1. This project is financed by the European Union 1 The project is implemented by a European Profiles S.A. led consortium Second cycle of Training of Trainers “The Innovation Strategy” By SNKE KYRIAKOS DIMITRIOU Tashkent, Uzbekistan 01. 11.2014

2. This project is financed by the European Union 2 The project is implemented by a European Profiles S.A. led consortium The objectives of the training Expected results of training: Participants after this training action will be able to: Create their own definition in terms as Innovation and strategy Conceptualize the various types of Innovation Classify Innovation strategies Realize the strategy of Open Innovation Define that Open Innovation and Intellectual Property are not irreconcilable

3. This project is financed by the European Union 3 The project is implemented by a European Profiles S.A. led consortium Innovation and strategy

4. This project is financed by the European Union 4 The project is implemented by a European Profiles S.A. led consortium What is innovation? Innovation, is the act of introducing something new, or doing something in a different way than the usual one. Innovation vs Creativity Innovation in business differs from creativity, in that the latter is generally associated with the generation of new ideas. In contrast, innovation refers to taking those new ideas and actually implementing them in the marketplace.

5. This project is financed by the European Union 5 The project is implemented by a European Profiles S.A. led consortium Innovation In her book «The Seeds of Innovation», Elaine Dundon provides this very accurate, if somewhat strict, business-oriented definition of innovation: Innovation is the profitable implementation of strategic creativity. This is clearly what companies and organizations are striving to accomplish – an organized, strategic and creative process whose end will be realized and which will achieve measurable results with measurable expected profit by putting this process in action.

6. This project is financed by the European Union 6 The project is implemented by a European Profiles S.A. led consortium Innovation is close with When one disassembles the definition, one discovers that innovation is: creativity – conceiving a new idea. strategy – analysing the idea’s originality and usability. implementation – setting the idea into motion and testing it in the real world. profitability – maximizing the unique, usable idea’s added value To understand this carefully used definition, it can also be useful to emphasize what innovation is not.

7. This project is financed by the European Union 7 The project is implemented by a European Profiles S.A. led consortium Innovation is not only Not only new technology A new organizational structure, a new business channel or a new application for something old are also innovations. Not business-specific Innovation is not only needed in major industrial companies; all organizations should integrate innovation in one form or another. Not only for R&D departments R&D departments do a good job for the most part, but an organization that takes innovation seriously applies it throughout the entire organization.

8. This project is financed by the European Union 8 The project is implemented by a European Profiles S.A. led consortium Innovation is not only Not only a creative playroom (ie Google, Microsoft etc) Not a one-time stunt Companies must innovate all times otherwise their future is unstable. Not only creative training Training for professional creative skills is very important, but this training must be part of an innovation strategy. Not only brand-new products Creating revolutionary new products is a key element of innovation management. But working for continuous improvements in existing products is equally important – possibly even more important since it is through continuous improvements that the majority of companies make the majority of money.

9. This project is financed by the European Union 9 The project is implemented by a European Profiles S.A. led consortium Strategy From: business dictionary. Approach to future that involves: (1) examination of the current and anticipated factors associated with customers and competitors (external environment) and the firm itself (internal environment), (2) envisioning a new or effective role for the firm in a creative manner, (3) aligning policies, practices, and resources to realize that vision. http://www.businessdictionary.com/definition/strateg y.html

10. This project is financed by the European Union 10 The project is implemented by a European Profiles S.A. led consortium Strategy in business Strategy in business as a field of study, is concerned with how a company competes in its chosen business. It deals with the analysis of a firm’s strengths and weaknesses and the opportunities and threats presented by the firm’s environment. Strategy looks toward consistent execution of broad plans to achieve certain levels of performance. 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.

11. This project is financed by the European Union 11 The project is implemented by a European Profiles S.A. led consortium How Strategy is Managed In its broadest sense, strategic management is about taking "strategic decisions" : decisions that answer the questions (direction – markets – scope – advantage – resources – environment – stakeholders). In practice, a thorough strategic management process has three main components, shown in the figure below:

12. This project is financed by the European Union 12 The project is implemented by a European Profiles S.A. led consortium Strategic analysis Strategic choice Strategy Implementation

13. This project is financed by the European Union 13 The project is implemented by a European Profiles S.A. led consortium Strategic Analysis This is about analyzing the strength of businesses’ position and understanding the important external factors that may influence that position. Strategic Choice This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options and then evaluating and selecting strategic options. Strategy Implementation Often the hardest part. When a strategy has been analysed and selected, the task is then to translate it into organisational action.

