Management Engineering - Leadership & Innovation

Completed notes of the course

Complete course

LEADERSHIP AND INNOVATION LESSON 0 - COURSE INTRODUCTION We can distinguish two cases when talking about innovation: 1. Innovation is my only job : - skills , resources (time, space) - context (only innovation) - exogenous (=’m not the user) -> =’m a problem solver (how): give me a challenge 2. Innovation is not my only job: - no skills , no resources - ambidexterity - endogenous (=’m the user) -> I search for meaning (why): help me to shape the challenge, help to bring others onboard We will focu s on the second case. The main challenge is to make people adopt the innovation and change their behaviour. We want to change the meaning of a product/service/process in the mind of customers. Ted Talk by Yuval Harari ( what explains the rise of humans ) Humans control the world because they are only animals that can cooperate flexibly in large numbers. All things humans have done are based on large -scale operation. Humans use their language not only to describe reality, but also to create fictional stor ies. As long as everybody believes in the same story, everybody obeys the same rules. Money is not an objective reality, it is the most successful story ever invented and told by humans because it is the only story that everybody believes. Ted Talk by Dr ew Dudley (everyday leadership) It is the final impact of what you do that makes you a leader. Being a leader doesn’t mean that you control people, but that you inspire and influence people. You have an impact on people’s lives even if you don’t want an d even if you don’t try. The starting point of leadership is self -leadership. The meaning of something changes depending on who interprets it. In this course we will try to understand why we think what we think. We live in an ambiguous world , where ambiguity means being open to more than one interpretation. LESSON 1 - WHAT IS INNOVATION AND WHY WE NEED IT INNOVATION An innovation is the implementation of a new or significantly improved product (good or service) or process, a new marketing method , a new organisational method in business practices, workplace organisation or external relations. Schumpeter (1934) : innovation is the implementation of new combinations Freeman (1974) : invention is an idea, a sketch or a model for a new improved device , product, process or system. Innovation (in the economic sense) is accomplished only with the first commercial transaction involving the new product, process. From a managerial point of view, innovation means to shift the trade -off among performance to b etter fulfil existing needs or to generate new performance dimensions for new needs. ROYAL CROWN COLA CASE Coca Cola is very strong in brand advertising , it is one of the most recognized brands around the world. Royal Crown Cola is an american brand of cola invented in 1905. In the 50s, Royal Crown company was leading the beverage industry by selling the first canned soft drink, followed by the first diet cola. Coca Cola copied the idea of selling a diet cola, but changed the logo and that was a huge innovation. Royal Crown Cola could have exploited the first mover advantage (advantage that a company has when it is the first to introduce a new product), but its competitors adopted a free -rider behaviour and managed to succeed thanks to their c omplementary assets (assets that support the innovation’s success). INNOVATOR An inventor is someone who creates a new product, service or process that can solve a problem. An innovator is someone who improves on or makes a significant contribution to s omething that has already been invented. Example: Meucci invented the phone and Bell innovate it. Example: Mr Sholes creates the first typewriter by combining existing technologies. Many times the innovators are nothing more than very smart technology/s olution brokers. Personalization is different to customization: a personalized product is a product created just for you while a customized product is a product that has elements chosen by you. Example: Dell postponed the assembly of the product: it produced the different components of the final product and assembled them according to the customer’s choice -> it increase d the level of customization. Example: Benetton postponed the sweater dye : it produced the undyed sweater and dyed it according to the customer’s choice -> it drastically reduced the stock level and the probability of stockout. One of the main abilities of innovators is to abstract the problem and describe it in a way that people who are not in the industry can understand it. The in novator is able to replicate the innovation process (the value of a company is based on the future). Example: Apple launched Apple II which was a huge success and then it launched Apple III but had to withdraw it from the market due to a quality problem -> it wasn’t able to replicate the innovation process. To overcome this problem, Apple launched a new product with a new name, Macintosh. PRODUCT SERVICE SYSTEM Companies no longer sell products and services to the market, but solutions . A solution combi nes products and services. The market wants a product service system = product + service + communication. Example: Nespresso transformed the consumption of coffee into a luxury moment by working on the product itself, the ability to shop online and commer cials. NEST CASE The Nest Learning Thermostat has both energy -saving technology and an innovative design. Nest changed the reason to buy a thermostat: the traditional thermostat is complex and needs to be programmed while the Nest thermostat is simple and doesn’t need to be programmed -> the customer buys the Nest thermostat and not the traditional one because he wants to control nothing. TYPES OF INNOVATION : INCREMENTAL VS RADICAL An incremental innovation makes small improvements to an existing product or service. A radical innovation creates new functionalities or radically improves the performance of existing functionalities. Example: incremental innovation -> from ceiling fan to fan, radical innovation -> fr om fan to bladeless fan . There is a relationship between radical and incremental innovations: there are no companies that only make radical innovations and it is not possible to survive by only making incremental innovations. At the beginning of the pro duct lifecycle, incremental innovations improve the performance of the product, but with a decreasing slope. When the slope is close to zero, a radical innovation is needed to improve the performance of the product . At the end of the product lifecycle, incremental innovations improve the performance of the product, but with a decreasing slope. The benefit of incremental innovation is smaller than the benefit of radical innovation, but also the risk is smaller: the failure of a radical innovation has a huge negative impact and therefore companies often prefer to make incremental rather than radical innovations. If the company was able to introduce a successful radical innovation, it will profit from it for years thanks to incremental innovations. TYPES OF INNOVATION: ARCHITECTURAL VS COMPONENT BASED In process production the materials undergo physical -chemical transformations and it is impossible to distinguish them in the final product. In parts production, the components are assembled and it is possible to distinguish them in the final product. Now we focus on products obtained through parts production. The product architecture shows how the components of the product work together. A product can be innovated by working on its architecture or on its compo nents. Example: architectural innovation -> from front