Profit Chain PROFIT CHAIN INNOVATION MANAGEMENT Profit Chain

Profit Chain PROFIT CHAIN INNOVATION MANAGEMENT

Profit Chain Profit chain NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase ENVIROMENT • Competitive • Macro INTERNALS • Strategy • Structure • Systems • People COMPETENCES Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture KNOWLEDGE ASSETS NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase INNOVATION MANAGEMENT Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses PROFIT From innovation that leads to low – cost or differentiad products

Profit Chain What is the innovation? INNOVATION MANAGEMENT

Profit Chain Definition of innovation INNOVATION = INVENTATION + COMMERCIALIZATION Innovation is the use of new knowledge to offered a new product or service that customers want (Afuah). IDEA INNOVATION MANAGEMENT MARKET

Profit Chain How can a firm make profit from innovation? INNOVATION MANAGEMENT

Profit Chain Profit NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase ENVIROMENT • Competitive • Macro INTERNALS • Strategy • Structure • Systems • People COMPETENCES Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture KNOWLEDGE ASSETS NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase INNOVATION MANAGEMENT Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses PROFIT From innovation that leads to low – cost or differentiad products

Profit Chain Profit A firm makes profit from selling a product or service when the revenues are greater than the cost of offering it. Profits = Revenues – Cost = P(z, q). q(z) – C(q, z) P(z, q) = Price z = attributes of the product Q= quantity q(z)= quantity that are sold C(q, z)= cost INNOVATION MANAGEMENT

Profit Chain Innovation and profit Innovation is use of technological and market knowledge to offer a new product or service that customer will want (low cost, improved attributes, new attributes) and increase the profit through selling of it. Low cost for a given price Process innovation NEW PRODUCT • Low cost • Improved attributes • New attributes MORE PROFITS COMPETENCES AND ASSETS New or better attributes (price premium) for a given cost Product innovation INNOVATION MANAGEMENT NEW TECHNOLOGICAL KNOWLEDGE NEW MARKET KNOWLEDGE

Profit Chain Assets and competences NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase ENVIROMENT • Competitive • Macro INTERNALS • Strategy • Structure • Systems • People COMPETENCES Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture KNOWLEDGE ASSETS NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase INNOVATION MANAGEMENT Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses PROFIT From innovation that leads to low – cost or differentiad products

Profit Chain Assets They are the resources that a firm needs to exploit the innovation. TANGIBLE, physical and financial resources (plants, equipment and cash reserves). ASSETS CAN BE GROUPED INTO INTANGIBLE, nonphysical and nonfinancial assets (patents, copyrights, reputation, brands, trade secrets, relations with customers, employees and knowledge embedded in different forms). HUMAN, skills and knowledge of the employees. INNOVATION MANAGEMENT

Profit Chain Attributes of the assets For example, in investment banking, client relationship are core. IMITABILITY How central assets are to a firm’s business. Dipend of the type of assets: • legally protection; • uncertainty and complexity. Imitability CORENESS Role that assets can play in ability of a firm to make profit. Low Negligible profits Long – term profits High No profits Short – term profits Noncore Coreness INNOVATION MANAGEMENT

Profit Chain Relationship between competences and assets Competences • Design engines • Negotiate contracts Products or services • Low cost • Differentiated - NO PROFIT competences and assets non core - MAKE PROFITS competences and assets core Assets • Intellectual property • Skilled personnel • Brand names • Reputation • Client relations Source of assets is competence Assets help to build competences Assets have on the effectiveness of competences a leveraging effect in delivering low - cost or differentiated products INNOVATION MANAGEMENT

Profit Chain Knowledge NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase ENVIROMENT • Competitive • Macro INTERNALS • Strategy • Structure • Systems • People COMPETENCES Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture KNOWLEDGE ASSETS NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase INNOVATION MANAGEMENT Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses PROFIT From innovation that leads to low – cost or differentiad products

Profit Chain Knowledge Innovation is the use of new technological and market knowledge to offer a new product or service that customers will want. Technological knowledge Market knowledge INNOVATION MANAGEMENT It is knowledge of components, linkages between components, methods, processes and techniques that go into a product or service. It is knowledge of distribution channels, product applications and customer expectations, preferences, needs and wants.

Profit Chain How well does a firm perform the activities that rest on the knowledge? INNOVATION MANAGEMENT

Profit Chain Properties of the knowledge How new the knowledge is to the function or organization performing the activity, so: Newness if it is very different from existing knowledge, it is said RADICAL (competences destroying); if it is builds on existing knowledge, it is said INCREMENTAL (competences enhancing). Quantity It is a function of the complexity of the activities that go into the product, which may or may not result in a complex product. Knowledge can be: Tacitness EXPLICIT if it is spelled out in writing, verbalized or coded in drawings, computer programs, or other products; TACIT if it is uncoded and nonverbalized. INNOVATION MANAGEMENT

Profit Chain Nature of innovation NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase ENVIROMENT • Competitive • Macro INTERNALS • Strategy • Structure • Systems • People COMPETENCES Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture KNOWLEDGE ASSETS NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase INNOVATION MANAGEMENT Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses PROFIT From innovation that leads to low – cost or differentiad products

Profit Chain Type of innovation Degree of Technical Innovation’s Newness Incrementally New Architecturally New Relatively Minor Changes change relationship between components Exploits potential of existing design Often reinforces the dominance of existing firms Radically New set of engineering principles Often opens new markets/potential Often causes difficulties for established firms Numerous incremental changes over time very valuable Different competitive consequences because they require different organizational capabilities which are difficult to create/adjust. INNOVATION MANAGEMENT

Profit Chain Environment and internals NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase ENVIROMENT • Competitive • Macro INTERNALS • Strategy • Structure • Systems • People COMPETENCES Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture KNOWLEDGE ASSETS NATURE OF INNOVATION • Incremental, radical, architectural • Complexity, tacitness • Life cycle phase INNOVATION MANAGEMENT Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses PROFIT From innovation that leads to low – cost or differentiad products