14. This project is financed by the European Union 14 The project is implemented by a European Profiles S.A. led consortium Innovation or not? Please create the way you prefer 3 sub groups. In each group you will select a representative (to present group’s findings to all of us). Each group will work individually towards the following question. “ which of the situations in the working paper you do have are innovations and if not how can be adapted to be innovations? ” Time for sub group’s work is 10 minutes. Then we work as a whole group to discuss.

15. This project is financed by the European Union 15 The project is implemented by a European Profiles S.A. led consortium Types of innovation Innovations can be characterized in a variety of ways. The OECD Oslo manual of 1994 as an example, classifies innovations by: the sector of main economic activity of the producer; the technological group (product group) to which the innovation belongs; the probable sector of utilisation. Also in the same manual, innovations are classified by the size of firm (number of employees), or by type of institution (private, public, other), or by geographical influence (national, international).

16. This project is financed by the European Union 16 The project is implemented by a European Profiles S.A. led consortium Clustering innovation In his book “Dealing with Darwin” Geoffrey Moore organizes the various Innovation types into clusters, identifying four Innovation Zones and divides each one of them in types. The four Innovation zones are:  Product (or service) leadership zone  Customer intimacy zone  Operational excellence zone  Renewal zone

17. This project is financed by the European Union 17 The project is implemented by a European Profiles S.A. led consortium Types of product /service leadership zone Disruptive Innovation. This type of innovation creates new market categories based on a discontinuous technology change or a disruptive business model. Application Innovation. Also known as solution innovation, this type develops new markets for existing products by finding unexploited uses for them, often by combining them in novel ways. Product Innovation. This innovation type focuses on existing markets for existing products/services, differentiating through features and functions that current offers do not have.

18. This project is financed by the European Union 18 The project is implemented by a European Profiles S.A. led consortium Product /service leadership zone/2 Platform Innovation. This type of innovation interposes a simplifying layer to mask an underlying legacy of complexity and complication, thereby freeing a next generation of offers to focus on new value propositions. Part of the innovation activity here, therefore, includes recruiting and supporting the partners who complete the value chain. The most successful platform innovations reposition an already ubiquitous product to take on this new role. Examples include Microsoft and Intel repositioning DOS and the 8086 microprocessor family from being component ingredients of IBM’s PC to being PC clone enablers.

19. This project is financed by the European Union 19 The project is implemented by a European Profiles S.A. led consortium Customer intimacy zone Line-extension Innovation. This type of innovation makes structural modifications to an established offer to create a distinctive subcategory. The goal is to expand a maturing market by engaging with a new customer base or reengaging more compellingly with an old one. Enhancement Innovation. This type continues the trajectory begun by line extensions, driving innovation into finer elements of detail, getting closer to the surface of the offer with less impact on the underlying infrastructure.

20. This project is financed by the European Union 20 The project is implemented by a European Profiles S.A. led consortium Customer intimacy zone/2 Marketing Innovation. This type of innovation focuses on differentiating the interaction with a prospective customer during the purchase process (example: product placements in TV shows, peer-to-peer marketing of social networks…). Experiential Innovation. The ultimate refinement in this trajectory of customer intimacy is experiential innovation, where the value is based not on differentiating the functionality but rather the experience of the offering. It is particularly suited to costumer markets, where the product has become a commodity and the purchase decision has become risk free. (examples: business hotels that remember your newspaper preference, coffee houses with exotic ambience…)

21. This project is financed by the European Union 21 The project is implemented by a European Profiles S.A. led consortium Operational excellence zone Engineering Innovation. This type of innovation extracts cost from the material and manufacturing of an established offer, without changing its external properties. Examples in Engineering innovation: substituting low-cost standard parts in TV, PC, Cell phones… Integration Innovation. This type reduces customer’s cost of maintaining a complex operation by integrating its many disparate elements into a single centrally managed system. Examples in Integration innovation all-in-one printer/ fax/ copiers …

22. This project is financed by the European Union 22 The project is implemented by a European Profiles S.A. led consortium Operational excellence zone Process Innovation. This type of innovation focuses on improving profit margins by extracting waste not from the other itself but from the enabling processes that produce it. The goal is to remove non value - adding steps from the work flow. Toyota’s kanban manufacturing process (the supply of components is regulated through the use of a card displaying a sequence of specifications and instructions, sent along the production line), and Dell’s direct- retail model Value migration Innovation. This type consists of redirecting the business model away from a commoditizing element in the market’s value chain toward one richer in margins. Examples include the switch in focus from products to consumables, as with razors to razor blades, or printers to ink-jet cartridges.

