4. Diffusion: How to commercialize? Typology of Strategies (James Gardner ) Play-to-win strategy Play-not-to-lose strategy • Exploration • Expectation of a significant competitive advantage • Relies on semi-radical and radical innovations • New technologies and business models for breakthrough innovations • Lead the competition • Exploitation • Maintaining existing competitive advantage • Incremental innovation to strengthen existing products • Keeping up with the competition An example of internal process innovation in PNTL Strategy Example of Amazon, PTW • Complete redesign of business model for delivery of books from publisher to consumer • Heavy reliance on technology • Responsibility for shipping with publisher • Required heavy up front investment • Now has expanded beyond books • Challenge was that it took 10 years to turn a profit. VALUE INNOVATION Kim & Mauborgne • Research showed that managers of highgrowth companies think in terms of value innovation while managers of less successful companies think in terms of conventional strategic choices. And… Incremental Innovations Radical Innovations % of launches.. 86% 14% % of revenue.. 62% 38% % of profits… 39% 61% Represent… VALUE INNOVATION • Creating products or services for which there are no direct competitors – and use those offerings to stake out and dominate new market space. • Examples: – Quicken Software from Intuit – Starbucks – Home Depot Comparing Conventional To Value Innovation Logic Conventional Logic Value Innovation Logic Industry assumptions Conditions given Shape conditions Strategic focus Beat the competition Create quantum leap in value Customers Retain & expand, segment & Serve masses, focus on customize commonalities Assets & capabilities Leverage existing Create what is needed Discovering the Value Curve Apply this analysis to the circus industry… Traditional Circus Industry 1. How would you assess the attractiveness of the circus industry in the early 1980’s? What would you conclude from your industry analysis? 2. What were the factors the traditional circus companies competed on? What do you like or dislike about the traditional circus? Origins of the Circus Classic circus: 1. Equestrian acts 2. Clowns 3. Acrobats 4. Jugglers Created by Philip Astley in 1768 Evolved to the 19th & 20th Century Ringling Brothers and Barnum & Bailey’s Circus • • • • • Three-ring format Emphasis on spectacle Mobile circus Typical clowns Star performers such as Tom Mix, Rodeo Rider Revenue based on ticket sales and concessions (80/20) Clyde Beatty, wild animal trainer Challenges • Logistical requirements of tearing down and setting up • Core workforce supplemented with local hires • Itinerant nature makes estimating ticket sales difficult • Marketing and publicity usually happens when the circus arrives in town Current State Ringling Brothers Modernizes But who is their target market? In 1984 a new option is born Who is the audience for the “non Circus”, Cirque du Soleil? • What is different? • Even a Clown can do it! • • • • Questions • When you compare Cirque du Soleil with the conventional circus, which are the factors kept by Le Cirque? Which ones were downplayed and which ones were played up? • Which factors were eliminated by Cirque du Soleil? What are the operational and financial implications? • What factors were created by Cirque du Soleil? Where did the idea come from? Cirque du Soleil challenged the assumptions of the industry: Traditional Circus Cirque du Soleil • • • • • • • • • • • • • • • • • • • • • • • • 3 Ring Star Performers Seasonal One Show Child Audience Animals Unrelated Acts No Music/Dance Low Price High Push for concession sales Emphasis on fun/thrills Functional watching environment One ring Non-star Performers Yearly Multiple productions Adult audience No animals Story/theme Individualized Music/Dance High price Profits from tickets Emphasis on artistery Refined watching environment BLUE OCEAN STRATEGY W. Chan Kim, Renée Mauborgne • Create uncontested market spaces where the competition is irrelevant. • Invent and capture new demand, and offer customers a leap in value while streamlining costs. • As opposed to red ocean strategies which represent all industries in existence – the known market space. Industry boundaries are defined and accepted, and the competitive rules of the game are well understood. “We reinvent the circus” • Cirque du Soleil invented a new industry that combined elements from traditional circus with elements drawn from sophisticated theater. Red Ocean Versus Blue Ocean Strategy Red Ocean Strategy • Compete in existing market space. • Beat the competition. • Exploit existing demand. • Make the value/cost trade-off. • Align the whole system of a company’s activities with its strategic choice of differentiation or low cost. Blue Ocean Strategy • Create uncontested market space. • Make the competition irrelevant. • Create and capture new demand. • Break the value/cost trade-off. • Align the whole system of a company’s activities in pursuit of differentiation and low cost. Disruptive Innovations Clayton M. Christensen 1. An innovation (or technology) that disrupts an existing market. 2. "Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.“ Christensen, Clayton M. (1997). The innovator's dilemma: when new technologies cause great firms to fail. Harvard Business Press. For example… EXAMPLES OF DISRUPTIVE TECHNOLOGIES (from Wikipedia) Innovation 8 inch floppy disk drive Disrupted market 14 inch floppy disk drive 5.25 inch floppy disk drive 8 inch floppy disk drive Innovation Disrupted market Steamships Sailing ships Telephones Telegraphy 3.5 inch floppy disk drive Downloadable Digital Media 5.25 inch floppy disk drive Automobiles Rail transport CDs, DVDs Supersonic transport Hydraulic excavators Cable-operated excavators Plastic Metal, wood, glass etc Mini steel mills vertically integrated mills Light-emitting diodes Light bulbs Minicomputers Mainframes Digital synthesizer Electronic organ and piano Personal computers Minicomputers, Workstations. Mobile Telephony Mobile Discount Operators Desktop publishing Traditional publishing LCD CRT Computer printers Offset printing Digital calculator Digital photography High speed CMOS video sensors Chemical photography Ultrasound Mechanical calculator Radiography (X-ray imaging) Photographic film Podcasting Broadcast Radio & TV Private jet