The Management of Knowledge Creation

and Innovation Through an Intellectual

Capital Lens

Prof. Göran Roos

 Context
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Interest in innovation and R&D performance has

been rising on the back of a wide range of
successful products and services

©Göran Roos 2007

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Remember Innovation is not only based on natural

sciences

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What do companies think about innovation?

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What is the real situation?
▼ Booz Allen Hamilton Global
Innovation 1,000 Study 2006:
– Innovation can lead to higher
performance, but the process isn’t
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 don’t 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
©Göran Roos 2007
▼ Innovation Network Survey, fall
2004 [same result from 2005], new
innovation leaders in medium to
large companies:
– 71% said they had no metrics for
their position
– 60% of them have innovation as
part of their mission/job objectives
– 67% are allowed to work on “new”
concepts for their company (“new”
is not defined)
– 68% have no well defined
innovation process within their
company
– 54% have no working definition of
innovation
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Research vs Innovation – What is the relationship?

©Göran Roos 2007

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EXPANDING THE INNOVATION HORIZON

▼ Innovation can be ignited by business and technology

integration.
▼ Technology can enable and drive innovation. But to truly
capitalize on technology’s potential and unleash an
organization’s 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

©Göran Roos 2007 Source: Dr.V.S.R.Krishnaiah, Sr.Technical Director, NIC

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Business Model Innovation is key

▼ A Value Proposition is an overall view of a company's bundle of products

and services that are of value to the customer.
▼ The Target Customer is a segment of customers a company wants to
offer value to.
▼ A Distribution Channel is a means of getting in touch with the customer.
▼ The Relationship describes the kind of link a company establishes
between itself and the customer.
▼ The Value Configuration describes the arrangement of activities and
resources that are necessary to create value for the customer. Nornally
these are expressed in IC-Navigator form and using the (Stabell and
Fjeldstad 1998) Value Logics
▼ The identified Resources that can be deployed by the firm to create value
including those that form the basis for a competitive advantage
▼ A Partnership is a voluntarily initiated cooperative agreement between
two or more companies in order to create value for the customer
▼ The Cost Structure is the representation in money of all the means
employed in the business model.
▼ The Revenue Model describes the way a company makes money through
a variety of revenue flows.

©Göran Roos 2007

 Value Proposition
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Target Customer

Truly understand your customers and your

customer’s customers [consumers]
Customers are trading both up and down within categories, demanding
differentiated value from businesses

Historical Demand
▼Seeking “good ▼Willing to pay
enough” quality large premiums
at rock-bottom for “new
Growth

prices when luxury” brands

they perceive no when they
differentiated deliver
Emerging Demand
value differentiated
Price Positioning
value

©Göran Roos 2007 Source: IBM Institute for Business Value analysis
 Value Proposition
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Target Customer

What drives the B2B relationship?

Situational Importance of Different Perceived Value Driver Categories

High Functionality Distinctness

⇓ ⇓

Importance to Buyer
Price Mental Proximity
⇓
Functionality

Low Price Distinctness

≥ Seller < Seller

Perceived Knowledge of Buyer

0 ©Göran Roos 2007

 Value Proposition
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Target Customer

Value
-
and knowledge distance
+
Potential Value
to be extracted
from the relationship
by the supplier

Knowledge
distance

Known by Known by
nobody everybody

Known by the Known by the

Supplier Customer

1 ©Göran Roos 2007

 Value Configuration
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Value Chain

Infrastructure

Support Human Resource Management

M
ar
Activities Technology development gi
n
Procurement

Marketing
Primary Inbound
Operations
Outbound
& Service
Activities logistics logistics
Sales

2 ©Göran Roos 2007 Source: Porter, M.E. 1985: Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press
 Value Configuration
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Value Shop
Infrastructure
Support Human Resource Management
Technology development
Activities Procurement

Acquire
the right
Find to address Develop
someone the alternative
with a problem solutions
problem

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

Source:
3 ©Göran Roos 2007 Stabel, . B., Fjeldstad,Ø. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998
 Value Configuration
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Value Network
Support Infrastructure
Human Resource Management
Activities Technology development
Procurement

Promote Network

Primary Manage Member Contracts

Activities Service Provisioning

Infrastructure Operation
& Maintenance

Source:
4 ©Göran Roos 2007 Stabel, . B., Fjeldstad,Ø. D.: Configuring Value for Competitive Advantage: On chains, shops, and networks, SMJ, Vol 19, No 5, 1998
 Resources
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The presence of resources with different behaviour

Owned or Controlled Owned or Controlled Owned or Controlled Owned or Controlled Owned or Controlled
By the Firm By the Firm by the Other Party By the Firm By the Employee

Additive Additive

5 ©Göran Roos 2007

 Resources
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The utilisation of resources with different behaviour

Industrial Network Knowledge

Economics Economics Economics
6 ©Göran Roos 2007
 Resources
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Examples of Resource Transformations

HUMAN ORG. REL. PHYSICAL MONETARY

Knowledge Building &

Developing Sales of
HUMAN Training codification, developing
prototypes man-hours
new IP relationships

Developing Systems Produce Sales of IP,

Market
ORGANISATIONAL competence generate By processes &
intelligence
through use IP numbers knowledge

Chance to Importing IP, Relationship

Use of other
build skills in processes, Networking selling,
RELATIONAL relationship association
company’s preferential
assets deals
handling with brands

Possible Facilities Equipment

Facilities to generates Sales of
PHYSICAL new products build
train with products products
& know-how relationships

Investment
Recruitment Investment Investment
in brands, Investment
MONETARY training, in building In financial
image and in assets
conditions links instruments
systems

7 ©Göran Roos 2007

 Revenue Model
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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

8 ©Göran Roos 2007

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Innovation does not happen by itself

▼ It is the result of hard work,

well planned and executed
and is no happening
▼ Innovation is work rather
than genius,…and very much
a matter of discipline (Peter F
Drucker, 1985)

9 ©Göran Roos 2007

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Summary

▼ Innovation does make a difference at the bottom line

▼ Few companies do it well
▼ There is a difference between research and innovation and
especially in their management
▼ Innovation is more than technology
▼ Innovation Management is Key and is facilitated by applying
the IC lens
▼ We know how good innovation management looks
▼ It will become even more important in the future

0 ©Göran Roos 2007