23. This project is financed by the European Union 23 The project is implemented by a European Profiles S.A. led consortium Renewal zone Organic Innovation. On this path the company uses its internal resources to reposition itself into a growth category, reconnecting with its most valued customers and finding new problems to solve for them. Acquisition Innovation. Acquisition innovation solves the problem of category renewal, externally through merger and acquisition. One can play this game either as an acquirer or been acquired.

24. This project is financed by the European Union 24 The project is implemented by a European Profiles S.A. led consortium Degree, stimulus, originality of innovation In bibliography there are more than one classifications in innovation strategies. In the next slide we will examine the first one that divides strategies according the degree, the stimulus and the originality of innovation. The three categories (next slide) are not mutually exclusive.

25. This project is financed by the European Union 25 The project is implemented by a European Profiles S.A. led consortium. DegreeStimulus Originality Radical Incremental First movers Late movers Imitative Inventive

26. This project is financed by the European Union 26 The project is implemented by a European Profiles S.A. led consortium Need – Market – Technology Booz Allen Hamilton, a public consultancy firm one of the biggest in USA, identified 3 different, yet successful, strategies used by a select group of companies in its “Global Innovation 1000” study (2007). As they indicate there is no statistically significant connection between the amount of money a company spent on innovation and its financial performance. Successful innovation is not a straightforward matter of spending the most money, hiring the best engineers, developing the best technology, or conducting the best market research.

27. This project is financed by the European Union 27 The project is implemented by a European Profiles S.A. led consortium The three innovation strategies they identify in this report are: (Analysis in training material) Need Seekers Market Readers Technology Drivers According this research: “No one of these strategies performed consistently better than any other; indeed, high-leverage innovators can be found in all three categories”.

28. This project is financed by the European Union 28 The project is implemented by a European Profiles S.A. led consortium The twelve innovation strategies The frameworks for innovation broadly cover 12 innovation strategies, under the three basic dimensions of competitive space: Customer excitement Competitive leadership Portfolio enrichment Each of these dimensions gives insight into the appropriateness of innovation strategy at every stage and every part of the firm's value chain. Moreover, they are not mutually exclusive ways of benefiting from innovation, but interact among themselves as well.

29. This project is financed by the European Union 29 The project is implemented by a European Profiles S.A. led consortium 1. Platform offerings A product platform is a set of products that share a common technology and address related market segments, or even markets. Platform offerings are essentially different from one-off offerings; they provide repeatable, customized products or services by combining and recombining modules*. Toyota has used the Innova car platform to develop a series of differentiated offerings.

30. This project is financed by the European Union 30 The project is implemented by a European Profiles S.A. led consortium 2. Co-creation Co-creation is a strategy in innovation in which value is created by jointly working with the consumer and using customer insights to generate greater satisfaction. It may entail involving potential customers or lead users. Boeing developed the twin-engine B-777 airliner by interacting with executives from a number of leading airlines. They were invited to provide ideas on what kind of futuristic aircraft they envisaged*.

31. This project is financed by the European Union 31 The project is implemented by a European Profiles S.A. led consortium 3. Cycle time reduction Many innovative firms have reduced the time from concept to market, through an overlapping arrangement known as cycle time reduction. Innovation agility attempts to bring out products/services faster. This, along with "stretch goals" is one of the innovation strategies widely used by Boeing, Gillette, Honda, Nissan and Toyota, among others*.

32. This project is financed by the European Union 32 The project is implemented by a European Profiles S.A. led consortium 4. Brand value enhancement This involves redefining the boundaries of the brand through innovation and helping companies create distinct product and service experiences. Unilever conducts bio-prospecting studies to create newer products. While experimenting with plants and animals in the Arctic, it found certain proteins that can withstand the cold without losing their physical and chemical properties. These proteins have been used as additives to make ice creams and "frozen desserts soft and frost-free" thereby helping Unilever to enhance its brand value.

33. This project is financed by the European Union 33 The project is implemented by a European Profiles S.A. led consortium 5. Technology leveraging The essence of this strategy is leveraging an innovative technology so as to dominate the competition. The technology may be generated internally or obtained from outside (in open innovation scheme). Technology leveraging is essentially value creation and value capturing to seize new market opportunities. It is not limited to creative breakthroughs; rather, it involves applying technology to create a range of products, services, or features to dominate the competitors.

