Radical innovation and Open innovation - Creating new growth opportunities for business

Radical innovation and Open innovation - Creating new growth opportunities for business

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Inhaltsangabe:Introduction: Henry Chesbrough the Harvard professor and a worldwide expert for Open Innovation has stated that 'most innovations fail. And companies that don t innovate die.' In Germany only less than 0.5 % ideas pursued by industrial companies have led to a success. The question being addressed is how can companies drive innovations effectively and efficiently to create new growth opportunities, particularly in this difficult time due to the global economic crisis. These challenges could be captured by driving radical innovations using open innovation methodology. Radical innovations can create new markets and huge growth potential for the business and they can be developed faster and cheaper via an open innovation approach. The aim of this Master Thesis is to provide a deep insight into radical innovation and open innovation management based on a thorough literature review. Thereby basic concepts of both innovation models are explored and compared with other innovation types, e.g. incremental and closed innovations. Moreover, the CHRISTENSEN s model of disruptive innovation and CHESBROUGH s theory about open innovation are explained in detail. In addition, opportunities and challenges as well as managing a concept of radical and open innovations are analyzed and illuminated with concrete examples and cases, amongst others the eco-friendly Light Emitting Diode (LED). Beside technology and market breakthroughs, other aspects like future trends, key success factors and strategies for capturing sustainable growth of disruptive LED technologies in the lighting industry are studied. It could be stated that companies should drive intensively open innovation and boost the outside-in and inside-out processes for creating new breakthroughs in LED technologies. The increase of involving customers, suppliers and the outside scientific world into internal RaD, strengthened collaboration within the LED supply chain and intensified out-licensing of own technologies help companies to accelerate the innovation process and create new markets. Besides driving forceful innovation management, companies should boost their new product development by exploitation of government supports which have been increased strongly due to the current global climate change problems. Inhaltsverzeichnis:Table of Contents: Acknowledgement3 Declaration in lieu of oath4 Executive Summary5 Table of Contents6 List of Abbreviations8 List of Figures10 List of Tables11 1.Introduction12 1.1Problem definition12 1.2Objective14 1.3Methodology14 2Basics of innovation management15 2.1Types of innovations15 2.1.1Classification of innovation types15 2.1.2Examples of the most important innovation types17 2.2Radical innovation versus incremental innovation24 2.2.1General differences24 2.2.2Technical and market dimensions of innovations27 dimension27 framework of technology and market30 2.2.3Uncertainties and management of radical innovations32 2.2.4Disruptive innovations35 s model of disruptive innovation35 disruptive innovations39 and limitations39 of disruptive innovations in practice40 for capturing disruption opportunities44 2.3Open innovation versus closed innovation46 2.3.1Shift in innovation paradigms46 2.3.2Open and closed innovation the main differences49 2.3.3The core open innovation processes52 2.3.4Managing open innovation56 2.4Analysis of innovation models for the lighting industry59 3.Radical and open innovations for LED65 3.1LED as a radical innovation in the lighting industry65 3.2LED market breakthroughs72 3.2.1LED market history72 3.2.2LED future market trend77 3.2.3Competitive landscape82 3.3Open innovation for LED breakthroughs86 3.3.1Future trend in LED development86 3.3.2Managing open innovation for LED89 outside-in process89 inside-out process91 3.4Managing future growth in LED business94 4.Conclusion98 5.ITM Checklist104 6.Bibliography109 Textprobe:Text Sample: Chapter 2.1.2, Examples of the most important innovation types: According to MORRIS the most important innovations can be divided into four major types: - Incremental innovations. - Product and technology breakthroughs. - Business model innovations, and. - New ventures. These four types of innovation address different aspects of the competitive situation, amongst others the competitiveness, market, development effort, benefit and risk of failure. For example, incremental innovations have relatively low risk and they are needed for keeping competition with existing products and services in core markets. In contrast, breakthroughs, new business models, and new ventures take more efforts for development, have higher risk, but they can create new markets. In the following the four innovation types are shortly described and illuminated with some concrete examples. 1. Incremental innovations (also called 'continuous' or 'sustaining' innovations) focus generally on successive modifications of existing products and services. The goal is to improve functionality, increase the quality, reduce cost, or create new design of a product. Incremental innovations help companies to keep up with the competition and protect market share, and thus they contribute essentially to maintain the profits and cash flow. For creating incremental innovations product development teams and marketing groups play a key role. They strive for bringing new innovations to market before the competitors do it and help the company to ensure its market position. An example for successful management of incremental innovations is the development of the Walkman by Sony. Between 1980 and 1990, Sony launched 160 different versions of Walkman on the market, which amounts to a new model on average every 25 days. Using incremental innovations Sony built up a leading position in the global market for consumer electronics. Another telling example is Toyota with its famous production system which enables the production of cars with the highest efficiency and quality in the world. Based on a continuous process of incremental improvements in manufacturing and assembly in the last 30 years, Toyota became the world s leader in car manufacturing with an enormous productivity advantage over its competitors. Toyota developed the most efficient car manufacturing process which cuts changeover time from initially three hours to three minutes. This successful 'KAIZEN' concept (Japanese word for 'continuous improvements') was adapted and applied by manufactures in many industries around the world. 