wheel drive to rear wheel drive , component based innovation -> from combustion engine to electric engine. Example: architectural innovation -> from joystick to joypad, component based innovation -> f rom joypad to Wii controller. Both innovations are of both types, but in both cases there is one type of innovation which is predominant and determines the other type of innovation. Now we focus on services. A service can be seen as a service package, defined as a bundle of products and services sold together to provide the desired service. This bundle consists of five elements: supporting facility, facilitating goods, information, ex plicit services, implicit services. Example: flight from A to B. Therefore also a service can be innovated by working on its architecture or on its components. To innovate services, we can also use the Kano’s Model: a service has three different types of attribute: - must have attributes: basic attributes that customers expect a service to have - linear attributes: attributes that affect a customer’s enjoyment of the service, negatively or positively - delighter attributes: surprise attributes that cust omers don’t expect , but are delighted with Example: hotel -> clean sheets, free wifi, welcome food. TYPES OF INNOVATION: COMPETENCE ENHANCING VS COMPETENCE DESTROYING We can distinguish two types of innovation based on the effect of the innovation on competence: - competence -enhancing innovation: they build on existing skills - competence -destroying innovation: they require new skills LESSON 2.1 - LEADERSHIP THEORIE S THE FIGURE OF THE LEADER Leaders manage and managers lead, but the two activities are not synonymous. The manager gets things done through other people in the organisation. His functions are planning, organising, directing and controlling activities and resources. He has two main roles: - decisional role: he choose between alternatives - informational role: he collects and transfers information The leader i nfluences a group of individuals to achieve a common goal. A leader has three main functions : - create and communicate a vision: inspire, set the tone, articulate and communicate a vision - manage people: motivate, influence, change behaviours - provide support for performance achievement Nowadays companies expect managers to also have leade rship traits and leaders to also have managerial traits. The two figures often have to work together. The big fi ve dimensions of a leader ’s personality are: 1. extraversion: outgoing, talkative, sociable, assertive 2. agreeableness: trusting, good -nature, cooperative, soft -hearted 3. conscientiousness: dependable, responsible, achievement oriented, persistent 4. emotional stability: relaxed, secure, unworried 5. openness to experience: intellectual, imaginative, curious, broad -minded In the p ast we thought that a person should have some specific traits to be a leader. We still think that there are some traits which play an important role in the figure of the leader , but they are not sufficient to explain the emergence of a leader. We cannot use these traits to predict the b irth of a leader. We think that if you want to learn doing things, you can train. We also think t his idea doesn’t apply to behaviours and therefore you can’t learn behaving in a certain wa y. But this is a wrong thought: through practice, learning, dedication and motivation, it is possible to overcome nature. Example: Bram Cohen, CEO of BitTorent, was diagnosed with Asperger’s syndrome and he learnt how to understand human expressions, follow social cues, use eye contact, developing a kind of social algorithm. We can define leadership in two different ways: - trait approach: leadership is a trait or a set of attributes - incremental approach: leadership is an acquired skill, highly influenced by the environment We think that leadership is more related to leaders behaviours rather than leaders traits. MANAGERIAL GRID We analyse a grid that has two dimensions (managerial grid by Blake and Mouton): - on vertical axis we have concern for people (relationship -oriented beh aviours): focus on people’s well - being, interest in promoting collaborative interaction among members and supportive social climate - on horizontal axis we have concern for production (task -oriented behaviours): focus on tasks, interest in structure, cont rol and routines to attain organizational goals and objectives Example: Sister Act -> the protagonist is very concerned about people (she is emphatic and supportive) and moderately concerned about production (she thinks that the task is difficult, but wan ts to accomplish it ). On this grid we can identify five profiles: - authority -compliance management (low people, high production): people’s needs do not have to interfere with the final goal (ex. De vil wears Prada) . It is adopted when s omeone is entitled to make (unpleasant) decisio ns and give orders, typically with short time available. - country -club management (high people, low production): a friendly climate brings people to fair productivity (ex. Ikea) . It is adopted when people work together guided by a common vision. - team management (high people, high production): interdependence through common goals brings to trust and good relationship . It is adopted when there are many people with different specific skill s that have to interact to get a good result. It is extremely stressful and so typically can ’t go on for a long time. - impoverished management (low people, low production): minimum effort is enough for defining the organizational belonging . It is adopted when p eopl e are wanted to be autonomous and independent. - middle -of-the -road management (medium people, medium production): a good performance occurs when needs of people and needs for production are balanced The creators of this grid assume tha t a manager adopt s fixed behaviours. A behaviour may fit a situation, but if the situation changes and the behaviour doesn’t fit anymore, the manager has to change. But the manager can become an effective leader by changing his behaviour in order to adapt to the new situa tion, since leadership can be trained. =n many cases, the behaviour is fixed not because it can’t be changed, but because people don’t want to change it. ATTRIBUTION THEORY Leadership, as a phenomenon, has nothing to do with exceptional qualities of gifted individuals, but rather with the gullibility of their followers. Attribution theory is a well -researched psychological theory that has shown that people tend to simplify reality when they make causal inferences. People tend to analyse the world and make causal inferences, which seem to trigger effects around them. The problem is that reality is frighteningly complex and people have limited cognitive abilities. They thus nee d to simplify the world when they make attribution judgements. One way in which they do so is to look for salient objects, circumstances or people in their environment. A person or object is salient when he stands out in contrast to the background. Follo wers imitate other followers, not leaders. Being the first follower is an underrated form of leadership : he recognizes that an idea has the potential to be successful. The first followers show others how to be followers. At the beginning to follow is diffi cult , but after a while to not follow is difficult as everyone does it. SITUATIONAL LEADERSHIP Leadership is all based on a leader -followers relationship. There are two types of behaviour: - relationship behaviour: the extent to which a leader engages in two -way communication, listening, facilitating behaviours and socioemotional support: giving support, communicating, facilitating interactions and