34. This project is financed by the European Union 34 The project is implemented by a European Profiles S.A. led consortium 6. Future-proofing Future-proofing is essentially hedging against technological obsolescence by pursuing multiple technological options. Because the future is not easy to predict, firms need to pursue multiple options rather than putting their eggs in a single basket. Future-proofing is ensuring that options are not foreclosed and that the firm will have the ability to meet a threatening change in the technological trajectory.

35. This project is financed by the European Union 35 The project is implemented by a European Profiles S.A. led consortium 7. Lean development Lean product development innovation strategy aims at meeting three distinct demands:  Market price  Development and manufacturing cost  Time to market This approach involves reducing resource requirements as well as eliminating waste.

36. This project is financed by the European Union 36 The project is implemented by a European Profiles S.A. led consortium 8. Partnering Corporate partnering for innovation helps firms synergize complementary capabilities besides sharing resources and risks. Such partnerships facilitate innovation by sharing capabilities and risks. Airbus partnered with Deutsche Airbus, British Airways and CASA to create the A-380. Sharing of knowledge and resources helped Airbus create the world's largest passenger aircraft and it is a very innovative product.

37. This project is financed by the European Union 37 The project is implemented by a European Profiles S.A. led consortium 9. Innovation mutation Innovation mutation involves mutating the technology and creating a number of offerings. The difference between platform offerings and innovation mutation is that the basic technology remains the same in platform offering, whereas in innovation mutation the technologies are different. Products or technologies are modified or adapted to meet new requirements and to expand the portfolio. The benefit is the ability to recycle knowledge, thereby gaining from economies of scale.

38. This project is financed by the European Union 38 The project is implemented by a European Profiles S.A. led consortium 10. Creative destruction Creative destruction was coined by Schumpeter to describe the economic impact of technological change. Creative destruction involves rapid withdrawal of old products and their instant replacement with new products. Surprise is key in this strategy. The success of creative destruction depends on judicious selection of innovations that can fuel future growth.

39. This project is financed by the European Union 39 The project is implemented by a European Profiles S.A. led consortium 11. Market segmentation Market segmentation is identifying new market segments as windows of opportunity. Segmenting the market in an innovative manner has become a source of competitive differentiation. IKEA, which started as a small Swedish furniture store, became a global company through smart market segmentation.

40. This project is financed by the European Union 40 The project is implemented by a European Profiles S.A. led consortium 12. Acquisition Innovation acquisition involves obtaining a technology, product, or brand. Pharmaceutical companies are increasingly using the innovation acquisition strategy, which is less risky and more effective. Among the first to do this was Novartis, which, in 2006, purchased Chiron (a market leader in vaccines), thereby creating a new segment in their business.

41. This project is financed by the European Union 41 The project is implemented by a European Profiles S.A. led consortium Innovation can become a major competitive differentiator delivering benefits in three distinct dimensions:  Exciting customers through new features, offerings, experiences and services.  Leading competitors with innovative responses, including proprietary technologies.  Expanding, enriching, and diversifying the product portfolio to achieve different growth trajectories. The above three strategic dimensions can be realized through any one or combination of the 12 innovation strategies.

42. This project is financed by the European Union 42 The project is implemented by a European Profiles S.A. led consortium The modern strategy. Open innovation Although the idea and discussion about some consequences in innovation (especially the inter-firm cooperation in R&D) date back to the 70s, Open Innovation is a term promoted by Henry Chesbrough, a professor and executive director since 2003 at the Centre for Open Innovation at the University of California, Berkeley. Henry Chesbrough as an assistant professor in the Harvard Business School, wrote his book Open Innovation: The new imperative for creating and profiting from technology that was published by Harvard Business School Press in 2003, to describe how companies have shifted from the so-called closed innovation processes towards a more open way of innovating.

43. This project is financed by the European Union 43 The project is implemented by a European Profiles S.A. led consortium In order someone to understand open innovation, is worthwhile to review the classical model of closed innovation. Traditionally, new products, new business development processes and the marketing of new products took place within the firm boundaries. Under this concept companies attained competitive advantage by funding large research laboratories, that developed technologies that formed the basis of new products that commanded high profit margins. Also depending on company’s business model they spend a lot of money to have inside huge marketing departments making the job till advertisement and logistics supply.

