Business Innovation Report by TrendsSpotting: Innovation Strategy, Performance and Measurement

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Business Innovation Report
Innovation Strategy, Performance and Measurement
Research Review and Case Studies
TrendsSpotting
Trends & Innovation Research
May 2016

2
Contents
III. Innovation Performance P.42
IV. Innovation Strategy P.47
• Innovation Strategy
• Innovator’s dilemma
• Disruptive innovation
• Investment behavior
V. Innovation in Practice P.68
• Innovation intentions
• Innovation and R&D
• Innovation success
• Innovation ranking
• Innovation challenges
VI. Measuring Innovation P. 104
VII. Conclusions & Takeaway P.117
VIII. References P.127
IX. Appendix – Extended Innovation
Case Study: Apple Retail Stores P.131
I. Introduction: P.3
II. What is Innovation? P. 12
• Definitions
• Product innovation
• Definition and examples
• Case study Square
• Case study Vscan
• Process innovation
• Definition
• Case study – 3D printing
• Case study Nike Flyknit
• Case study Immune Therapy
• Marketing innovation
• Case study “Dollar Shave Club”
• Organizational innovation
• Case study “Citistats”
III. Innovation Business Models P. 35
• Innovation Value Chain
• The Solvay Business
• Open Innovation

The Need along history
The purpose of this review is to provide a deep understanding of innovation and its
business potential. We will focus on innovation outcomes in terms of performance and
present empirical findings linking innovation to business success.
We introduce basic definitions of innovation, explore the most common forms of
innovation (adding examples and case studies) and discuss disruptive innovation. We
identify key innovation strategies developed and tested in academic and business
research. We glance into rankings of the most innovative companies to learn on their
performance and growth potential. Finally we will study how companies measure
innovation and what parameters are critical for them to follow.
At the end of the report, we have compiled an insightful “take away” and present
extensive case study summarizing key innovation aspects in innovation implementation.
Introduction
The report is targeted at innovation stakeholders aiming to
promote innovation efforts linked to business success & growthFormat: 140 slides
Price: $750

The Need along history
5
Innovation is known to fuel organizational growth, to drive future success,
and is the engine that allows businesses to sustain their viability in a
global economy (Gaynor, 2002). For companies pursuing excellence in this era of hyper
competition, restructuring, lowering costs, and enhancing product or service quality
are no longer sufficient.
Academic researchers regard innovation as a ‘life-and-death matter for a firm’, in
which the constant need of fighting for survival and the threat of competition
encourage firms to innovate (e.g. Baumol, 2002). As such, innovation is a fundamental
part of competition, and consequently also the overall growth outcomes realized due
to the competition. Peter Drucker succinctly stated that “every organization needs one
core competency: innovation!”.
The Need for Innovation
Introduction / The need

Definition The Oslo Manual (2005)
15
New
Product
Process
Method
In
Practice
Innovation
Basic requirements for innovation:
Innovation (product, process or method)
should be implemented, linked to performance
and new to the firm
Org.
Innovation
Marketing
Innovation
What is Innovation

In 2013, cancer immunotherapy was named “Breakthrough of the Year” by the journal Science,
placing it in the company of the first cloned mammal and the complete sequencing of the human
genome. With a handful of therapies already on the market, and dozens more showing promise in all
stages of clinical development, these treatments are poised to forever change the way that we
approach cancer management.
Unlike chemotherapy and radiation treatments, which directly attack cancer cells, immunotherapy
agents augment the body’s normal immune machinery, increasing its ability to fight tumors. This
strategy involves either introducing compounds that directly stimulate the immune cells to work
harder, or introducing synthetic proteins that mimic the components of the normal immune
response, thereby increasing the body’s entire immune reaction.
Today, more than 25 companies
ranging from the
pharmaceutical industry’s
biggest names to a group of
startups, are developing new
products based on
immunotherapy in variety of
cancer domains.
Case Study on Product Innovation:
Immunotherapy: Using your own body to fight cancer

Case Study on Process Innovation: 3D Printing
Originally used mainly for (rapid) prototyping, 3D printing technologies have progressively
taken a more important part in manufacturing processes. As the technology improved, it
became possible to use 3D printers not only to prototype, but also to manufacture tools
and moulds used for ‘traditional’ manufacturing. It then became possible and economical,
in some cases, to entirely manufacture end-products with 3D printers. Finally, the advent of
Personal 3D Printers has made it possible to directly manufacture at home, thereby
bypassing the (physical) distribution stage. By closing the gap between a project’s design
and manufacturing phases, the technology is accelerating the pace of innovation—boosting
efficiency and reducing costs.
The 3D printing market, which consists of 3D printers, 3D printing materials, 3D printing
services and 3D printing software, reached $4.98 billion in 2015. That market is expected to
balloon to $30.19 billion by 2022 with annual growth rate of 28.5%.
Nike’s idea to use a soft 3-D–printed material mimicking grass
came after Nike’s running performance team traveled to
Stanford University and met with track runners at the school.
The group was shocked to see the athletes running barefoot
on the grass. The Nike team went back to headquarters with
the plan to try a 3-D–printed version of grass on future soles.

