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© Mazzarol 2012 all rights reserved

Entrepreneurship & Innovation MGMT8608

TOPIC 9: TECHNOLOGY, TECHNOPRENEURS & DISRUPTIVE INNOVATION

BUSINESS SCHOOL

The University of Western Australia © Mazzarol 2012 all rights reserved

Learning Outcomes

Understand how to identify emergent,

disruptive technologies

Understand whether ventures need to

spin out new ventures or can capture

their value

Appreciate the pivotal role of customers

Understand how new ventures can

‘create new market space’

Appreciate how Innovation Management

frameworks intersect with and contradict

with Strategy and Marketing frameworks

Understand how innovation occurs in

products and services as well as

technology – at all stages and sizes of

ventures


Introduction

Sometimes you just have to believe in the impossible…and you’ve got to

have faith to breakthrough.

• - Peter, CEO software development company.


Your Elevator Pitch

Two mins

Pain Statement – What problem?

Value Proposition – What solution?

Key elements:

• Succinct

• Easy to understand

• Greed inducing

• Irrefutable


The Lean Start-Up Process

IDEAS

DATA PRODUCT

LEARN BUILD

MEASURE

Lean Start-Up Process

Assumptions • Customer Value hypothesis • Growth hypothesis

Innovation Accounting • Use minimum viable product • Fine-tune towards ideal goal • Persevere or pivot

Focus on Metrics • Actionable – cause & effect • Accessible – simple to understand • Auditable – systematic & transparent

Business Plan Pivot • Be ready to change direction • Multiple options • Flexibility is the key

Adapt Innovate

Small batches Experiment

Sticky Viral Paid

Review problems Make mistakes once

Portfolio Thinking Resources; autonomy,

ownership

Batch Grow

Source: Ries 2011


Pivots

Sources: Ries (2011)

Pivot Type Description

Zoom-in Pivot What was once thought to be a single feature of a product becomes the whole

product.

Zoom-out Pivot What was previously considered to be the whole product becomes a single

feature of a much larger product.

Customer Segment Pivot Product solves a real problem for customers but not the type of customers

originally targeted.

Customer Need Pivot Recognition that the problem you thought you were solving is not very important

to the target customers, thus requiring product redesign.

Platform Pivot Shifts the product from a component within a wider platform to the actual

platform, or vice versa.

Business Architecture Pivot Shift from high margin low volume (complex systems model) to low margin high

volume (volume operations model) or vice versa.

Value Capture Pivot Changes to the way a product captures value using different revenue models.

Engine of Growth Pivot Change to the nature of the Growth Engine underlying the Business Model.

Channel Pivot Change to the channel structure used by the company to reach its customers.

Technology Pivot Change to the way that solutions are delivered using different technology.

A “Pivot” is a change in the firm’s strategy designed to test a fundamental

hypothesis about the product, business model and engine of growth.


Engines of Growth: The Sticky Engine of Growth


Sticky Growth Engine

Description: This growth engine is focused on the capture and retention of customers. Typically it uses database

technology as the foundation where a customer has their own products or services hosted . This is

most common in the case of websites and point of sales systems (e.g. iTunes). Once a product or

service is built on top of a database technology it becomes difficult for the customer to switch.

Customers in IT sector become “locked into” the vendor they choose. This type of engine requires

that it offer the customers compelling new capability to get them to risk being locked into a single

vendor.

Key issues: • Relies on having a high customer retention rate.

• Requires tracking of customer retention and attrition rates (Churn rate).

• Churn rate = % of customers in period who cease to engage with the product.

Rules: • If the rate of new customer acquisition exceeds the churn rate the product will grow.

• The speed of growth is determined by the rate of compounding or the natural rate minus the churn

rate.

• Key focus should be on improving customer retention rates.

Engines of growth are a way to focus the new business model around a few key

metrics to help concentrate their limited resources.


Engines of Growth: The Viral Engine of Growth


Viral Growth Engine

Description: This growth engine is focused on the ability to get existing customers to bring in new customers. This

can take the form of referrals via word of mouth, using online connections (e.g. Hotmail), or peer to

peer marketing and sales (e.g. Tupperware). The Viral Engine is powered by a measurable feedback

loop known as the “Viral Loop”. This can be measured using the “Viral Coefficient”. The higher the

“Viral Coefficient” the faster the product will spread.

Key issues: • Relies on having a high rate of customer referrals to bring in new customers.

• Requires tracking of the “Viral Loop” and “Viral Coefficient”.

• Viral Coefficient = how many new customers will use a product as a result of each new customer

that signs up (e.g. number of referrals per new customer).

• Viral Coefficients > 1 will grow.

