Digital Innovation
What are the processes of OI?
1. Outside-in processes 2. Inside-out processes 3. Coupled processes
Absorptive Capacity in other words...
"ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends"[Cohen/Levinthal 1990] •"a set of organizational routines and processes by which firms acquire, assimilate, transform, and exploit knowledge" to produce strategic capabilities /innovation [Zahra/George 2002]
-CONTENTS: data, maps, music, news, and video -SERVICES: functionalsoftware-based resources such as heart monitors, social media applications, weather services, smart lighting, and media browsers -NETWORK: logical transmission software and the physical transport resources -DEVICES: hardware and software resources that enable storing and processing capabilities
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What is the Concept of Persona(s)?
-Archetypes that describe the various goals and observed behavior patterns among your potential users and customers -Special type of composite model resulting from cross-case analysis, using primarily inductive reasoning -Encapsulates and explains the most critical behavioral data in a way that designers and stakeholders can understand, remember, and relate to -Storytelling to engage the social and emotional aspects of our brains ("empathize")
Long tail often not served because of:
-Capacity constraints -Delivery costs -you had to have a limited amount so storage costs -customer limitation to choose an option from too many options
User-centeredApproach: Lean Startup
-Concept of innovation through repeated, validated experimentation with the help of a minimum viable product (MVP) -Following lean manufacturing and management principles (i.e. the biggest waste is creating a product or service that nobody needs) Enabled by *Platforms *Agile development methodologies *Customer-centric iterations in the development process *Digital analytics
What are personas good for?
-Good for Generating and iterating solutions -Communicating and building consensus -Other advantages such as in marketing, employee training (get to know customer characteristics), prioritize customer feedback
How does technology gives the chance to exploit the long tail?
-Most of Google's ad revenue comes from many small-amount paying clients -Significant portion of Amazon's or Netflix' revenues comesfrom obscure book titles or non-blockbusters not foundanywhere else
Which are the perspectives on Digital Transformation?
-Process & Services (External Perspective [x-axis) vs Internal Perspective [y-axis) examples: process digitalization | New business models, smarter products better processes, better decisions, better services | Product/Service Digitalization -Data & Digital Technology Interplay of data and digital technologies for transforming processes, services, and overall business models
Types of Digital (Business Model) Transformation
-Substituting products & services -Creating new digital business -Rethinking value propositions -Reconfiguring value delivery models/chains -Reinventing industries ^^what we should keep in mind when thinking on "how can we transfrom a business model though digital innovation" check slides for more in-depth (slide25)
In which industries is OI popular?
-are strongly globalized -have high technology intensity -draw on converging technologies -bear many new business models /converging markets (e.g. media industry) -are knowledge-intensive -have modular products and services
Fundamental Characteristics of Digital Technologies
0 margin of cost, margin of error, ASK
What are the basic phases of software development?
1. Analysis 2. Design 3. Realization
More more in depth - REALIZATION
1. Coding Implementation of the earlier defined system design 2. Testing Big part of realization consists of applying testing routines
Group discussion regarding "AnotherPerspectiveon Recombination"
1. Create processes that combine speed of technology with human insight 2. Let humans be creative and use IT to test their ideas 3. (If time allows: Leverage IT to enable new forms of innovation collaboration)
What are the the Two Parts of Introducing a New Solution?
1. Deployment 2. Assimilation
Digital Innovation Discovery
1. Design Thinking: customer educate yourself to only focus on the customers (top 10 customer needs) 2. Blue Ocean Strategy: Strategy/competition what are we doing and how to make sure we still on the game --> ADJACENIES 3. Technology Scouting: technology-what the potential for us on the new tech (adjancies) Use these ways independently bc you will get + inspired. Split up teams so that you can have diff perspectives. If you use only one perspective, you will develop something that may not work bc it will focus on one aspect rather than all.
Which are the Introduction Barriers?
1. High Uncertainty 2. Organizational Inertia 3. Organizational Learning (Murphy's Curve) 4. User Resistance
Management implications for opportunity seeking regarding the long tail...
1. Identify the long tail distributions in each component of the existing or planned business model 2. Assess the profitability potential of the long tail (e.g. usingVARIM or another framework suitable for evaluating business models) 3. Decide whether the long tail is worth being served by myself, by third parties (platform approach, by use of digital technology), or not at all.
What are the sources of distortion in assessing emerging technologies?
1. Joint Probability Illusions 2. Confounded Uncertainty Types (Market or Technical Uncertainty) 3. Timing
What are the different types of convergences?
1. Technological Convergence 2. Convergence of customer needs 3. Supplier Convergence
What's the three-step process of Realization?