Case Study on Marketing Innovation:
The Dollar Shave Club
This marketing innovation
changes the concept of
shaving cost.
From “pay per razor and
cartridge” to a fixed monthly
rate of product that seems
much more affordable.
The success: In 2014, the
startup generated $65
million, triple that of its 2013
revenue, with 2 million
monthly and bi-monthly
subscribers.

Innovation ‘Value Chain’
Innovation Business Models
36
Definition / Organizational MethodInnovation Business Models
Hansen and Birkinshaw (2007) The Innovation Value Chain

Firm Innovation Behavior and Strategy
Innovation Strategy
Exploration
vs.
Exploitation
Firm’s
investment
behavior
Firm
innovation
categories
Key strategic
dimensions
External and
internal
Cooperation

Innovators Dilemma
Christensen (1997)
Innovation Strategy
Christensen documents in his book how market-leading companies have missed game-
changing transformations in industry after industry—computers (mainframes to PCs),
telephony (landline to mobile), photography (film to digital), stock markets (floor to
online)—not because of ‘bad’ management, but because they followed the dictates of
‘good’ management. They listened closely to their customers. They carefully studied
market trends. They allocated capital to the innovations that promised the largest returns.
And in the process, they missed disruptive innovations that opened up new customers
and markets for lower-margin, blockbuster products.”
“Disruptive innovations” - are the “changes that toppled the industry
leaders”. These are not radical improvements. Disruptive innovations
are either so much cheaper that they open a new market, or start in a
because it’s too small.doesn’t care aboutniche that the industry
However, often the performance of the disruptive technology grows
faster than users’ needs, with time catching up to, and surpassing the
more high-end or mainstream technologies that are the domain of
industry leaders.

Innovation Strategy
• Cisco disrupted the circuit switching of Lucent and Nortel with disruptive router technology,
which was cheaper and initially not good enough to compete in the area of voice. While
Cisco was developing and improving the router technology, it made no sense for Lucent or
Nortel to pay attention to the disruptive technology. If Lucent listened to their existing
customers and asked whether they were interested in router technology, the answer was
that they weren’t. But the router kept on improving until the router was fast enough to do
voice. The router had improved to the point where it put circuit switching out of business.
• Today - Google promises to reinvent cars as autonomous vehicles; Amazon promises to
reinvent shopping (again) using drones; 3D printing could disrupt manufacturing. With the
rise of Uber, Airbnb and others, the economy is moving away from owning assets to renting
them. Fintech companies are about to change money managements systems cutting middle
men– challenging banks and insurance companies.
Disruptive innovation: examples
• In 2008 Apple challenged the music market with “value chain disruption.” Apple’s
integration of its iPod device, iTunes software, and iTunes music store disrupted the existing
music industry value chain from the record labels to the CD retailers to the MP3 device
makers. The key to Apple’s success was that Steve Jobs was able to convince the major
record labels to sell its critical asset — individual songs — for 99 cents.

63
Companies can be classified into one of three innovation strategy models:
• Need Seekers engage both current and potential customers to help shape new products
and services based on superior end-user understanding. These companies often address
unarticulated needs and then work to be first to market with the resulting new products
and services.
• Market Readers closely monitor both their customers and competitors, but they maintain
a more cautious approach. They focus largely on creating value through incremental
innovations to their products and being “fast followers” in the marketplace.
• Technology Drivers follow the direction suggested by their technological capabilities,
leveraging their sustained investments in R&D to drive both breakthrough innovation and
incremental change. They often seek to solve the unarticulated needs of their customers
through leading-edge new technology.
Innovation Strategy
Firm innovation strategies
(Booz & Company 2011)

Innovation In Practice
Innovation importance
In BCG 2015 Innovation survey – 79% of respondents ranked innovation as one of their
company’s top-strategic priorities while 57% placed it as 1 of 3 top strategic priorities.
A strong majority of respondents (84%)— consider innovation important or extremely
important for positioning their company to benefit from an economic recovery (2010
survey).
Innovation as top priority in BIC countries:
82% of respondents from BIC countries said that their company considers innovation a top
or top-3 priority (China = 92 %—versus 68% per mature economies). 36% of BIC respondents
said their company considers innovation its top priority (versus 22% from mature
economies) – 2010 survey.
Innovation Intentions
Innovation PerformanceInnovation in practice / Innovation intentions
BCG 2010, 2015 Innovation survey

In 2015, Top 20 R&D Spenders
were Volkswagen, Samsung,
Intel, Microsoft, and Roche,
which held the same first five
positions as last year.
Apple makes its first
appearance ever in the Top 20
R&D Spenders list in 2015,
despite being an efficient
innovator and spending only
3.3 percent of its revenues on
R&D, compared with an
average 12.5 percent for the
other 19 companies on the list
(Strategy & 2015, Bloomberg)
Innovation and R&D
Innovation PerformanceInnovation in practice / Innovation and R&D