Rules: • Focus on increasing the Viral Coefficient more than anything else.

• Many viral products do not charge customers directly but rely on indirect revenue (e.g. Facebook

advertising).

• The value of a customer may not be measured purely in monetary terms but in their willingness to

bring in new customers.




Engines of Growth: The Paid Engine of Growth


Paid Growth Engine

Description: This growth engine is focused on two things: increasing the revenue from each customer, or lowering

the cost of acquiring a new customer. It is powered by a feedback loop, which is the amount of

money that a customer spends with the product/firm over their “life time”. This produces the concept

of the “life time value” (LTV) of each customer. Profits generated from this value are invested back

into promotion, marketing and sales to generate growth. What must be monitored is the “cost per

acquisition” (CPA). The margin between the LTV and the CPA determines the rate of growth.

Key issues: • Relies on customer life time value (LTV).

• Requires tracking of customer LTV against cost per acquisition (CPA)

• Margin between LTV and CPA determines the rate of growth.

Rules: • The margin between the LTV and CPA is the “marginal profit”.

• If the LTV is greater than the CPA the company will grow.

• If the LTV is lower than the CPA the company’s growth will slow.




Discussion Why did Eric Ries say that we must “stop

wasting people’s time”?

What is the role of “extreme uncertainty”

in his definition of a start-up?

Do you agree with his view that

“entrepreneurship is management”?

What is “Entrepreneurial Management”

What is a “Pivot” and why are they

important?

What is “validated learning”?

What is the build-measure-learn feedback

loop?


Patents & Trademarks per capita

2005-2007

Source: OECD 2010

It has been found that, as

patenting activity rises with the

Australian economy, so to does

the level of labour productivity

and overall economic growth

(Crosby 2000).


Scientific articles and co-authorship

Source: OECD 2010

The size of the ‘bubbles’ is an indication of the number of scientific publications and the thickness of

the links is an indicator of the intensity of the collaboration or co-authorship.


The Evolution of Strategic Technology Management

Source: Ansoff (1987)

Complexity

Production Orientation

Production Driven

Market Driven

Technology Driven

Entrepreneurial Process focused

1900

Time

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Entrepreneurial Strategic focused


Key Elements of Innovation Management

Inputs

• People

• Physical & financial resources

• Tools

Knowledge Management

• Idea generation

• Knowledge repository

• leadership

Innovation Strategy

• Strategic orientation

• Leadership

Organisation & Culture

• Culture

• Structure

Portfolio Management

• Risk/return balance

• Optimisation tool use

Project Management

• Project efficiency tools

• Communications

• Collaboration

Commercialisation

• Market research

• Market testing

• Marketing & Sales

Source: Adams, Bessant & Phelps (2006)


Innovator types for new

technology-based firms

Source: Autio & Lumme, 1998


Technological Innovations

Technological Product Innovation

• The implementation / commercialisation of a product with improved performance characteristics such as to deliver objectively new or improved services to the consumer

Technological Process Innovation

• The implementation / adoption of new or significantly improved production or deliver methods. It may involve changes in equipment, human resources, working methods or a combination of these.

Source: OECD (2000)


How to Spot Disruptive Innovations


Discussion

What is disruptive innovation?

What is the role of technology in

disruptive innovation?

Who is responsible for disruptive

innovations and how might you spot

them?


Commercialisation of Disruptive Technologies – Key considerations

Consider the readiness of the market.

Consider the end user.

Beware existing market players.

Look for market gaps.


Case Study – How Red Bull built

a brand

Launched in Europe 1987 by Austrian businessman

Dietrich Mateschitz.

Initial target markets

• sports people

• Fire fighters

• Construction workers

Breakthrough was trendy night club scene

• 80 mgs caffeine per can

• No heat less gas than Coke & Pepsi

Image ‘cool’ & different

Launched in USA 1997

• Sophisticated brand positioning

• Entry point San Francisco Bay Area

• ‘Viral’ marketing strategy – Trendy night clubs & gyms

• 70% US Energy drinks market by 2001

• Annual sales of US$140 million

Source: Noonan (2001)


Strategies for Disruptive Technologies

Three critical tests:

1. Does the innovation target

customers who in the past

haven’t been able to ‘do it

themselves’ for lack of money

or skills?

2. Is the innovation aimed at

customers who will welcome a

simple product?

3. Will the innovation help

customers do more easily and

effectively what they are

already trying to do?