active listening, providing feedback. It can be low or high. - task behaviour: the extent to which the l eader engages defining roles, that is telling what, how, when, where and, if more than one person, who is to do in: goal setting, organizing, establishing time lines, directing, controlling. It can be low or high. Based on these two types of behaviour, w e can identify four different profiles: - telling (low relationship, high task): provide specific instruction and closely supervise performance - selling (high relationship, high task): explain decisions and provide clarification - participating (high re lationship, low task ): share ideas and facilitate in decision making - delegating (low relationship, low task) : turn over responsibility for decision and implementation Example: Karate Kid -> the sensei adopts all four behaviours in four different scenes : 1° scene - telling : the sensei gives specific instructions and doesn’t allow the kid to ask questions 2° scene - selling : the sensei still tells the kid what to do, but also explains the reasons why doing it 3° scene - par ticipatin g: the sensei answe rs the kid’s questions 4° scene - delegating: the kid makes his own decisions, their only interaction is eye contact A leader has to choose the right behaviour to adopt based on the situation, especially based on the follower readiness: - the follower h as low competence and high commitment -> telling : the leader makes decision - the follower has some competence and low commitment -> selling : the leader explains his decision - the follower has high competence and low commitment -> participating : they mak e decision together - the follower has high competence and high commitment -> delegating : the follower makes decision TRANSACTIONAL LEADERSHIP Transactional leadership involves motivating and directing followers primarily through appealing to their own s elf -interest. It is a sequence of transactions where the actions of subordinates result in either a reward or a punishment. A transactional leader: - sets the stage: he clarifies expectations, provides the necessary resources and establishes the individua l objectives in agreement with the employees - awards contingent rewards: he formally links performance to various types of reward or punishment. Obviously this process is all the more effective when performance is objectively measurable. It is a good practice that individuals goals are smart (specific, measu rable, achievable, realistic, timely). In some cases, it is also possible to associate punishments with the failure to achieve objectives, although in most cases they are limited to the failure to obtain incentives Then he decides how to manage the process : - active management by exception: the leader actively monitors the work of his subordinates, watches for deviations from rules and standards and takes corrective action to prevent mistakes - passive management by exception: the leader intervenes only wh en standards are not met or when the performance doesn’t respect the expectations. :e may even use punishment as a response to unacceptable performance - laissez -faire: the leader provides an environment where the subordinates get many opportunities to ma ke decisions. He abdicates responsibilities and avoids making decisions, thus the group often lacks direction A key concept in transactional leadership is accountability: you are responsible for reward/punishment. Accountability is different from responsi bility: responsibility regards the activities, while accountability also regards the results of the activities. Example: Pay it forward -> the teacher sets the stage and gives accountability to students , but cannot clearly defines the expected performances (changing the world is not measurable) and cannot give examples . TRANSFORMATIONAL LEADERSHIP A transformational leader: - individualized consideration (IC): the leader demonstrates genuine concern for the needs and feelings of followers . This personal attention to each follower is a key element in bringing out their very best efforts. - intellectual stimulation (IS): the leader challenges followers to be innovative and creative. A common misunderstanding is tha t transformational leaders are soft, but the truth is that they constantly challenge followers to higher levels of performance. - inspirational motivation (IM): the leader has the ability to inspire and motivate followers. - idealized influence (II): the leader serves as an ideal role model for followers; the leader “walks the talk” and he is admired for this. Example: Invictus -> Mandela asks the coach to win the world championship to unify a nation. The transactional leadership pushes followers towards expected outcomes; the transformational leadership pushes followers towards performance beyond expectations. LESSON 3 - NEW LEADERSHIP TEORIES Nowadays technology is cool, but it is not all that matters. Example : Nasa and SpaceX -> these companies hav e two radically different projects: - Nasa shows its current projects on the website - SpaceX only communicates its vision on the website Example: Twitter and Facebook (Meta) -> these companies have two radically different projects: - Twitter presents i tself as a means to communicate and share information - Facebook presents itself through the communication of its vision DIFFERENT FORMS OF LEADERSHIP Usually companies tell customers what they produce and how they produce it, but not why. Actually, t he first thing to communicate as a company is why we produce our products and therefore why customers should buy them -> inspiring companies reverse the order of information: from why to what. - why = strategic aim - how = how the strategic aim is transl ated into products - what = strategic aim translated into products Example: perfume -> in the advertising campaign the product is shown only at the end. Communicating different “why” leads the company to be perceived in different ways. VISION DEVELOPME NT A vision is defined as a vibrant, idealized, “verbal portrait” of what the company aspires to achieve one day. The vision can be developed in two different ways: - vision coming from a person (visionary leader ship ): it is easier to manage, but harder to sustain over time - vision coming from a team (shared leader ship ): it is harder to manage, but easier to sustain over time Example: Martin Luther King vs Friday for Future -> Martin Luther King had a vision and communicated it to a crowd (visionary l eadership); Greta Thunberg is the leading voice of a movement (shared leadership). VISIONARY LEADERSHIP Characteristics of v isionary leadership : - the potential future defined in a vision specifies the direction, the purpose and the uniqueness of a firm - organizing actions around an evocative, involving set of future goals - vision may provide a sense of identi ty and meaning - common framework for action provided by a vision allows people to coordinate and integrate their activities - vision may serve as a basis for the development of organizational norms and structures The main steps to set a vision are three: 1. define the vision (idea) 2. communicate the vision (word) 3. empowe r people to act (action) SHARED LEADERSHIP Characteristics of s hared leadership: - shared leadership is a dynamic, interactive influence process among individuals in groups in which people share responsibility for leading -> emergent team phenomenon - it involves peer or lateral influence and upward/downward hierarc hical influence -> leadership is horizontal - it can be measured through a social network approach using density: the extent to which each team member perceives the other members inside a team display leadership. Shared