Page 1 Strategic Innovation

Google vs. Apple Apple Launch iPhone Improvement Launch iPad Google Android operating system Improvement Launch Nexus One Pull back Nexus One Page 2

Page 3 Innovation and Organic Growth Emphasis on: – Top-line revenue – Customer-centric, customer value – Internal and external social interactions – Cross-functional and cross-experiential teams – Empathetic, high EI people – Experimentation, learning – Entrepreneurial culture, boldness, audacity Value-creating strategy vs. Value-enhancing strategy

Page 4 Product 1 New Product Introduction Profit Plateau Competition Erodes Profits Product 2 Profit Product 3 Product 4 time Value-creating vs. Value-enhancing Strategy

Page 5 Apple iPod

Page 6 Product 1 New Product Introduction Profit Plateau Competition Erodes Profits Product 2 Profit Introduce iPod Mini iPod Photo BMW iPod Adaptor iPod Wireless Remote WiFi iPod Video iPod + Timex Watch iPod + Nike Shoe Value-enhancing Innovation Product 1 Product 2 Product 3 Product 4 time Windows compatible Value-creating vs. Value-enhancing Strategy Price Cut Value-creating Innovation

Page 7 Apple’s iPod Innovation Network 10 parts create 85% of the iPod’s cost GM Ford Apple Unknown Battery Pack Renesas (Japan) Display Driver Inventec (Taiwan)- Assembly, Testing Toshiba (China) – Hard Drive Broadcom (Singapore)- Multimedia Processor Toshiba-Matsushita (Japan)- Display Module iPod PortalPlayer (US) Portal Player CPU Unknown Back Enclosure Unknown Mainboard PCB DisneyTimex Digital Music Group Delta Airlines Nike Samsung (Korea) – Mobile SDRAM memory 400 additional inputs with values from $2 to fractions of a penny, with an average value of $.05 Source: Portelligent, Inc. and Linden, Kraemer & Dedrick, Alliance Network and Innovation

Page 8 Apple – alliance network in 1995Apple – alliance network from Apple Computuer High Level of VC + VE Alliance Network and Innovation

Page 9 Introducing the iPod Commode-dore…

Page 10 Innovation (good intentions)……………..……………….flop

Page 11 Unique Perspective

Page 12 How do you define the coffee industry? Leisure, Enjoyment, Social Interaction Food & Beverage Item Coffee Packaged Convenience coffee Café/restaurant drinking Fashion Caffeine Source

Page 13 How does Starbuck’s define coffee industry?

Page 14 Red vs. Blue Oceans Red Ocean StrategyBlue Ocean Strategy Compete in existing market spaceCreate uncontested market space Beat the competitionMake the competition irrelevant Exploit existing demandCreate and capture new demand Align organization towards strategic choice between low cost or differentiation Align organization towards pursuit of low cost and differentiation

Coffee’s Next Blue Ocean? Strategic Dimension 1 ? Strategic Dimension 2

Page 16 Early U.S. Auto Industry

Page 17 Blue Oceans and The Auto Industry Company / ProductNew/IncumbentIndustry Char. Ford Model-TNew EntrantUnattractive Toyota CorollaIncumbentUnattractive Chrysler MinivanIncumbentUnattractive Toyota Prius HybridIncumbentUnattractive

Page 18 Blue Oceans and Computer Industry Company/ProductNew/IncumbentIndustry Char. IBM System 360 mainframeNew EntrantAttractive Apple PC (Apple II)New EntrantAttractive Apple PC (MacIntosh)IncumbentUnattractive Compaq PortableNew EntrantUnattractive Dell Build-to-order/JITNew EntrantUnattractive

Page 19 “Triumph of the Nerds”

Strategic Map: PC Industry (Pre-MacIntosh) Fast/ High Capacity Low PriceHigh Price Apple II Wang IBM Slow/ Low Capacity

Strategic Map: PC Industry (Post-McIntosh; Pre-Dell) User Friendliness GUI Drop & Drag Mouse WYSIWYG Low MarginHigh Margin Wang IBM DOS-based Operating System >copy *.doc A:\ Apple MacIntosh

Strategic Map: PC Industry (After Dell Enters) High Quality & Dependability “Regular” Supply Chain Management Lenovo Adequate Quality Apple “Efficient” Supply Chain Management High Price Dell Low Price H-P

Page 23 IBM Mainframe Apple II IBM PC Apple MacIntosh Compaq Portable Tablet PC Compaq Laptop Apple iPad IBM Wearable PC

Personal Computers …what’s the next big thing? Strategic Dimension 1 ? Strategic Dimension 2

Page 25 Innovation in Shaving Razors Try the razors Compare Evaluate

What ’ s the next big thing? Strategic Dimension 1 ? Strategic Dimension 2

Page 27 Gillette: More is Better…? 12 Blade

Page 28 Razors Design features of razors and shaving performance – Do they make a difference? – Do they create [real or perceived] value? What are relevant “strategic dimensions” of razor industry? – What needs [real or perceived] do these dimensions fulfill? Strategic Dimension 1 ? Strategic Dimension 2

Umbrellas …innovation? Strategic Dimension 1 ? Strategic Dimension 2

Page 30 LG Internet Refrigerator

Page 31 Airbus A380

Page 32 Segway Personal Transporter

Page 33 Tooth Tunes

Page 34 Converging Industry Advantage Palmtop Computing Entertainment Music, Movies, News, Sports Wireless Telephony GPS Books