Source: Christensen, Johnston & Rigby (2002)


5 Steps to developing new disruptive technologies

1. Ability to screen disruptive technologies from among many new innovations

2. Adequately define the significance of the disruptive technology

3. Find a market that can adopt the innovation

4. Locate responsibility for the innovation in a small, independent organization

5. Keep the disruptive organization independent

Source: Bower & Christensen (1995)


Supplier

Marketing Efforts

-Targeting

- communication

- risk reduction

Social Network

-Interconnectedness

- Network participation

Environmental

Influences

- Network externalities

- Competitive pressures

Perceived

Innovation

Characteristics

-Relative advantage

-Compatibility

-Complexity

-Trial ability

-Observability

-Uncertainty

Adopter

Characteristics

-Size

-Structure

-Org innovativeness or

Strategic posture

Awareness

Consideration

Intention

Adoption

Decision

Continued Use

Individual

Acceptance

Source: Frambach & Schillewart, 2002

Framework of organisational innovation adoption


Organizational

Facilitators / internal

marketing

-Training

-Social persuasion

-Organizational support

Personal

Characteristics

-Demographics

-Tenure

-Product experience

-Personal values

Attitude towards

innovation

-Beliefs

-affects

Organizational

Adoption decision

Source: Frambach & Schillewart, 2002

Personal dispositional

innovativeness

Social Usage

-network externalities

-peer usage

Individual Acceptance

Framework of individual innovation acceptance in organisations


New Value

Curve

What factors should be reduced well below the industry standard?

Reduce

What factors should be raised well beyond the industry standard?

Raise

What factors should

be created that the

industry has never

offered?

What factors should

be eliminated that the

industry has taken

for granted?

Eliminate Create

Source: Chan Kim & Mauborgne, 1996


Shifting the Focus of Strategy

The conventional

boundaries of

competition

Industry

Strategic group

Buyer group

Scope of product

& service offerings

Functional emotional

orientation of an

industry

Time

HEAD TO HEAD COMPETITION

Focuses on rivalry within its

industry

Focuses on competitive position

within strategic group

Focuses on better serving the

buyer group

Focuses on maximizing the

value of product and service

offerings within the bounds of

its industry

Focuses on improving price –

performance in line with the

functional – emotional

orientation of its industry

Focuses on adapting to external

trends as they occur.

CREATING NEW MARKET SPACE

Looks across substitute industries

Looks across strategic groups

within its industry

Redefines the buyer group of the

industry

Looks across to complimentary

product and service offerings that go

beyond the bounds of its industry

Rethinks the functional – emotional

orientation of its industry

Participates in shaping external

trends over time.

Source: Chan Kim & Mauborgne, 1996


3D Printing as a Disruptive Technology


3D Printing Machines

AirWolf 3D Printer Z Corp Spectrum Z510 3D Printer

Reprap 2.0 “Mendel” 3D Printer

3D printed titanium aircraft engine parts


Discussion

What is the likely impact of 3D printing

(additive manufacturing) on traditional

manufacturing?

What are the key innovations in the

business models of Quirky and

Shapeways?

What do these cases suggest about the

future of global production systems?


Case Study – NTT DoCoMo

NTT DoCoMo, Japan’s

largest telco created the

G3 network “I-Mode”.

Source: Kodama (2002)


GBD

(Staff of 70)

Traditional

Organization

(10,625 people)

Promote

Firm-Wide

Knowledge

Management

President Top Management

Team

Mr. Enoki

Formulate

Strategy

Implement

Strategy

Formulate

Strategy

Implement

Strategy

Stimulate

i-mode market

Expand

i-mode market

Incremental Change

Loop

Continuous Change

Loop

Expansion of market by integration of strategies

GBD

•Entrepreneurial strategy

• Time-pacing

• Strategic community management

• Tight-Loose coupling structure

• Challenging culture (autonomy & Flexible)

•Creation of new core competencies

Traditional Organization

• Deliberate strategy

• Event-based pacing

• Incremental reform & change

• Tight-coupling structure

• Strict culture with tradition, discipline

• Enhances existing core competencies

Strategy

Organizational Structure

& Culture

Core competencies


Other Companies

• Terminal manufacturers

• Sony Corporation

• Sun Microsystems

Customers (IPs)

Traditional

Organization

GBD

Community B

(Portal Community)

Community A

(In-House

Community)

Community C

(Technical

Community)

Community D

(Platform Community)

The Company

(DoMoCo)


Perf

orm

ance

Time

Current performance of potentially

disruptive technology

Expected trajectory of

performance improvement

Performance improvement

required by mainstream market

HOW TO ASSESS DISRUPTIVE TECHNOLOGIES

Source: Bower & Christensen, 1995

The University of Western Australia © Mazzarol 2012 all rights reserved ©Mazzarol & Sneddon 2005