1. Unit Testing Test of single developed modules/components --> 2. Integration Testing Testing the functionality of the complete system and of the interaction of the different modules Sub-aspect: performance testing --> 3. Acceptance Testing Testing with a user
What does a Platform Strategy do?
A (platform-as-a-service) allows others to explore and exploit the long tail (while participating in its commercialization). (e.g., Amazon Marketplace, mobile app stores, add-on modules for enterprise software (Sales Force etc.))
What is "Paths channeling"?
Activities designed to steer value paths through one particular, or a combination of, digital resource/s and appropriate value as it becomes more center stage in a particular value space.
What does a Technical Platform allow?
Allows for exploiting/ commercializing the long tail by the focal firm itself. (e.g., Amazon, Netflix)
What is a "Value connection"?
An association between two digital resources. Such association can be established (1) between digital resources within the same value space, or (2) between digital resources belonging to different value spaces.
What is a "Value space"?
An evolving network of digital resources interlinked through connections established and dissolved by actors seeking to generate and appropriate value.
What is Absorptive Capacity?
An organizations capability which helps companies to be competitive, to stay in the game, means its something that the org has to develop to be able to do things different -managing knowledge from outside. 1. Aquire--> bring knowledge from outside 2. Assimilate--> get joint perspective on customer needs 3. transform --> 4. exploit --> bring the knowledge to the right place, combine with own assets its about knowledge from outside. finding knowedge we need from outside and bring it into the org . bring the knowedlge to the right place. we need to recombine it with out own knoweldge/assets exploitation: bring it into economi use.
More more in depth - ANALYSIS
Analyzing the problem:What do we want to achieve with the new system? Analyzing the infrastructure:Which systems and technologies are we or are the future users using? Observation of activities and processes, interviewing future users etc. leads to identification or problem areas and (often multiple alternative) solution optionsDevelopment of a new system Extension/integration of existing systems Purchase of a system or orchestration of different commercial systems .... Evaluation: Is/Are the solution option(s) viable from an economic, technical, and organizational perspective? Identification of the best solution option
What are "Digital resources"?
Building blocks for the creation of value from information in digital innovation. A digital resource (1) belongs to a specific value space, (2) hosts the potential to simultaneously be part of multiple value paths, and (3) is typically product-agnostic
Convergence of customer needs
Customer needs focus on those converged products and services
Steps to managing digital innovation
Digital Innovation Discovery Digital Innovation Implementation Digital Innovation Diffusion
What does the "recombination as design" generates?
Digital innovation: is traditionally understood as "recombination as design": generating a value path by connecting digital resources as a value offer to users.
Digital tech is the most general of what? The GPT has given birth to what?
Digital technology is the most general GPT of all. •The GPT of ICT (or: digital technology) has given birth to radically new ways to combine and recombine ideas. Like language, printing, or universal education, the global digital network fosters recombinant innovation. We can mix and remix ideas, both old and recent, in ways we never could beforeGoogle Chauffeur: combination of combustion engine, computer, sensors, and map and street information The WWW: TCP/IP plus HTML plus browser Facebook ... and each innovation becomes a building block for future innovations...
What is the Dilemma of "first copy cost"? and what is the managerial consequence?
Digitalization leads to distribution cost close to zero, but thus to high relative fixed cost (for developing the product). If refinancing is uncertain/unlikely, products end to have lower quality, more marketing involved, less stable development processes etc.,which again reduces the attractiveness, leading to lower prices etc. (downward price-quality helix) --> can even harm the attractiveness of the platform itself Managerial consequence: firms should work on migrating products from the long tail to the head(e.g., pilot tests of new (on-demand) TV series)
How do companies use Open Innovation?
Firms need to have multidimensional innovation strategies. Beside "classical" internal R&D, they use "open innovation" networks and approaches consisting of investments, partnerships, communities & platforms, incubation, licensing, and incentives.
How to separate signal from noise?
First, you need to become clear about the noice (sources of distortion) and then amplify the signal (three frameworks)
What does "Diffusion research" focuses on?
Focuses on the consequences of individual adoption decisions on the macro level: why and how does a new technology/product/service diffuse in a market?
What does "Adoption research" focus on?
Focuses on the individual („micro") level: why does an individual use a certain technology/product/service (or why not)?
What are Boundry Spanners?
Have ties into both communities(organization vs. environment)Understand the type and value of information that is transferred
What is Digital Innovation Implementation
Idea developed into innovation; packaging for products and business models or configuring for processes
What is Digital Innovation Diffusion
Innovation is released and made available for potential users by deployment and adoption how do we bring it to the people? how do we make our employees use the process innov? marketing change in mgmt
What happens when you combine (or substitute) an OI with a platform business strategy?
