The Management of Knowledge Creation and Innovation Through an Intellectual Capital Lens

Prof. Gran Roos

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Context

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

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Remember Innovation is not only based on natural sciences

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What do companies think about innovation?

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What is the real situation?

Booz Allen Hamilton Global Innovation 1,000 Study 2006:

Innovation can lead to higher performance, but the process isnt 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 dont 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

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Research vs Innovation What is the relationship?

Research

Creativity

Innovation

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EXPANDING THE INNOVATION HORIZON

Innovation can be ignited by business and technology integration. Technology can enable and drive innovation. But to truly capitalize on technologys potential and unleash an organizations 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

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Source: Dr.V.S.R.Krishnaiah, Sr.Technical Director, NIC

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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.

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Value Proposition VTT Target Customer

Truly understand your customers and your customers customers [consumers]

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

Emerging Demand
Price Positioning

Willing to pay large premiums for new luxury brands when they deliver differentiated value

Growth

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Source: IBM Institute for Business Value analysis

Value Proposition VTT Target Customer

What drives the B2B relationship?

Situational Importance of Different Perceived Value Driver Categories
High

Importance to Buyer

Functionality Distinctness Price Mental Proximity Functionality

Low

Price
Seller

Distinctness
< Seller

Perceived Knowledge of Buyer

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Value Proposition VTT Target Customer

Value and knowledge distance +

Potential Value to be extracted from the relationship by the supplier

Knowledge distance

Known by nobody

Known by everybody

Known by the Supplier

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Known by the Customer

Value Configuration VTT

Value Chain

Infrastructure

Support Activities Primary Activities

Inbound logistics

Human Resource Management Technology development Procurement Marketing & Service

Operations

Outbound logistics

Sales

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Source:

Porter, M.E. 1985: Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press

Value Configuration VTT

Value Shop

Support Activities
Find someone with a problem

Infrastructure Human Resource Management Technology development Procurement Acquire the right to address the problem

Develop alternative solutions

Primary Activities
Control/Evaluation Execute Co-select with client one solution

Source: Gran Roos 2007 13

Stabel, . B., Fjeldstad,. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998

Value Configuration VTT

Value Network

Support Activities

Infrastructure Human Resource Management Technology development Procurement

Promote Network

Primary Activities

Manage Member Contracts Service Provisioning Infrastructure Operation & Maintenance

Source: Gran Roos 2007 14

Stabel, . B., Fjeldstad,. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998

Resources VTT

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
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Additive

Resources VTT

The utilisation of resources with different behaviour

Industrial Economics
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Network Economics

Knowledge Economics

Resources VTT

Examples of Resource Transformations

HUMAN HUMAN
Training

ORG.
Knowledge codification, new IP

REL.
Building & developing relationships

PHYSICAL
Developing prototypes

MONETARY
Sales of man-hours

ORGANISATIONAL

Developing competence through use Chance to build skills in relationship handling

Systems generate IP Importing IP, processes, association with brands Possible new products & know-how Investment in brands, image and systems

Market intelligence

Produce By numbers

Sales of IP, processes & knowledge Relationship selling, preferential deals

RELATIONAL

Networking

Use of other companys assets Equipment generates products

PHYSICAL

Facilities to train with

Facilities build relationships Investment in building links

Sales of products

MONETARY

Recruitment training, conditions

Investment in assets

Investment In financial instruments

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Revenue Model VTT

Revenue Logics

Effort-based pricing

A cost-based (or effort-driven) pricing model A value-based (or perception-driven) pricing model Revenue-sharing contract with primary customers Charging on copyright (the right to use the IP) Creating customer base (for later revenue) or supporting sales of other parts of the product/service offering Vendor sells/leases ad space or information [space] based on customer relationship Vendor charges for carrying information relating to other goods in/on its primary product/offering Vendor charges for the right to take part in an activity Vendor generates financial returns on the capital held as a consequence of getting paid by its customers before paying its suppliers

Value-based pricing

Profit Sharing

Licensing

Loss Leader-pricing

Hybrid/Media model

Channel charging

Membership fee

Negative Working capital

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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)

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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

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