Preliminary

Market

Analysis

Preliminary

Technical

Analysis

Preliminary

Production

Analysis

Market

Feasibility

Study

Product

Development

In-house

Product testing

Of prototype

Consumer

Product Testing

(Field Trials)

Independent

Technical

Review

Ongoing product

Review from

customers

Production

Technical/Engineering

Marketing/Business Development

Initial Concept

Generation &

screening

Phase 3 - Production Phase 2 - Development Phase 1 - Ideation

New Product Development Process


0

Sales and profits ($)

Growth Maturity Decline Introduction

Sales

Time

Product development stage

Profits

Losses/ investment ($)

PRODUCT LIFECYCLE


The Innovation Process is about reducing Risk

An information assembly line

Acceptable level of risk to launch product

Information

Risk


The components of the RENT

Length : duration of the exploitation

of innovation

Rate of margin : profit

thanks to the innovation

Volume : sales over a year

Amount of Rent = Volume x Rate x Length

Source: Santi et. al, 2003


Measures of Potential Rent

Components of RENT

Indicators

VOLUME: (potential annual

sales)

–Size of industry or market sector

–Geographic diffusion potential

–Size of end-user markets

–Limits due to prior patents

RATE: (potential profit margin) –Type of innovation process involved

–Type of innovation involved

–Level of prior protection for intellectual property

LENGTH: (potential life-cycle) –Technological basis of innovation

–Innovation intensity of the user centre

–Legal and technical protection of intellectual

property

Source: Santi et. al, 2003


length

rate

volume

++ – –

length

rate

volume

++ – –

– – ++

volume

rate

length

length

rate

volume

++ – –

length

rate

volume

++ – –

length

rate

volume

++ – –

1. Shrimp

3. Gadget

5. Flash in the

pan A

2. Champion

4. Joker

6. Oasis A

length

rate

volume

++ – –

length

rate

volume

++ – –

7. Flash in the

pan B 8. Oasis B


Formal

Informal

Operational Strategic

Org

an

isa

tio

na

l C

on

fig

ura

tio

n

[Le

ve

l o

f co

mp

lex

ity,

sca

le &

sco

pe

]

Primary Focus Internal

Primary Focus External

Task Environment

[Level of uncertainty & risk]

Structured Operational Planning

simple

complex

certain uncertain

“The Shopkeeper”

JOKER

“The Salesman”

“The Administrator” “The CEO”

SHRIMP/OASIS FLASH N PAN/GADGET

CHAMPION

Structured Strategic Planning

Ad hoc intuitive Operational Planning

Intuitive Strategic Planning

RENT configurations & Planning

Source: Mazzarol & Reboud 2008

length

rate

volume

++ – –

length

rate

volume

++ – –

length

rate

volume

++ – –

length

rate

volume

++ – –

length

rate

volume

++ – –

length

rate

volume

++ – –


New Established

Established

New

Market

Product/ Technology

certain uncertain

simple

complex

“The CEO”

Structured Strategic

Planning Response

“The Administrator”

Structured Operational

Planning Response

“The Shopkeeper”

Unstructured Planning

Response

“The Salesman”

Intuitive Planning

Response

Lowest Risk

Highest Risk

Static Traditional &

Dominated Innovation

Imitative Innovation

Technology-Based

Innovation

New Technology-Based

Innovation

Strategic Innovation Management

Source: Mazzarol & Reboud (2009)


Case Study: Davies-Craig EWP

Davies-Craig Pty Ltd

Australian automotive

engineering firm

Pioneer of electric radiator

fans (1970s)

$1.2 million invested in new

Electric Water Pump

More power, lower fuel

consumption, longer engine

life

Can be retrofitted to existing

vehicles for around $280.

Source: Davies-Craig, 2003


Davies-Craig EWP Problem

Conventional water pumps slaved to engine

Draw excessive power

Don’t work well at idle or in high ambient temperatures

Coolant flow rates fall to around 20 litres per min at idle and rise to 180 litres per min at speed

Inefficient due to poor flow control rates leading to higher engine wear and low power output



Low cost, highly reliable,

De-facto automotive standard

but: high torque loss at high

rpm, low flow rate at low rpm

Electric Water

Pump

Belt-driven Water Pump P

erf

orm

ance

Time

Low torque loss,

Cools as and when needed,

High cost,

Good, but not excellent reliability

Only to -20degC?

Cope with debris in coolant?

Improved reliability,

Reduced cost Niche markets:

Racing cars

Vintage cars

HOW TO ASSESS DISRUPTIVE TECHNOLOGIES – Davies-Craig EWP

• Initial target markets racing & vintage car owners

• These segments are early adopters

• Racing cars value power over price

• Vintage car owners value engine life over price


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