leadership occurs: - in self -manag ed team s - in a group of people working on task or project requiring interdependence and creativity - often in executive boards It requires: - a leader above who empowers, enables and creates the condition for the team to be self -managed/lead - team desig n, onboarding, training and development What can you do to develop shared leadership? There are two sides to consider: 1. internal side - social support: team members provide emotional and psychological strength to each other -> leads to group maintenan ce, culture and shared responsibility - shared purpose: team members have similar understanding of their team’s primary objectives and ensure collective goals -> leads to feelings of motivation, empowerment and commitment - voice: constructive change -ori ented communication, participation in decision making and extra -role work behaviours -> leads to mutual leadership and commitment 2. external side -> coaching A coach interacts with a team to help the members make coordinated and task -appropriate use of their collective resources in accomplishing the team’s task -> develops team self -management, initiative and autonomy. A coach gives: - encouragement -> feeling of self -competence - support -> shared commitment - suggestions -> clarity on task management SERVANT LEADERSHIP A servant leader serve s other people to let them reach their goals ; he has the need to serve and the motivation to lead. The characteristics of servant leaders are: - empowering and developing people : they puts other people’s goals first - humility : they are humble and serve people - authenticity : they are authentic, they believe in what they do - interpersonal acceptance : they understand other people’s feelings and needs - providing directio n: they provide direction, they know the right path - stewardship : they are able to face the challenge This type of leadership has two main outcomes: - high quality leader -follower relationship - improvement of the psychological climate inside the team These ou tcomes leads to the self -actualization of each team member. Example: sherpas -> they create the way for other people to climb mountains To create a servant leadership, we have to look at two dimensions: 1. culture of the organization - human orientati on: individuals promote the well -being of others - power distance : the power distance is low -> individuals are all treated equally 2. individual characteristics of the leader - self -determination : he encourages others to achieve their goals - moral cognitive development : he chooses ethic before profit - cognitive complexity : he perceives subtle differences and is able to think complexly Servant leadership occurs: - the leader is not at the centr e - the leader is genuinely concerned with serving an d wants to help followers grow - “how can = help you deliver an excellent service?” It requires: - the leader is not at the cent re: primus inter paris - the leader accepts that employees often know better than him how to do a great job In traditional tea ms, the leader is a project manager and leads the team. In agile teams, the leaders is a servant leader and facilitates the work of the team, which is self -organized. COMPLEX ECOSYSTEM A complex ecosystem (ex. Nike) has the following characteristics: - complicated behaviours occur (such as execution and innovation) - a few rules (like priorities) exist that are not arbitrary and not compromises between extreme values - work is required to maintain balance on the edge of chaos because it is a dissipat ive equilibrium; there is a constant tendency to fall into the attractors of structure and chaos - surprise exists: expect the unexpected, because control is not tight and the system is adapting in real -time to unpredictable changes - mistakes occur becaus e systems at the edge of chaos often slip off the edge Complexity means: - dynamical systems, which do not reach equilibrium - chaotic (but not random) processes which seldom return to the same state - sensitivity to initial conditions - resistance to simple reductionist analyses, requiring multiple scales of analysis - complex patterns arise from interactions among agents which follow simple rules - self -organizing behaviours which evolve towards order We are moving from an industrial era (control m ust be rationalized) towards the knowledge era (speed, adaptability and learning are the mantra). Leadership models of the last century have been products of top -down bureaucratic paradigms. These models are eminently effective for an economy premised on physical production, but are not well -suited for a more knowledge -oriented economy. Complexity science suggest a different paradigm for leadership - one that frames leadership as a complex interactive dynamic from which adaptive outcomes emerge. Comple xity leadership theory is a leadership paradigm that focuses on enabling the learning, creative and adaptive capacity within organizations. This framework includes three entangled leadership roles: - adaptive leadership : from top management - administrati ve leadership : from the bottom, self -organizing team - enabling leadership : from middle management They reflect a dynamic relationship between the bureaucratic, administrative functions of the organization and the emergent, informal dynamic of complex adaptive systems. ADMINISTRATIVE LEADERSHIP Administrative leadership refers to the actions of individu als and groups in formal managerial roles who plan and coordinate activities to accomplish organizationally -prescribed outcomes in an efficient and effective manner. It focuses on alignment and control and is represented by the hierarchical and bureaucrati c functions of the organization. ADAPTIVE LEADERSHIP Adaptive leadership is an emergent, interactive dynamic that produces adaptive outcomes in a social system. It can occur in a boardroom or in workgroups of line workers and is not an act of authority. Adaptive leadership involves two interdependent mechanisms: - reformulation: it is defined as the expansion, transformation and combination of multiple interacting, often conflicting, elements under conditions of tension and asymmetrical information - sel f-organization: it is a process in which the internal organization of a system increases in complexity without being guided or managed by an outside source ENABLING LEADERSHIP Enabling leadership works to catalyse the conditions in which adaptive leader ship can thrive and to manage the entanglement between the bureaucratic (administrative leadership) and emergent (adaptive leadership) functions of the organization. Managing entanglement involves two roles: 1. creating appropriate organizational conditio ns to foster effective adaptive leadership in places where innovation and adaptability are needed 2. facilitating the flow of knowledge and creativity from adaptive structures into administrative structures. Enabling leadership occurs at all levels of the organization (as well as within the adaptive dynamic), but the nature of this role will vary by hierarchical level and position. It focuses on three concepts: - fostering interaction: enabling leaders can foster interaction through such strategies as ope n architecture workplaces, self -selected work groups, electronic work groups and by management -induced scheduling or rules structuring - fostering interdependence: enabling leaders can foster interdependence through autonomy, that permits conflicting const raints to emerge and enables agents to work through those constraints without interference from formal authorities - injecting tension: tension creates an imperative to act can be enhanced by heterogeneity ; e nabling leadership