Innovation Business Success
In their survey, IBM (2012 CEO Study) distinguished
between Outperformers and Underperformers:
Outperformers are organizations that surpass industry
peers in terms of revenue growth and profitability,
according to their CEOs.
Outperformers were found to be partnering for innovation
more aggressively. But they are also tackling more
challenging and disruptive types of innovation.
Innovation In PracticeInnovation PerformanceInnovation in practice / Innovation Success
IBM 2012 CEO Study

Innovation Business Success
Desai's financial index for innovation
Methodology: 270 internationally publicly traded organizations across all major sectors were profiled according to
"Innovation Success" criteria
- a company must demonstrate innovation that produces at least 5% of company's total revenue within 3 years after
commercialization, and grows to at least 15% (with equal or better margin) within 7 years.
- $1B+ in Revenue ; in business for 10+ years; 75% of revenue must be from products & services created from within.
- Must demonstrate positive top-line and net-earnings for last 3 years continuously
- At least 15% of total revenue must be from products created in last 5 years
Innovation Performance of innovative
companies (IPI) correlates with stock
performance
134% increase in stock performance for
innovative companies was recorded while
DOW, NASDAQ, S&P, CACC40, and NIKKEI
all provided either negative or less then
6.5% return over the same period 2003-2009.
Even during the toughest economic period of
2008-2009, IPI companies recovered much faster
then others - demonstrating agility, nimbleness,
and resilience in the culture of these companies.
Innovation In PracticeInnovation PerformanceInnovation in practice / Innovation Success

Most Innovative Companies Strategy &, 2015
Innovation in practice / The innovation Premium
Strategy& examines the world's 1000 leading
companies in terms of research & development
spend and then ranks their position based on how
well this investment has translated into
performance
Innovation In PracticeInnovation in practice / MeasurementInnovation In PracticeInnovation in practice / Innovation Ranking

Ranking Most Innovative Companies
Innovation in practice / The innovation Premium
In their book The Innovators DNA (Harvard Business Press, 2011), Gregersen,
Dyer and Christensen explain how some of the world’s most innovative companies enjoy
the Innovation Premium:
“Investors pay a stock price based upon two things: One is the cash flow - the money
coming from existing products, services and markets. The other is the belief that the
company will develop new markets, new services and new products tomorrow.” They
found that this belief can add 50 percent or more to their market value.
The results of their study were surprising: Companies like Toyota, Sony and Samsung,
which frequently feature on other lists of innovative companies, sank to negative ratings.
In their place emerged a number of unexpected and relatively unknown companies -
firms like Intuitive Surgical (which builds systems for robotically assisted, minimally
invasive surgery, Natura Cosméticos (a Brazilian manufacturer of cosmetics made from
plants from the Amazon forest), and Keyence Corporation (a Japanese producer of
electronic sensors for automated factory systems).
Innovation In PracticeInnovation in practice: Innovation RankingInnovation in practice / Innovation Ranking

Technology and Innovation
IBM 2015 CXO study
Innovation in practice
IBM 2015 CxOs study (5,247 business
leaders, 21 industries,70 countries)
Innovation in practiceInnovation in practice / The innovation PremiumInnovation in practiceInnovation in practiceInnovation in practice / The innovation PremiumInnovation In PracticeInnovation in practice / Innovation Challenges
IBM 2015 CxO study shows clearly that CxOs today believe technology and market factors
are the most meaningful external forces blocking their organizations.
CEOs have put technology at the top of the list in recent years. The current study reveals
that other members of the C-suite also see technology as the main game-changer).
Technology to drive innovation
Technology (77%) and market factors (71%) are
transforming the competitive landscape

Measurement
Question: What metrics are used in your organization to measure the value of innovation?
2014 KPMG Tech Innovation Survey
Most common metrics
KPMG 2014 tech business executives survey
Measuring Innovation in firmsInnovation PerformanceMeasuring Innovation
Revenue growth is the most
common measure for innovation,
followed by ROI, number of new
customers and market share.
Interestingly – Chinese executives
use brand recognition as the most
common measure. Probably they
are using innovation brand impact
to compete with western
companies.

Original image
Credit: Fadhirul Fitri Jamsari
Source: http://www.flickr.com/photos/sey_alg9/2930523547/
Original image
Credit: Jeroen van Deel, flicker, 2005 Netherlands
Source: http://www.flickr.com/photos/fotovandeel/3127361451/
Original image
Credit: iphone battery icon
Source: http://sneakhype.com/accessories/2010/12/iphone-icon-battery.html
Original image
Credit: Daveyo520
Source: http://www.giantbomb.com/forums/off-topic/31/headphones-on-without-using-
them/422062/?page=3/
Sources of images used in this report:
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