Roger Smith SPARTA Inc. rsmith@sparta.com 407.380.0076 Simulation Innovation III: Managing Intellectual Capital to Drive Innovation Roger Smith SPARTA Inc. rsmith@sparta.com 407.380.0076 © Copyright 2005, Roger Smith

Simulation Innovation Innovation & New Technology Displace Established Technology & Practitioners 1947 1985 2005

Innovation Disruptive Innovation 3-Phase Innovation Intellectual Capital

Disruptive Innovation

Christensen’s Disruptive Innovation sustaining technologies Progress due to Performance demanded at the high end of the market disruptive technologies Progress due to Performance demanded at the low end of the market Market disruption opportunity Product Performance Time Christensen, C. (1997). The Innovator’s Dilemma. Harvard Business Press.

Progress = Waves of Disruption Own the Market Share Low End Upper Half Niche Squeezed Out D2 = Web Games Defense Simulation D1 = PC Games D3 = Wireless Games OOS Forterra AW-VTT CCTT High-end Customer Demand Closer Than You Think! America’s Army Google SIMNET Spearhead MS Flight Product Performance Low-end Customer Demand Time Smith, R. (2005). Simulation Innovation: Disruptive Effects of Innovation. VisTech Conference 2005.

Disruptive Forces in Simulation Computer Technology Graphics Cards Game Companies & Market Physical Devices Theme Park Ride Technology Electric vs. Hydraulic Motion Actuators Customer Perspective Societal Immersion in Games Military Acceptance of Games

Growth Strategy Product Performance Time D2 = Console Games Simulation: Weather, Markets, Medical Squeezed Out Niche Upper Half Share Low End Own the Market Move Up: Change Customers D2 = Console Games D3 = Web Services Defense Simulation D1 = PC Games Move Vertical: Change Technology Defense Training & Analysis Corporate Training, Education Product Performance Move Down: Change Industries Time

Recommendations Disruptive innovations move through markets Move Vertical to new technologies Move Up to new customers Move Down to new industries

3-Phase Innovation in Industry

Utterback’s 3-Phases of Innovation Fluid Phase Explosion of different designs, Era of radical product innovation Transitional Phase Standardization of design, Emergence of process innovation Specific Phase Contraction of competitors, Era of incremental innovation Product Innovation Process Innovation Rate of Major Innovation Dominant Design Lowest Cost time Utterback, J. (1996). Mastering the Dynamics of Innovation. Harvard Business School Press.

Simulation Innovation Examples Fluid Phase Explosion of different designs, Era of radical product innovation Transitional Phase Standardization of design, Emergence of process innovation Specific Phase Contraction of competitors, Era of incremental innovation Product Innovation Game Wireless Process Innovation Game Web Rate of Major Innovation Serious Games Dominant Design Sim: LVC Games: Genres (FPS, RTS, etc) Military Simulation time

Unsuccessful Path: Stay The Course Product Innovation Rate of Major Innovation Fluid Phase Transitional Phase Specific Phase time

Successful Path: Jump Industries Wireless Games Expertise Fluid: R&D, New Products Serious Web Games Expertise Transitional: Mass Production Expertise Specific: Services Serious Games Computer Simulation

Successful Path: Skate the Top (1) Open with rapid and prolific innovation (3) Push standards and build community around yours (4) Focus on low-cost products and services Product Innovation Process Innovation Rate of Major Innovation Dominant Design (2) Create and own the dominant design Lowest Cost Fluid Phase Transitional Phase Specific Phase time

Every Organization Will Not Survive 5% Skate the Top 10% Jump Industries 85% Stay the Course

Recommendations Flexible Specialized Immovable Change the company to follow the market Fluid >> Transitional >> Specific Specialized Jump across domains to grow specific expertise Retain your specialized expertise Immovable Stay the Course Until Extinction Most companies follow this path

Applying Intellectual Capital

2 Types of Innovation Incremental Radical (a.k.a. Disruptive) “build on and reinforce the applicability of existing knowledge” “improving and exploiting an existing technological trajectory” Radical (a.k.a. Disruptive) “destroy the value of an existing knowledge base” “disrupt an existing technological trajectory” Leifer, R. et al. (2000). Radical Innovation: How mature companies can outsmart upstarts. Harvard Business School Press.

Incremental Innovation – The Pen

Radical Innovation “I will now claim -- until dispossessed -- that I was the first person in the world to apply the typewriter to literature.” -- Mark Twain, 1875 “Either write something worth reading or do something worth writing.” -- Benjamin Franklin, 1706 “There is no reason for any individual to have a computer in his home.” -- Ken Olson, 1977

Incremental & Radical Innovation Radical Invention Incremental Innovation Radical Innovation

Radical and Incremental Waves Innovation & Benefits Incremental Radical Time Leifer, R. et al. (2000). Radical Innovation: How mature companies can outsmart upstarts. Harvard Business School Press.

3 Types of Intellectual Capital Human Social Organizational

Innovation from Intellectual Capital Which flavors of IC promote radical innovation vs. incremental innovation ? Radical Innovation Incremental Innovation Subramaniam, M. & Youndt, M. (June 2005). The Influence of intellectual capital on the types of innovative capabilities. Academy of Management Journal, 48(3), 450-463.

Organizational Capital = Incremental Innovation

Social Capital = Incremental Innovation

Human Capital = Radical Innovation

Human + Social = Radical Innovation Capital Social Capital Radical Innovation

Effective investments in IC Human Resources Management Captures & Nurtures Human Capital Information Technology Fosters Social Capital Research & Development Generates Organizational Capital Motivates Human and Social Capital

IC and Innovation a System View IT R&D Human Resource Mgt Social Capital Organizational Capital Human Capital No Effect + + - + Radical Innovation Incremental Innovation + +

IC Recommendations Investments in Social Capital are essential for both Incremental and Radical Innovation Human Capital must be supplemented with Social Capital to have a positive impact on Radical Innovation Organizational Capital is Strongly Correlated with Incremental innovation

References Christensen, C. (1997). The Innovator’s Dilemma: When new technologies cause great firms to fail. Harvard Business School Press. Christensen, C. & Raynor, M. (2003). The Innovator’s Solution: Creating and sustaining successful growth. Harvard Business School Press. Utterback, J. (1996). Mastering the Dynamics of Innovation. Harvard Business School Press. Subramaniam, M. & Youndt, M. (June 2005). The Influence of intellectual capital on the types of innovative capabilities. Academy of Management Journal, 48(3), 450-463. Leifer, R. et al. (2000). Radical Innovation: How mature companies can outsmart upstarts. Harvard Business School Press.