promotes heterogeneity by building an atmosphere in which such diversity is respected and t hat tolerates dissent and divergent perspectives on problems, where personnel are charged with resolving their differences and finding solutions to their problem s Complexity leadership means th at different behaviours occur in the same organization. Based on two dimensions, alignment and autonomy, we can identify four situations: LESSON 4 - TECHNOLOGY PUSH INNOVATION INNOVATION STRATEGIES There are three types of innovation strategy (the last one was born 20 years ago in Politecnico): - technology push : the process is driven by scientific or technological competences; product/process innovation typically revolves around the physical attrib utes of the product - market pull : the innovation typically involves the way in which the product is commercialized in terms of organisation, distribution and/or advertising - design push : the process is driven by socio -cultural and semantic competences; p roduct/process innovation typically revolves around intangible attributes of the product TECHNOLOGY PUSH INNOVATION We define technology as a set of practical and theoretical knowledge, know -how, methods, procedures, success and failure experience and, obviously, physical assets and machineries (Dosi, 1982). We can use a S-curve to describe the evolution of a technology over time . In fact, o n a given performance indicator, the technology improvement grow s drawing a S -shape curve The technology has a te chnical limit and therefore a limited growth (L); initially we don’t know where th is limit is. Every technology goes through three phases: - initiation: the technology improves slowly - development: the technology improves very rapidly - maturity: the technology improves very slowly until it reaches the limit The ability to improve a specific technology is related to the level of knowledge we have about it: it is difficult to improve a brand new technology because at first we know nothi ng about it, but the more we know, the more (and faster) we can improve it. We can use this model: - to understand the development stage for a technology (to define the investment policy) - to foresee L - to foresee when a given technology will reach a s pecific level - to drive the technology switch This model assumes that the improvement of a technology requires a constant innovation effort (b) , but actually this effort is not constant over time: in the initiation and development phases it is better to strongly invest in the technology, while in the maturity phase it is better to moderate the investment. However, it is right to say that without investing money , the technology doesn’t improve . The more you increase the effort, the sooner you will reach the technical limit (the technical limit is fixed ). Example: electric engine vs petrol engine -> electric engine and petrol engine were invented in the same period, but petrol engine technologies gr ew faster than electric engine ones because of higher in vestments . Normally, the technology that is winning on the market is the one on which we have invested the most . INNOVATION MARKET DYNAMICS According to Rogers , we can divide the population in groups based on their reaction to a new technology: - inno vators: they are willing to take risks; they have the highest social status and financial liquidity that can help absorb the eventual failure of the technology - early adopters: they have the highest degree of opinion leadership among the adopter categori es and high social status; they are more discreet in adoption choices than innovators - early majority: they have above average social status and seldom hold positions of opinion leadership - late majority : they approach an innovation with a high degree of scepticism and after the majority of society; they have below average social status, little financial liquidity and little opinion leadership - laggards : they have an aversion to change -agents and tend to be focused on traditions; they show little to no opinion leadership, they have lowest social status and lowest financial liquidity Example: Remington -> the first typewriter was bought by few people because it was a completely new technology; the s econd typewriter, despite it was quite similar to the fi rst one, was bought by many more people because when it was launched, people had become aware of the technology. DOMINANT DESIGN The dominant design is the architecture winning on the market: - it is able to summarize innovations introduced by previous products - it is the archetype of the product in both the designed and the user imagination - it gives an answer to the need of a large number of people - it reduces the number of requirements to be satisfied to the essential - it may imply constr aints (ex. characteristics of the previous dominant design) - it normally freezes the socio -economic context Dominant design typically reduces the number of functionalities to the essential. Example: iPod -> Apple decided to not put the radio inside the product (they didn’t want to compete on it) Sometimes a design becomes dominant not because is the best one , but because of the lock in effect, which is an effect that locks you in an inefficient situation -> cost of changing > benefit of changing . Examp le: qwerty keyboard -> the most used letters are at the borders of the keyboard but we still use it There are different technology opportunities (and therefore different architectures) and hardly one outperforms the others along each possible performance. The drivers of a dominant design are: - complementary assets (distribution, brand, services, capacity…) - strategic man euvering (ex. externalities) - better understand ing of the customer needs - rules and laws Example: Betamax by Sony vs VHS -> the video quality of VHS never reached the starting video quality of Sony and Sony had better complementary assets, but VHS succeeded in winning against Sony because of the higher recording time and the lower price, but above all because they release the technology for free. There are different network effects in technology based innovation: - Metcalfe’s law: the value of a network is proportional to the square of the number of connected users - network externalities: the user demand of a product depends on other s buying that product ; p ositive network externalities exist if the benefits are an increasing function of the number of other users - lock -in effect: the cost for switching is higher than the benefit - critical mass -bandwagon effect: the benefit from network externalities outperforms the benefit from product usage According to the Abernathy -Utterback model, a product innovation goes through three phases: - the fluid phase: the innovation rate is rapidly increasing ; there are different companies of fering different architectures of the same product and they all aim to be the dominant design - the transition phase: the innovation rate is decreasing ; all companies offer products similar to the dominant design, which ha s established itself in the previ ous phase, to satisfy the market - the specific phase: the innovation rate approaches zero ; all companies offer standardised products Also t he process innovation goes through three phases, but it works in a different way: - the fluid phase: compan ies do n’t invest a lot of money to innovate the production process because the y still don’t know what the dominant design will be - the transition phase: once the dominant design is known, companies invest a lot of money to innovate the process in order to off er a product with the lowest possible price since the price is relevant to customers - the specific phase : companies invest less and less because the product is reaching the end of its lifecycle A cyclic model for innovation -> a technology discontinuity generates a fluid phase, the market selects the dominant design and companies perform incremental innovations on it until a new technology is discovered a nd the cycle rebegins. DISRUPT IVE INNOVATION New entrants introduce more radical inno vations than incumbents. Incumbents seem to be unable to master radical innovation because of : - marginal costs (path dependency) - uncertainty about feasibility and profits - over estimation of the technology potential (technology myopia) - innovation implies change management Example: Wang -> they introduce d an innovation (they invented the first word processor), but they were not effective innovator s since they were not able to replicate it . Example: Olivetti -> they released the last and most adv anced electronic typewriter , but they were not able to see the importance of a new technology, the computer. They began to work on it when it was too late. A disruption is a process. Disrupters often build business models that are very different from tho se of incumbents. Some disruptive innovations succeed, some don’t. A disruptive innovation is not suitable for the existing market ; the initial performance is low but it grows so rapidly that conquers the market in few years (example: hard disk drive). The dynamic described by Roger is still valid, but the adoption rate has increased a lot . Therefore, t he adoption innovation curve has changed : its shape is similar to a shark fin profile. The time is compressed. The time for the diffusion of a new technol ogy was measured in years while now it is measured in months because now we are all connected. LESSON 5 - DESIGN PUSH INNOVATION IDEA PARADOX Innovation has always been seen as a way to solve problems: to innovate we need a great idea that is going to solve the problem. Nowadays we have many techniques for generating ideas, so having ideas is simple. The problem with having so many ideas is that is difficult to choose one. “=f we are blinded by the darkness, we are also blinded by the light” Most of the time companies have great ideas on their hands, but fail to see them since they are too many. According to the idea paradox, the more are the ideas, the less is the value created . The parado x of idea claims that while we might believe that having many ideas actually makes it easier to create value, having an abundance of ideas actually requires more effort to make a decision and can leave us feeling unsatisfied with our decision. Each idea i s a vector with a different direction and the final value is zero. Our aim is to create value by setting a new direction that could unify all the ideas . Example: Steve Jobs -> Apple has been able to change its meaning frequently. INNOVATION OF MEANING Based on the original meaning, design is making sense (of things). Innovation of meaning is an innovation that aims at changing the reason why people experience a product or service. It is based on a deep understanding of how society is changing to envisio n which will be the new meanings asked by customers. It is based on three principles: - an inside -out process: the new meaning is coming from the inside of a company, as a company vision about the evolution of the market, rather than from expressed or lat ent needs in customers - a hermeneutic approach: the new vision originates from the interpretation of society and the weak signals coming from people while performing any kind of activity - the cycle of criticis m: the vision is refined through cycles of cr eative criticism among actors Example: Yankee Candle -> the customer buys the candle to perfume the room and no longer to shed light. Example: Wii -> the old meaning of videogames = living in a virtual world, the new meaning introduce d by Wii = playing a nd moving in the real world THE DIMENSIONS OF MEANING Meaning is a process of communication involving signs. The things we interact with embody meanings, they stand as symbols which may recall both functional and emotional elements. The signs that characterize a thing communicate the meaning to people. Design has the power to give meaning to things, by working o n their attributes and their language. Design may enable people to distinguish among their artifacts not in physical terms, but according to what they mean to them. There are three types of meaning: - functional meaning : the functional utility that a pro duct attribute provides to the customer - emotional meaning : the positive feeling that the customer has when using the product - symbolic meaning : the opportunity for the customer to communicate himself through the product Adopting the traditional persp ective, the business is put at the first level while , adopting the innovation of meaning perspective, people are put at the first level and the business will follow. Most companies die not because they do the wrong things, but because they keep doing what used to be the right things for too long. There is a big difference between a new direction and a new solution: - creating a new solution: by looking at what users do, we learn how to design a better technology -> it is an outside -in process and it is based on ideation - setting a new direction: users don’t always know they need, we propose new visions instead of simply following market needs (metaphor: a good fathe r doesn’t give his children what they want, but what is more meaningful) -> it is an inside -out process and it is based on criticism INNOVATION OF MEANING PROCESS The innovation of meaning process consist s of four steps: - you: understand the existing m eaning and the new meaning for you - pair: compare your new meaning with the new meaning for another person - circle: compare the new meaning for your pair with the new meanings for other groups - interpreters and users: compare the new meaning for yo ur circle with the new meanings for interpreters and users, who have different perspectives It is a kind of social process: it ’s important to interact with other s to ensure a new meaningful vision, but it’s also important to express your opinion because p eople will never love a product that you don’t love. Some tips: - make sense of changing reality rather than solve problems - consider not only technological and scientific dimensions, but also psychological, cultural, moral, social and environmental dim ension of future human existence - build assumptions and support them with your research TALK ABOUT MEANING To talk about meaning, we can use metaphors. Metaphor = understanding and experiencing one thing in terms of another. Metaphors can help us ext end concepts beyond the ordinary. It captures a feature from one thing and extends it to another. Two important aspects to consider: - clearly specify the current meaning and the old one in order to understand the shift that we are proposing - the objec ts of the metaphor have to belong to the same category (objects with objects, films with films) THE MEANING -MAKING PROCESS The meaning -making process has the following characteristics: - the influence of the dominant culture Interpretation of a sign varies depending on the culture surrounding an individual; any society provides classes of interpretation among which the individual derives his own meaning - an individual nature Mediated by culture, meaning -making is an individual activity which strongly depends on the individual’s experience; meanings are continuously reconstructed in different ways by different people - a continuous and unconscious process The continuous, individual reinterpretation of meanings is mainly unconscious; it is a