It enables another level of exploitation of the long tail
How does the Absorptive capacity helps an organization?
It helps to focus and structure organizational initiatives. Organizations need to be ambidextrous and open.
What is the Value Spaces Framework for?
It is intended to serve as an orientation for understanding value in digital innovation.
What is the downside of the Long Tail...
Long Tails gets longer through digitalization, but also flatter:Demand side concentrates on less offers, less products become economically more important 'head' becomes increasingly important
What causes lags between innovations and productivity effects?
Missing complements. Important complementary innovations are the business process changes and organizational co-inventions being made possible by new technology. e.g. the factory layout changed because of electricity--before it was only more faster/less noisy.
What does Network Effect describe? and what are the types?
Network effects describe the relationship between the utility of a good and the number of its adopters/users. (demand-side scale effects)Usually, the term connotes positive network effects Direct Network Effects Indirect Network Effects
What is Digital Innovation Discovery
New ideas for potential development are discovered; invention and selection
Explain Organizational Learning (Murphy's Curve)
New innovations require org learning -in the first phase, performance is lower than before (see next slide) Counter-measures: make an estimate about the depth of Murphy curve dip. If not well prepared, wait until tech. is more mature. Collaborate with experienced partners. Facilitate organizational learning (hire system integrators, consultants, mentors)
Explain High Uncertainty
Often high complexity and intangibility of IT investments, particularly in case of emerging technologies. Costs and benefits, need for org. complements etc. are uncleardifficult to mobilize workforce Counter-measures: detailed process of tech evaluation and justification in discovery phase; innovators need to get their own hands dirty (experimentation, prototyping, simulations etc.); use of incremental approaches during diffusion phase
What does it mean by boundary people?
People whose primarily task is to search for knowledge (has close connection to unis/startups and bring knowledge into the org. After them, you have a formal department (KMS) to assimilate the info
Describe "Deployment"
Process of actually delivering a new digital innovation to users. It spans activities in both the development stage of innovation (i.e., deciding what features and functions are needed; how they should be configured) and in the early diffusion stage (i.e., installing and testing; training users; and the actual "go live").
Supplier convergence
Products and services that have been offered separately are now bundled
What are the reasons of the downside of the Long Tail...
Reasons: -Recommender algorithms(Google, Amazon, Netflix etc.) drive this demand focusing effect -Psychological selection effect: People choose options that are more familiar, more frequently rated etc. -People using unpopular (i.e., long tail) offers tend to be less satisfied and less loyal. ("double jeopardy" [McPhee 1963])
Explain Indirect Network Effects
Result from interdependencies in consuming complementary goods and services •Markets in which compatibility plays a major role, usually have strong indirect network effects •Multi-sided Platforms are a particular form of coordination mechanism exploiting network effects
What does it mean by Managing Digital Innovation
Strategically driven and aligned activities to discover, implement, and distribute digital innovations in order transform the business (internal operations, products/services, customer interaction, overall business models) and to ensure that the resulting value is captured.
Explain Organizational Inertia
Tendency of firms to persist in doing things as they have always been done ("never change a running system" etc.) Counter-measures: identify and empower a technology champion; align the new tech with a crisisthat is appearing anyway (or create one...); encourage an organizational culture of innovation and openness to change
Explain User Resistance
Tendency of individuals to react negatively to change initiatives (concerns, lack of adequate incentives / no perceived individual benefits, lack of know-how and know-why, skepticism, no individual benefits) Counter-measures: stakeholder analysis (which individuals will react in which way?), user involvement, adjustment of incentives; in certain cases: bottom-up implementation approaches
What does it mean by "combinatorial"?
That in most cases, innovation happens by recombination of existing General Purpose Technologies (GPTs): Possibilities do not merely add up, they multiply [Romer: Economic Growth] •"To invent something is to find it in what previously exists"[B. Arthur, The Nature of Technology]
Why does Combinatorial leads to often unpredictable convergences?
The Internet and many digital technologies are disruptive GPTs -disruptive effects on many (or all?) industries and markets -creates new business principles •Result: appearance of often unpredictable convergences
What is a "Value path"?
The actual digital resources and value connections used by actors to generate and appropriate value.
What is the long tail concept?
The long tail is a business strategy that allows companies to realize significant profits by selling low volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items.
What does it mean to separate signal from noice
The word "signal" is a metaphor for the patterns and meaning that are hiding in data. In electronics, signals must be separated from noise to be useful. In the age of big - and ever-growing data - more data means more noise and bigger challenges in isolating the signals.
