Lecture 3.

1
Before we begin:

Remember that you can opt to make an innovation from the

viewpoint of:
• A start-up (a completely new innovation)
• Role playing as a for-profit company that is innovating (a
hotel chain, travel agents, etc)
• Role playing as a non-profit institution (government, church,
etc) that innovates
• Four search zones of innovation

“Necessity may be the mother of invention but

procreation needs a partner” – Chris Freeman
After uncovering consumer needs…

Innovation can be approached by different entities:

• New players in the market (e.g startups)
• Existing for-profit players in the market (e.g companies)
• Existing non-profit players in the market (e.g governments,
charities, social institutions)
Bessant & Tidd (2015, ch.7) provides a framework of how to map
the innovation search space for different kinds of innovation,
based on:
• Innovation can be product, process, positioning, or paradigm
change
• Innovation can be incremental or radical
• Innovation can be within existing ‘frames’ or outside
Four search zones of innovation space

• Source
Zone 1 – operational optimization i.e “Exploit”

Working in familiar territory, and

looking to exploit existing knowledge
base
• Typically involve ‘process’ or
‘positioning’ innovation
• Aim to improve existing offering by
adopting external tried-and-true
methods
• Slow, steady, and requires tenacity
Example:
Non-profits ‘borrow’ Toyota principles
and adapt it to make their food
distribution faster.
Lecturers learning Adobe Spark to
make better Canvas pages

Challenge: How would “The Ghan” optimize to capture the

“slow travel” trend among young travellers?
Zone 2 – organizational transformation i.e
“Explore”

Innovation that pushes the frontiers into new, unknown direction within
the frame (i.e the business of the company)
• Typically are new product innovations that borrow untested/new
potentials from other fields, rather than adapting tried-and-true
methods
• Risky, but can be mitigated by looking for “extreme users” and/or
“lead users”
• Often done by big companies acquiring smaller start-ups that have
developed tech but not scale
Examples:
Microsoft Xbox Kinect came when a senior executive challenged the
team to “find a way to get rid of the gaming controller” (Satell, 2017,
ch.5)
Rise of skateboarding culture into mainstream acceptance is due to the
innovation of a small, passionate crowd.

Challenge: Given rise of heritage tourism, which operators could ‘bet’ on

unproven but potential technologies like virtual reality?
Zone 3 – Reframing

Innovations that reconfigure what the business sees itself as (i.e its
“identity”)
• Typically positioning or paradigm innovation
• Involves re-examination of market needs and willingness to re-
invent the company
• Typically results in either a change of company structure or opening
up new divisions
• Inspirations are often drawn from forgotten and/or niche “extreme”
users
Examples:
Micro-finances like Grameen Bank revolutionized banking by lending
money to the poorest people.
Pickup trucks was based on users modifying their Ford Model-T in crazy
ways

Challenge: Under threat from AirBnB, which Australian hotel should

reinvent itself to stay relevant and competitive?
Zone 4 – Co-evolve

Innovations that is most unpredictable because it is the result of

the unsustainability of the current frame (i.e business model)
and emerging new technologies
• Typically disruptive or radical innovations
• Done by startups/newcomers that shake up the existing
ways of how things are done
• Super risky, but is typically the standard ‘go to’ mindset of
young entrepreneurs

Examples: Facebook, Tinder, WeWork, etc. Note however that

for every one disruption who succeeds and become famous,
there’s an unknown number of losers along the way.
• Introduction to Business Model Canvas
Concept statements

Concept statements are brief introductions of new ideas,

which represents the vision of its creator (individual, team, or
division)

There are many ways this can be done, but in this unit we will
look at two, and use one:
- Amazon’s “six-page” style
- Osterwalder’s Business Model Canvas (BMC)

Concept statement in Assignment 1 has four of the nine

elements of the BMC.
Amazon’s 6-page system

Information on this system is vague and mostly pieced together

from different sources.
In essence:
• Powerpoint pitches are banned, use 6-page memo instead that
starts with a mockup ‘press release’ if that idea is launched.
• First 30 minutes everyone is forced to silently read from that
memo, to avoid anyone ‘bluffing their way’ through a meeting.
• Key is how presenter creates a good narrative for the pitch
Business Model Canvas (BMC)

Business Model = rationale of how an organization creates, delivers,

and captures value

BMC created to be a common framework or shared language to

describe business models

Framework has nine ‘building blocks’ that show the logic of a

company, covering four main areas of:
• Who are the customers?
• What is the offer?
• What resource/infrastructure does the company have or need?
• How is it planning to make money?
Business Model Canvas (BMC) blocks

The nine building blocks of BMC:

• Customer Segments
• Value Propositions
• Key Activities
• Revenue Streams
• Channels
• Customer Relationships
• Key Resources
• Key Partnerships
• Cost Structure