background activity that is activated by any sign people encounter in their daily lives THE MOMENT OF MEANING The “Moment of Meaning” (MOM) represents a single interaction of the user with the product service system which embeds all abstract, emotional and meaning related characteristics. Suggestions: - focus on a single interaction - take the perspective of the user - give it a title - use visuals LESSON 6 - TECHNOLOGY EPIPHANY DEFINITION OF TECHNOLOGY Technology refers to the practical application of scienti fic knowledge for the purpose of creating tools, devices, systems and processes that enable humans to achieve specific goals or solve practical problems. The use of technology has revolutionized many aspects of modern life. Technologies offer opportunities which are of course not infinite, but are greater in number than those imagined by early developers. TECHNOLOGY IS NOT ENOUGH In the current world man y technologies can be considered failures because they were developed without considering what people would love (ex. Nokia Lumia, Google glasses). An example of a successful technology is the robot created by Kuka: it was invented to substitute humans, but then was used to help humans and also to engage humans. We define the general purpose technology (GPT) as a set of core technologies that have key functions of generating and spreading incremental or radical innovations in different fields, activities and sectors. Scholars have shown how in the past the traditional way to develop and integrate GPT was by licensing them. TECHNOLOGY EPIPHANY A technology epiphany describes a type of innovation that involves reimagining a technology in a way that fundamentally changes the way we interact with it. Technology epiphanies arise when innovators challenge conventional thinking about a technology and ask themselves “what else could this technology be used for?”. This leads to new and unexpected uses of te chnology , that are not immediately obvious. We pass from a view in which business is the purpose , technology is a driver and people are a mean to a view in which people are the purpose , technology is a mea n and business is the consequence . A technology e piphany radically changes the technology and its meaning. We have to follow three steps to craft a technology epiphany: 1. technology selection: the technology is chose n among all the possible opportunities that are present in an uncertain environment 2. technology development: the technology is explored through experimentation 3. technology integration: the technology is embedded in a final product There are two perspectives toward development: - normative: starting from a define d point in the futur e back casting the steps - explorative: the endpoint is unknow n ex -ante The most spread process representation is the funnel one; it usually leads to technology substitution. In the last decade, researchers proposed more dynamic and flexible approaches t o cope with uncertainty; so the perspective adopted is no longer the funnel, but the fa n. Find -> we focus on identifying the fields where the technology can be useful. Proxemics helps in understanding the context: it is a design approach to envision future interactions between bodies (people), objects (technology) and spaces (context). The research map s the status quo of the processes and methodologies present in the li terature and that can of help for effectively and efficiently manage the technology development: - first, it positions different academic contributions in a matrix that has two dimensions: linear or iterative approach; designing or finding the right appli cation - second, it highlights future research avenues to support the differentiating perspective of search and find the right application Experiment -> we understand whether there is value for users. Experimentation helps us to answer the kinds of ques tions that all organizations confront: how do we know what products to make, what customer experiences to offer and what information we need to make those decisions? The success of a company is function of how many experiments it does per year/month/week… We cultivate curiosity: for an organization to fully absorb experiments, unbridled curiosity needs to drive out strong opinions and biases. We also cultivate experimentation culture: when experimental results go against entrenched interests, beliefs and no rms of an organization, they are often rejected (this is wrong). Integrate -> we study how the technology can be adapted to suit a particular solution . LESSON 7 - DATA DRIVEN INNOVATION The media world has evolved a lot over the years: we’ve passed from cinema, to TV, to computer and finally to smartphone. Also the smartphone has evolved over the years: - initially it replicates internet services, with a different user interface - it also has background information (ex: it knowns the position thanks to the GPS) - it has specific characteristics of mobile devices (ex: touch, accelerometer) Initially the games were only fictional, but then new games were created : the game character con tinues to exist in the virtual world even if the player is not connected. Then, second life was invented: it is not supposed to be a fantasy world, but a replica of the real world. Finally Nintendo Wi i was launched: the player interact s with the virtual world using his body . Virtual world and real world have never been so overlapped and smartphones are the communication gate between them . -> Smartphones are at the crossroad between the two trends analysed. Smartphones can be seen as wearable sensors, which can be used to collect data in a continuous way (big data) and then these data are sent to algorithms that can extract value from them. For example, data can be used to improve services. Example: Spotify -> customers provide data that allow them to be provided with the service. We are living an era in which freeconomics is established. Freeconomics is a business model in which a product/service is offered free of charge and supported by sales of a premium version. Customize: modify something to suit a particular individual or task. Personalize: design or produce something to meet someone’s individual requirements Mass customization can be offered: standard parts are combined in different ways to satisf y different customer needs. Mass personalization couldn’t be offered until few years ago but today, t hanks to the users input, data coming from smartphones and other physical sensors, external data sources and data provided by third parties, limitless pers onalization can be offered; we talk about mass personalization in services. We can identify four types of service based on two dimensions: 1. the extent of the customer contact (low or high) 2. the degree of interaction and participation (low or high) - threshold call services: the company receives data from the customer only once; the customer is aware of proving data - digital coach services: the company receives data from the customer every time he uses the service; the customer is aware of proving data - background monitoring services: the company receives data from the customer only once; the customer is not aware of proving data - virtual real seamless services: the company receives data from the customer every time he uses the service; the custo mer is not aware of providing data There is an app for everything and often they are almost free: - advertising : advertise products/services of third parties within the application - in-app selling : selling products/services from within the application (ex. Candy Crush) - freemium : offering basic service for free and advanced service at a premium (ex. Spotify) - cross -selling