The Management of Knowledge Creation

and Innovation Through an Intellectual

Capital Lens
Prof. Gran Roos
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2 Gran Roos 2007

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



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3 Gran Roos 2007

Remember Innovation is not only based on natural
sciences
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4 Gran Roos 2007

What do companies think about innovation?
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5 Gran Roos 2007

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
VTT
6 Gran Roos 2007

Research vs Innovation What is the relationship?
Research
Innovation
Research
Innovation
Creativity
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7 Gran Roos 2007

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

Source: Dr.V.S.R.Krishnaiah, Sr.Technical Director, NIC
VTT
8 Gran Roos 2007

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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9 Gran Roos 2007

Truly understand your customers and your
customers customers [consumers]
Customers are trading both up and down within categories, demanding
differentiated value from businesses
G
r
o
w
t
h

Historical Demand
Emerging Demand
Price Positioning
Seeking good
enough quality
at rock-bottom
prices when
they perceive no
differentiated
value
Willing to pay
large premiums
for new
luxury brands
when they
deliver
differentiated
value
Source: IBM Institute for Business Value analysis
Value Proposition
Target Customer
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10 Gran Roos 2007

What drives the B2B relationship?
Situational Importance of Different Perceived Value Driver Categories
Perceived Knowledge of Buyer
I
m
p
o
r
t
a
n
c
e

t
o

B
u
y
e
r

< Seller
High
Low
Seller
Distinctness

Mental Proximity

Functionality
Functionality

Price
Price Distinctness
Value Proposition
Target Customer
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11 Gran Roos 2007

Value and knowledge distance
Known by
nobody
Known by
everybody
Known by the
Supplier
Known by the
Customer
Knowledge
distance
Potential Value
to be extracted
from the relationship
by the supplier
+
-
Value Proposition
Target Customer
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12 Gran Roos 2007

Value Chain
Inbound
logistics
Service
Marketing
&
Sales
Outbound
logistics
Operations
Infrastructure
Human Resource Management
Technology development
Procurement
Support
Activities
Primary
Activities
Source: Porter, M.E. 1985: Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press
Value Configuration
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13 Gran Roos 2007

Value Shop
Source: Stabel, . B., Fjeldstad,. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998
Procurement
Infrastructure
Human Resource Management
Technology development
Support
Activities
Primary
Activities
Find
someone
with a
problem
Control/Evaluation
Execute
Develop
alternative
solutions
Acquire
the right
to address
the
problem
Co-select
with client
one
solution
Value Configuration
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14 Gran Roos 2007

Value Network
Source: Stabel, . B., Fjeldstad,. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998
Primary
Activities
Procurement
Infrastructure
Human Resource Management
Technology development
Support
Activities
Promote Network
Manage Member Contracts
Service Provisioning
Infrastructure Operation
& Maintenance
Value Configuration
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15 Gran Roos 2007

The presence of resources with different behaviour

Owned or Controlled
By the Firm
Owned or Controlled
By the Firm
Owned or Controlled
By the Firm
Additive
Additive
Owned or Controlled
by the Other Party
Owned or Controlled
By the Employee
Resources
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16 Gran Roos 2007

Knowledge
Economics
Industrial
Economics
Network
Economics
The utilisation of resources with different behaviour


Resources
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17 Gran Roos 2007

Examples of Resource Transformations
HUMAN
ORGANISATIONAL
RELATIONAL
PHYSICAL
MONETARY
HUMAN ORG. REL. PHYSICAL MONETARY
Investment
in assets
Investment
in building
links
Investment
in brands,
image and
systems
Recruitment
training,
conditions
Facilities to
train with
Possible
new products
& know-how
Facilities
build
relationships
Sales of
products
Chance to
build skills in
relationship
handling
Importing IP,
processes,
association
with brands
Use of other
companys
assets
Relationship
selling,
preferential
deals
Developing
competence
through use
Market
intelligence
Produce
By
numbers
Sales of IP,
processes &
knowledge
Knowledge
codification,
new IP
Building &
developing
relationships
Developing
prototypes
Sales of
man-hours
Investment
In financial
instruments
Systems
generate
IP
Networking
Equipment
generates
products
Training
Resources
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18 Gran Roos 2007

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

VTT
19 Gran Roos 2007

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)


VTT
20 Gran Roos 2007

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