Innovation Concept Statement in A1 will mainly

look at the first four
BMC – Value Proposition

The bundle of products and services that create value for

a specific Customer Segment.
Categories of value:
• Newness: satisfying needs that customers didn’t realize they
had before (ex. Cell phones)
• Performance: Doing better than the competitor
• Customization: More tailored to consumers’ context
• Assistance: Helping consumers do their jobs well (ex.
Reliable tutors for marking)
• Design: Providing better aesthetics
• Status: Provides social enhancement (e.x Victoria’s Secret)
• Price: Doing the same as competitor, but cheaper
• Risk reduction: Alleviating anxieties/risk-factors
• Accessibility: Opening up benefits to more people (ex.
AirAsia)
• Usability: Provides more convenient/better user experience
(UX) (ex. iPod)
BMC – Key Activities

The most important things a company must do to make

its business model work
Categories of activities:
• Production: Designing, making, and delivering the
goods/services that is required to create value (ex. Weekly
lectures, slides, assignments, etc)
• Problem solving: Designing systems and plans that can have
appropriate solutions to different consumer problems (ex.
Tutorial activities, hiring the right tutors, provide database of
FAQ, communication lines, etc)
• Platform/network: Relevant for ‘middlemen’/support
business that needs to maintain reliability of operations to
avoid “downtime” (ex. Visa/Master card network, social
media)
Probably the most boring and painful, yet crucial part of
innovation.
• Every idea is beautiful until it is actually written down
BMC – Revenue stream a.k.a “monetization”

For what value are our customers really willing to pay? For what
do they currently pay? How are they currently paying? How
would they prefer to pay?
Types of revenue:
• Asset sales: income from selling physical goods
• Usage fee: income from performance of services
• Subscription: income from providing access to services
• Lending/renting: income from granting use of physical
assets
• Licensing: income by giving permission to use
brand/intellectual/patented elements
• Brokerage: income from enabling intermediation, most often
in terms of percentage (ex: Afterpay)
• Advertising: income from letting other businesses present in
your offering (ex: mobile games)
Challenge: What is revenue for a non-profit/government? i.e
what is the ROI for Metro’s “dumb ways to die”?
Innovation Concept Statement conclusion

For Assignment 1, (the innovation concept):

- Who is going to be innovating? (start-ups, for-profit, non-
profit?)
- Who is it for? (customer segment)
- What is it? (value proposition)
- How are you going to do it? (key activities)
- How will it recoup its investment? (revenue stream)
Microenvironment Factors (SIP-CCC)
Macroenvironment Factors (DENT-PC)
Environmental analysis

There are many approaches for strategic analysis of the

marketing & company environment, i.e:
• Seven methods by Bessant & Tidd (2015, ch.8)
• Scaling innovation by Satell (2017, ch.7)
• VCA, PEST, M7s, etc

One of the most ‘flexible’ tools for environmental analysis is

Kotler’s Micro-Macro environment categorization
• Other tools often require intimate knowledge of the
industry
• They are designed for practitioners, not learners
Micro-environment analysis (Kotler & Armstrong,
2018, ch.3) (SIP-CCC)

Factors close to the company that marketers have to work

with in order to deliver value
Macro-environmental Analysis (DENT-PC)

Factors outside the

company’s control that
marketers have to work
with in order to deliver
value
Impact of factors on innovation survivability

Excellent marketers have to keep an eye on the pulse of the

world around them

Innovative companies typically have “marketing intelligence

departments” (manual or automated)
• Collects everyday information relevant to a company's
markets
• Gathered, analysed, and contextualized to assist decision
making
• Identifies market opportunity, partnership potentials, and
threats

Intelligence has to be concrete, and actual phenomena has

to be the foundation of “what-if” scenarios
Example of good and bad marketing intelligence

“Because of increasing population in Australia, then there is potential to

create a new dating service for over 40s. However there is a threat where
income is decreasing so people may not be able to afford it. We also have to
look out for competition from other, already established companies”

VS

Reports indicate that loneliness is likely to be a bigger health and social

problem in Australia than smoking or obesity, as acknowledged by the VIC
government (Vichealth, n/a). Specifically, single fathers over 40 are
identified as a significant risk group (RelationshipAustralia, 2018). The
proportion of 40-60yo in Australia has increased from 21.7% in 1989 to 25% in
2019 (Populationpyramid.net, 2019). The Andrews government has
committed $700,000 in grant money to tackle this issue (premier.gov.au,
2020). However, the recent Corona scare is likely to divert government
attention to this issue (ABC News, 2020). Therefore, opportunities for our
business exists in providing XYZ, partnering with ABC, with risk factors
coming from KLM.