The Management of Knowledge Creation and Innovation Through an Intellectual Capital Lens Prof. Göran Roos

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

Remember Innovation is not only based on natural sciences

What do companies think about innovation?

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

Research vs Innovation – What is the relationship?

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

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.

Source: IBM Institute for Business Value analysis Value Proposition Truly understand your customers and your customer’s customers [consumers] Target Customer Customers are trading both up and down within categories, demanding differentiated value from businesses Historical Demand 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 Growth Emerging Demand Price Positioning Source: IBM Institute for Business Value analysis

What drives the B2B relationship? Value Proposition What drives the B2B relationship? Target Customer Situational Importance of Different Perceived Value Driver Categories Perceived Knowledge of Buyer Importance to Buyer < Seller High Low ≥ Seller Distinctness  Mental Proximity Functionality Price

Value and knowledge distance Value Proposition Value and knowledge distance Target Customer - + Potential Value to be extracted from the relationship by the supplier Knowledge distance Known by nobody everybody Known by the Supplier Known by the Customer

Value Chain Support Activities Primary Inbound logistics Service Value Configuration Value Chain Inbound logistics Service Marketing & Sales Outbound Operations Infrastructure Human Resource Management Technology development Procurement Margin Support Activities Primary Source: Porter, M.E. 1985: Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press

Support Activities Primary Activities Value Shop Infrastructure Value Configuration Value Shop Infrastructure Support Activities Human Resource Management Technology development Procurement Find someone with a problem Control/Evaluation Execute Develop alternative solutions Acquire the right to address the problem Co-select with client one solution Primary Activities Source: Stabel, . B., Fjeldstad,Ø. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998

Support Activities Primary Activities Value Network Infrastructure Value Configuration Value Network Support Activities Infrastructure Human Resource Management Technology development Procurement Promote Network Manage Member Contracts Service Provisioning Infrastructure Operation & Maintenance Primary Activities Source: Stabel, . B., Fjeldstad,Ø. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998

The presence of resources with different behaviour Owned or Controlled By the Firm Owned or Controlled By the Firm Owned or Controlled by the Other Party Owned or Controlled By the Firm Owned or Controlled By the Employee Additive Additive 13 9 3

The utilisation of resources with different behaviour Industrial Economics Network Economics Knowledge Economics 13 9 3

Examples of Resource Transformations Resources Examples of Resource Transformations HUMAN ORGANISATIONAL RELATIONAL PHYSICAL MONETARY ORG. REL. Investment in assets in building links in brands, image and systems Recruitment training, conditions Facilities to train with Possible new products & know-how Facilities build relationships Sales of products Chance to build skills in relationship handling Importing IP, processes, association with brands Use of other company’s assets Relationship selling, preferential deals Developing competence through use Market intelligence Produce By numbers Sales of IP, processes & knowledge Knowledge codification, new IP Building & developing prototypes man-hours In financial instruments Systems generate IP Networking Equipment generates products Training

Revenue Logics Effort-based pricing Value-based pricing Profit Sharing Revenue Model Revenue Logics Effort-based pricing A cost-based (or effort-driven) pricing model Value-based pricing A value-based (or perception-driven) pricing model Profit Sharing Revenue-sharing contract with primary customers Licensing 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 relationship Channel 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

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)

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