2. Breakthrough product and technology innovations (also called 'radical', 'discontinuous', or 'disruptive' innovations) are innovations which overcome problems that have not been solved, or even not been recognized before. These innovations are mostly based on breakthrough technologies and offer significantly better solutions than incremental changes of an existing problem. They lead to fundamental and structural change in the market and can disrupt the marketplace or the organization that comes up with them. Consequently, breakthrough innovations help the company to grow rapidly and usually effect a change of power and profit distribution between companies in the market. An example of technology-based breakthrough is the development of the mobile phone. Mobile phones changed conventional telephoning and revolutionized the telecommunication market. It enabled first movers like Nokia to become the market leader and taught a lesson to companies like ATaT which could not recognize the huge potential of new breakthrough technology. Nokia entered the digital mobile telephony in 1979 and has rebuilt forcefully from an industrial conglomerate with traditional products like paper, tires, footwear, consumer electronics, and chemicals into a pure mobile phone company. In 2007 Nokia sold 435 million mobile phones across the world and achieved 37.8 % market share. The worldwide mobile phone sales totalled 1, 152 million units in this year. Contrary, in the early 1980s consultants of McKinsey and ATaT foresaw a mobile phone market of only 0.9 million units by year 2000 and largely missed the market. In reality, the mobile phone market reached already 400 million users in 2000. There are many other success stories about breakthrough innovations which changed the market completely. The innovative technologies and products like the Windows operating system, internet, digital photography, MP3 technology, and other endless examples revolutionized the world and rewarded companies like Microsoft, Google, Sony and Apple with large profits and a pole position in the global market. Ten years ago nobody knew anything about Google but the company has developed rapidly in the last decade with its breakthrough solution as an internet searching machine to a highly profitable giant. Google earns money with advertising on its internet searching engine (cost-free for users) and achieved in 2008 with 10, 000 employees a revenue of 21.8 billion USD and a net income of 4.2 billion USD. 3. Business model innovations aim to provide significant competitive advantages for companies by developing new innovative ways to deliver products and services that created superior experiences for their customers. They do not focus on development of breakthrough technologies or products but on providing new and better business models to fit the customer s needs. For example, the success of Dell is explicitly due to its innovative business model instead of innovations in technologies or products. Dell developed a very competitive 'Direct Sell Model' with fast delivery of customized and low-priced computers, particularly notebooks, directly to end users. Dell invested little in RaD or product development but the company has high strength in inventory turnaround time and well-controlled relationships with suppliers which enable large cost savings. Thus, Dell s competitive advantage is based on its strong capabilities in supply chain management, low-cost build-to-order manufacturing, direct sales capabilities, and customer-based marketing. Another prominent example for business model innovation is Starbucks Coffee. Starbucks entered the premium specialty coffee market with its great 'Espresso bar idea' in which there was essentially no competition at all. The main marketing strategy is to represent Starbucks store as a new life style, a 'third place' between work and home where customers can enjoy a variety of hot and cold beverages with different flavours in a convenient atmosphere. In this 'White Space' or 'Blue Ocean' of the coffee market Starbucks could expand rapidly. Starbucks opened on average 720 stores annually in the last 20 years. For the fiscal year 2007, the company opened 2400 coffee stores worldwide, that corresponds to 6.5 new stores a day. The Starbucks Corporation is nowadays a multinational coffee and coffeehouse chain with more than 16, 600 stores in 43 countries. The breakthrough innovation in a business model enables Starbucks to develop from a local coffee bean roaster and retailer in Seattle to a famous international corporation with 10.4 billion USD sales and 315 million USD earnings in 2008. 4. New venture innovations open new prospects for the future by enlarging a company s scope of operations into completely new markets that are different from the current markets. New venture requires new skills, perspectives, even a new identity, and separate organizational units (commonly spin-offs, subsidiaries, acquired corporations in new markets, and venture capital supported start-ups). These separate units help companies to reduce risk by expanding into new markets that are far outside of current competencies and do not have much impact on existing operations or markets. There are three common forms of new venture: spin-offs, promoting new ventures inside, and promoting new ventures outside. Spin-offs enable the realization of great ideas or innovations outside the existing corporation, when they do not fit into the core operation. There are countless examples for spin-offs, like Agilent of HP, Lucent of ATaT, or Lexus of Toyota. They help companies to compete in new markets on the one hand and enable the existing units to focus on their core competencies and markets on the other hand. The second form of new venture is systematic corporate programs for promoting new venture inside. An advanced example is the 'GameChanger' approach developed and applied by Shell. 'GameChanger' is a program initiated from management which helps employees to transform their innovative ideas into new business. People inside or outside of the company can submit ideas via a simple online database system. The ideas are systematically evaluated and reviewed and the best of them are funded. In success cases Shell will make the investment to bring the idea into the market. The 'GameChanger' program pays off: in more than a decade Shell has invested tens of millions USD in this new venture program, and founded new business valued at more than 2.5 billion USD. The third form of new venture is corporate venture capital for promoting new ventures outside. For example, Intel s venture capital invests to support the development of emerging markets. The investment in profitable companies in these regions will finally drive the sales of Intel s chips. In 2006 Intel Capital owned more than 250 companies in its portfolio and the company has invested totally a billion USD. New venture innovation is a powerful tool for creating new compelling options for the future of the organization. Following this concept General Electrics (GE) has transformed from a traditional industrial manufacturing company in 1960 into a financial services giant nowadays. In 2008 GE gained total revenue of 182.5 billion USD; 67 billion thereof come from capital finance. The business with financial services brought GE a profit of 8.63 billion, a half of the total consolidated net income of 17.4 billion in 2008.Inhaltsangabe:Introduction: Henry Chesbrough the Harvard professor and a worldwide expert for Open Innovation has stated that a#39;most innovations fail.

Title:Radical innovation and Open innovation - Creating new growth opportunities for business
Author: Khanh Pham-Gia
Publisher:diplom.de - 2010-07-25

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