Knowledge Creation and Innovation

The Management of Knowledge Creation and Innovation Through an Intellectual

Capital Lens

Prof. Göran Roos

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2 ©Göran Roos 2007

Interest in innovation and R&D performance has been rising on the back of a wide range of

successful products and services

Context

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Remember Innovation is not only based on natural sciences

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What do companies think about innovation?

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What is the real situation?

Booz Allen Hamilton Global Innovation 1,000 Study 2006:

– Innovation can lead to higher performance, but the process isn’t automatic and it does not necessarily require above average levels of investment. The most successful companies combine an integrated process and a supportive culture to create a sustainable competitive advantage

– Money simply cannot buy effective innovation.

– Patents generally don’t drive profits

– Less than 10% of companies are High-Leverage Innovators and distinguish themselves not by the money they spend, but in having a very good innovation management system

Innovation Network Survey, fall 2004 [same result from 2005], new innovation leaders in medium to large companies:

– 71% said they had no metrics for their position

– 60% of them have innovation as part of their mission/job objectives

– 67% are allowed to work on “new” concepts for their company (“new” is not defined)

– 68% have no well defined innovation process within their company

– 54% have no working definition of innovation

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Research vs Innovation – What is the relationship?

Research

Innovation

Research

Innovation

Creativity

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EXPANDING THE INNOVATION HORIZON

Innovation can be ignited by business and technology integration.

Technology can enable and drive innovation. But to truly capitalize on technology’s potential and unleash an organization’s creative energy, technology know-how must be combined with its business and marketing insights. CEOs view consistent business and technology integration as crucial to innovation

Source: Dr.V.S.R.Krishnaiah, Sr.Technical Director, NIC

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Business Model Innovation is key

A Value Proposition is an overall view of a company's bundle of products and services that are of value to the customer.

The Target Customer is a segment of customers a company wants to offer value to.

A Distribution Channel is a means of getting in touch with the customer. The Relationship describes the kind of link a company establishes

between itself and the customer. The Value Configuration describes the arrangement of activities and

resources that are necessary to create value for the customer. Nornally these are expressed in IC-Navigator form and using the (Stabell and Fjeldstad 1998) Value Logics

The identified Resources that can be deployed by the firm to create value including those that form the basis for a competitive advantage

A Partnership is a voluntarily initiated cooperative agreement between two or more companies in order to create value for the customer

The Cost Structure is the representation in money of all the means employed in the business model.

The Revenue Model describes the way a company makes money through a variety of revenue flows.

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Truly understand your customers and your customer’s customers [consumers]

Customers are trading both up and down within categories, demanding differentiated value from businesses

Gro

wth

Historical Demand

Emerging Demand

Price Positioning

Seeking “good enough” quality at rock-bottom prices when they perceive no differentiated value

Willing to pay large premiums for “new luxury” brands when they deliver differentiated value

Source: IBM Institute for Business Value analysis

Value Proposition

Target Customer

http://www.mccormickdistilling.com/home.html

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What drives the B2B relationship?Situational Importance of Different Perceived Value Driver Categories

Perceived Knowledge of BuyerPerceived Knowledge of Buyer

Impo

rtan

ce to

Buy

erIm

port

ance

to B

uyer

< Seller< Seller

HighHigh

LowLow

≥ ≥ SellerSeller

DistinctnessDistinctness

Mental ProximityMental Proximity

FunctionalityFunctionality

FunctionalityFunctionalityPricePrice

PricePrice DistinctnessDistinctness

Value Proposition

Target Customer

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Value and knowledge distance

Known byKnown bynobodynobody

Known byKnown byeverybodyeverybody

Known by theSupplier

Known by theCustomer

Knowledgedistance

Potential Valueto be extracted

from the relationshipby the supplier

+-

Value Proposition

Target Customer

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Value Chain

Inbound

logisticsService

Marketing

&

Sales

Outbound

logisticsOperations

Infrastructure

Human Resource Management

Technology development

Procurement

Margin

SupportSupportActivitiesActivities

PrimaryPrimaryActivitiesActivities

Source: Porter, M.E. 1985: Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press

Value Configuration

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Value Shop

Source: Stabel, . B., Fjeldstad,Ø. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998

Procurement

InfrastructureHuman Resource Management

Technology developmentSupportSupport

ActivitiesActivities


Find someone

with a problem

Control/Evaluation

Execute

Develop alternative solutions

Acquire the right

to address the

problem

Co-select with

client one solution

Value Configuration

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Value Network

Source: Stabel, . B., Fjeldstad,Ø. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998


Procurement

Infrastructure

Human Resource Management

Technology development

SupportSupportActivitiesActivities

Promote Network

Manage Member Contracts

Service Provisioning

Infrastructure Operation

& Maintenance

Value Configuration

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The presence of resources with different behaviour

Owned or ControlledOwned or ControlledBy the FirmBy the Firm



AdditiveAdditive AdditiveAdditive

Owned or ControlledOwned or Controlledby the Other Partyby the Other Party

Owned or ControlledOwned or ControlledBy the EmployeeBy the Employee

Resources

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KnowledgeKnowledgeEconomicsEconomics

IndustrialIndustrialEconomicsEconomics

NetworkNetworkEconomicsEconomics

The utilisation of resources with different behaviour

Resources

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Examples of Resource Transformations

HUMAN

ORGANISATIONAL

RELATIONAL

PHYSICAL

MONETARY

HUMAN ORG. REL. PHYSICAL MONETARY

Investmentin assets

Investmentin building

links

Investmentin brands,image andsystems

Recruitmenttraining,

conditions

Facilities totrain with

Possible new products& know-how

Facilitiesbuild

relationshipsSales ofproducts

Chance tobuild skills inrelationship

handling

Importing IP,processes, associationwith brands

Use of othercompany’s

assets

Relationshipselling,

preferentialdeals

Developingcompetencethrough use

Marketintelligence

ProduceBy

numbers

Sales of IP,processes &knowledge

Knowledgecodification,

new IP

Building &developing

relationships

Developingprototypes

Sales ofman-hours

InvestmentIn financialinstruments

Systemsgenerate

IP

Networking

Equipment generates products

Training

Resources

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Revenue LogicsEffort-based pricing

– A cost-based (or effort-driven) pricing modelValue-based pricing

– A value-based (or perception-driven) pricing modelProfit Sharing

– Revenue-sharing contract with primary customersLicensing

– Charging on copyright (the right to use the IP)Loss Leader-pricing

– Creating customer base (for later revenue) or supporting sales of other parts of the product/service offering

Hybrid/Media model– Vendor sells/leases ad space or information [space] based on

customer relationshipChannel charging

– Vendor charges for carrying information relating to other goods in/on its primary product/offering

Membership fee– Vendor charges for the right to take part in an activity

Negative Working capital– Vendor generates financial returns on the capital held as a

consequence of getting paid by its customers before paying its suppliers

Revenue Model

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Innovation does not happen by itself

It is the result of hard work, well planned and executed and is no happening

Innovation is work rather than genius,…and very much a matter of discipline (Peter F Drucker, 1985)

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Summary

Innovation does make a difference at the bottom line Few companies do it well There is a difference between research and innovation and

especially in their management Innovation is more than technology Innovation Management is Key and is facilitated by applying

the IC lens We know how good innovation management looks It will become even more important in the future

Documents

Knowledge Creation and Innovation