strategies : selling to customers products /services related to what they plan to purchase Data -driven epiphanies will be more and more frequent : companies rea lize that the huge data they have can be valuable for someone, who become s a potential customer. Example: Twitter political index -> they evaluated the sentiment about Obama and Romney based on tweets . Exampl e: UP -Jawbone -> they get a lot of information about the sleeping schedule of users and then they give each user specific suggestions. It is difficult to find customers for whom the data you have are valuable , therefore companies are now targeting the sys tem in a differen t way : the company offers a service for free to its customers and collect s a lot of data on customer behaviour while using the service; the company sell s these data to a third party for who m they are valuable. Since t he real customer of th e company is the third party and not the user of the service , the user is seen only as a source . Companies should try to find third parties who have problems which can be solved with data. Once a third party is found , companies should offer a service to us ers that allows them to collect the needed data. Example: Up -Coffee -> they found a third party who wanted to do a research on the consumption of coffee, so they developed a free app thanks to which they collected the necessary data, that they sold to the TP. LESSON 8 - PLATFORM THINKING PRODUCT OR INTERNAL PLATFORM An internal (or product) platform can be defined as a set of assets organized in a common structure from which a company can efficiently develop and produce a stream of derivative products. The platform is not the product itself, but just the underlying structure. “A firm, either working by itself or with suppliers, can build a family of related products or sets of new features by deploying these components” Example: Sony Walkman -> it was so successful that the name of the product became the name of the whole product category. They created the Walkman by adding headphones to an existing product, a portable tool for recording. They have been able to reach any kind of market niche by offering different Walkman to different users: they launched 20 new models per year and this was possible because they were able to shorten the time of production thanks to different platforms. Example: Volkswagen -> the MQB platform can be used to build a wide range of cars. INDUSTRY OR EXTERNAL PLATFORM An external (or industry) platform can be defined as products, services or technologies that act as a foundation upon which external innovators, organized as an innovative business ecosystem, can devel op their own complementary products, services or technologies. It is similar to the internal platform since the industry platform provides a foundation of reusable common components or technologies, but it is different since this foundation is “open” to o utside firms. The degree of openness depends on a set of dimension s, such as the level of access to information on interfaces to link the platform or utilize its capabilities, the type of rules governing the use of the platform, the cost of access. Examp le: Windows -> Universal Windows Platform can be used by other firms to develop something new. TWO -SIDED PLATFORM Network externalities have two effects: - direct network effect: an increase in the usage of one product/network leads to a direct incre ase in the value of that product/network for users; this effect is called same -side network effect (ex. social network) - indirect network effect: an increase in the usage of one product/network leads to an increase in the value of a complementary product/network, which can lead to an increase in the value of the original product/network; this effect is called cross -side ne twork effect. It is typical of two -sided markets. A two -sided platform can be defined as a platform that brings together two (or more) distinct groups of customers and internalizes indirect network externalities. TRANSACTIONAL TWO -SIDED PLATFORM A tra nsactional platform can be defined as a platform that profits from enabling the exchange of goods and services between buyers and sellers. Both buyers and sellers are customers of the platform. There are three elements that define a transactional two -side d platform : - two or more distinct groups of customers (generating the chicken and egg paradox) - bidirectional cross -side network externalities - an intermediary, that can internalize the externalities Example: Amazon , Uber , Booking.com -> they profit from enabling the exchange of products/services between buyers and suppliers. ORTHOGONAL TWO -SIDED PLATFORM An orthogonal platform can be defined as a platform that profits from selling two complementary services to two different groups of customers (i t doesn’t enable a transaction between the two groups ). There are three elements that define an orthogonal two -sided platform: - two or more distinct groups of customers (that can even join in different moments, no paradox) - unidirectional cross -side n etwork externalities - an intermediary, that can internalize the externalities We can distinguish two types of orthogonal platform: - client as a target -> the platform uses the first side as the target of the second side; the first side is an asset to be exploited by offering its attention to the second side - client as a source -> the platform uses the first side as a source for the second side; the secon d side is offered data collected during the service offered to the first side Example: Google -> it offers two different services to two different groups of customers: it offers a free service to the first side and the attention of the first side to the s econd side (client -as-a-target) Example: Netflix -> it offers a service to the second side by exploiting data collected during the service offered to the first side; the two sides match (client -as-a-source) WHAT IS NOT A PLATFORM A platform is not a li near value chain system, where there are suppliers who offer a product/service to customers (the transaction of value is linear ). A platform is not a network, wh ose value depends on its number of users (ex. WhatsApp). PLATFORM STRATEGY How do successful transactional two -sided platforms create, deliver and capture value? 1. solving the market frictions: not invest and find idle assets to deliver a valuable service + the service is scalable (it is often based on a zero -marginal cost str ucture) + the service has the potential to disrupt markets - to get on board the two sides, without having the other, is difficult (chicken and egg paradox) - it needs to be designed leveraging the right ingredients (double or multi -sided value proposit ion) -> you risk growing too much on one side and not growing enough on the other side 2. exploiting the critical mass: once you are known by the critical mass, you can find new services to offer to the customers by using new idle assets -> you understand how you can exploit your current customer base Example: Airbnb added new services besides renting rooms and houses, like Airbnb experiences. 3. capturing unaware co -created value: you realize that customers are creating value by using the services and no one is capturing it; you recognize the idle asset (idle -asset hunter) and find a way to exploit it Example: Uber noticed that they had a lot of data about the movements of people that could be exploited by someone else, like traffic management. FUTURE EVOLUTION S Established business based on a linear value chain can exploit their assets, resources and relationships and evolve into hybrid multi -sided platforms. Transactional two -sided platforms can further e