44. This project is financed by the European Union 44 The project is implemented by a European Profiles S.A. led consortium Close innovation’s concept. ResearchDevelopment Time

45. This project is financed by the European Union 45 The project is implemented by a European Profiles S.A. led consortium Diagram explanation In the above diagram, the red lines represent completed research projects, some of which may have resulted in patents, but never made it to be developed. Such completed research projects often are shelved until a market opportunity arises to use them, if such an opportunity arises at all. The yellow lines, represent projects that have been developed to the end. The black lines in the upper and lower end, represent the closed firm boundaries.

46. This project is financed by the European Union 46 The project is implemented by a European Profiles S.A. led consortium Open innovation’s concept. ResearchDevelopment Time

47. This project is financed by the European Union 47 The project is implemented by a European Profiles S.A. led consortium Please observe that there are not red lines, that means there are not projects that comes out from research but not been developed - either if this innovation is not useful to company’s core business, or waiting for a market opportunity. Also observe carefully, there are a lot of projects crossing in various stages the firm’s boundaries (dashed lines can be crossed) once or even more times. Chesbrough observed that the closed model began to change in many companies, when firms such as Cisco Systems competed very effectively with research- endowed companies such as Lucent Technologies which inherited most of Bell Labs.

48. This project is financed by the European Union 48 The project is implemented by a European Profiles S.A. led consortium Close vs Open The smart people in the field work for us Not all the smart people in the field work for us. We need to work with smart people inside and outside the company To profit from R&D, we must discover it, develop it, and ship it ourselves External R&D can create significant value: internal R&D is needed to claim some portion of that value If we discover it ourselves, we will get it to the market first We don’t have to originate the research to profit from it

49. This project is financed by the European Union 49 The project is implemented by a European Profiles S.A. led consortium The company that gets an innovation to the market first will win Building a better business model is better than getting to the market first If we create the most and the best ideas in our field, we will win If we make the best use of internal and external ideas, we will win We should control our IP, so that our competitors don’t profit from our ideas We should profit from others’ use of our IP, and we should buy others’ IP whenever it advances our business model

50. This project is financed by the European Union 50 The project is implemented by a European Profiles S.A. led consortium Open innovation and Intellectual property Open innovation implies an innovation ecosystem where ideas and knowledge flow across firm boundaries. In contrast, Intellectual Property Rights (IP) is generally designed to exclude others from using a firm’s ideas and inventions. At first glance the two concepts (open innovation and IP protection) seem irreconcilable. That is, open innovation implies a willingness to allow knowledge produced within the firm to spill over to others (possibly in with the expectation of receiving knowledge spill over from others in return) whereas IP protections enable a firm to exclude others from using that knowledge.

51. This project is financed by the European Union 51 The project is implemented by a European Profiles S.A. led consortium Chesbrough used Millennium Pharmaceuticals as an example of a young company that built its business around the concept of open innovation for the licensing of intellectual property. Millennium supplies information and analysis of biological compounds useful to large pharmaceutical firms in drug development in USA. Previous model for such firms involved contracting the services. Those firms are known as contract research organizations and they essentially performed the work on a contract basis with the pharmaceutical firms owning the resulting intellectual property. Two disadvantages of this model are:

52. This project is financed by the European Union 52 The project is implemented by a European Profiles S.A. led consortium 1.The potential value of the intellectual property would not be unlocked since it would be confined to the market of the pharmaceutical firm paying for the services 2.The growth of such a pay per service firm is somewhat limited since there are few economies of scale. Millennium Pharmaceuticals developed a model whereby Millennium retained ownership of the IP of the development and licensed the IP to larger pharmaceuticals. Exclusivity was given for specific markets, but each biological target that resulted could be licensed to different firms for use in different markets, with exclusivity given for each market.

53. This project is financed by the European Union 53 The project is implemented by a European Profiles S.A. led consortium Open Innovation and Intellectual Property Misconceptions: Open innovation = Open source Open innovation = public domain Open innovation = no IP Reality: Open source is one mode of open innovation Open innovation results can be protected or released into the public domain Open innovation needs a functioning IP system and an effective market of IP rights

54. This project is financed by the European Union 54 The project is implemented by a European Profiles S.A. led consortium Summary Are there additional questions? Will you help me to summarize our training action of the day?

55. This project is financed by the European Union 55 The project is implemented by a European Profiles S.A. led consortium Спасибо Thank you for your attention Additional information will be found in the training material