What do Information Filters do? And what do they consist of?
They play a critical role in shaping purposive knowledge inflows •These information filters consist of cognitive frames -a set of beliefs or assumptions about what information is worth using to create and capture value -that act as lenses through which a firm evaluates outside information •The quality/effectiveness of information filters is determined by innovation management practices, people/experts involved, and the organizational culture
What are the Properties of 'Digital'? To understand why the internet of things is transforming business models, it is helpful to understand the fundamental properties of "digital"
Unlike analog signals, digital signals can be transmitted perfectly over any distance, without error. Digital signals can be replicated indefinitely --without any degradation. Digital signals can be communicated to the incremental consumer at (almost) zero cost. And a digital task performed at zero marginal cost will immediately supersede any analog task (which has significant marginal cost). These properties improve the scalability of operations and make it easy to combine new and old business processes and connect industries and communities to generate novel opportunities. Thus, these properties drive the transformation enabled by ubiquitous digital technology.
Regarding the two parts of introducing a new solution (deployment and assimilation)
Which of both is the bigger challenge depends on the situation. Some technologies -especially those designed for individual use -can be quite easy to implement, but difficult to get assimilated. Others are difficult to implement correctly, but fairly easy to get people to assimilate once implementation issues have been resolved. And obviously, many technologies are hard to implement and also hard to assimilate.
What are cognitive frames?
a set of beliefs or assumptions about what information is worth using to create and capture value-- that act as lenses trough which a firm evaluates outside information
Moore's Law
a term used to refer to the observation made by Gordon Moore in 1965 that the number of transistors in a dense integrated circuit (IC) doubles about every two years.
What are the three frameworks for assessing the disruptive potentials of an emerging technology?
a. Nature of Disruption b. Viable digital-physical shifts c. Emerging Technology Governance
Diffusion research is ________ from adoption research
inseparable Traditional adoption and diffusion research has not taken externalities (e.g., network effects) into account.
Why an extra course on digital innovation?
the nature of digital innovation is different compared to pre-digital, particularly with regards to -Collaboration -Efficiency (urge to bring down cost and time of innovation) -Experimentation (innovation is based on rapid experimentation and continuous learning)
The rate of adoption is impacted by five factors, which are: (Innovation characteristics ^^)
• relative advantage (economic, strategic, status etc.) • compatibility • Trialability (little empirical evidence) • Observability (little empirical evidence) • complexity (negative impact)
Describe "Assimilation"
•Adoption by intended users. A digital innovation has not been thoroughly assimilated until use is pervasive, routine, and supported by complementary org. changes (to processes, policies, skills, etc.).
Process of ANALYSIS (phase of software development)
•As-is analysis: Identifying and evaluating the current situation •Define a solution concept •Define functional requirements •Define non-functional and technical requirements •Business case, economic analysis/comparisons
Production-side vs. Demand-side Scale Economies What are Economies of Scale?
•Benefits from scale on the production side / Cost side (more output --> less unit cost) •Controllable •Often justification for „getting big fast" •Require operations excellence
Types of Realization (phase of software development)
•Coding •Testing
Explain Direct Network Effects
•Direct relationship among number of users and value of a good •e.g. technologies/solutions for communication, interaction, collaboration, socializing
Exponential growth of technology and user bases have fundamental consequences...which are:
•Fast movers required: Windows of opportunity become smaller and smaller •First mover: has higher chances in a new/blue-ocean market --> fast creation of critical mass before second mover arrives. (but also risky...) if successful, switching costs for customers have to be created immediately (switching cost can mean the opposite of revenue in the short run...) •But: often the first/fast mover advantage is a myth. We need to differ among product invention and the actual innovation (i.e., establishing products in the customers' mindsets and thus in the market). While the first is expensive, risky, and takes long, the second step can be taken over by somebody else very quickly (at least in case of many digital innovations).
What does the "recombination in use" generate?
•From a service innovation perspective, the eventual digital innovation comes from "recombination in use": generating an individual value path by connecting digital resources in use
Technological convergence
•Previously separate technologies amalgamate in a new basic technology
Production-side vs. Demand-side Scale Economies What are Network Effects?
•Scale effects on the consumption side / value side (more diffusion --> more willingness to pay) •Externality •Require market coordination excellence:•Coordination of diffusion of a network good ((direct) network effects) •Coordination of complementary goods (--> indirect network effects)
Types of DESIGN (phase of software development)
•System design: Detailed plan/model how the system will fulfill the identified requirements •Modular architecture •Database design •Functional design •Process design •Program design: Very detailed model of the sofware to be built
