Digital innovation strategy

Szymon Wierciński, Ph.D

 This means that in the discipline of strategic questions do not change:
What is the process of creating What are the consequences of
How an organization responds
What determines the success How company resources are a strategy and the importance the biggest investment
to changes in the
of the organization? organized and used? of its creativity and decisions (mergers,
environment?
innovation? acquisitions, divestitures)?

As this change, theories as strategies change also clearly two things:

a) the popularity of various concepts and methods, and
b) their centrality and distancese to each other

Changing nature of strategy

Key words in
LRP abstracts
in the 1970s
(1967–
1979).

4
by Krzysztof Obłój
Key words in
LRP abstracts
in the 1980s
(1980–
1989).

5
by Krzysztof Obłój
Key words in
LRP abstracts
in the 1990s
(1990–
1999).

6
by Krzysztof Obłój
Key words in
LRP abstracts
in the 2000s
(2000–
2009).

7
by Krzysztof Obłój
Long time horizon
• Honda/Coca-Cola/Progressive/Atlas

Are aimed at building the competetive advantage

• Red Bull/IKEA/BELLE/Zara

should make use of key resources and skills of the company and the environment
• Polmos Lublin i Stock Polska/Prochem/Apple/WOŚP

should be internally consistent, to create a business model

• Ryanair/Eurobank/Liz Clairborne/McDonald’s/McKinsey/Edward Jones

The essence of strategic decisions and

actions
by Krzysztof Obłój
 Historical background
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Value

BV/MV Ratio Proportion of Stock Prices

Expleined by Reported Earnings and Asset
Values (prof. B. Lev, New York University)
 Mission statements today
Facebook’s mission in
2019 “to give people the
power to build community
and bring the world closer
together.”
2017 “to give people the
power to share and make the
world more open and
connected.”
Amazon’s mission
„Our vision is to be earth's
most customer-centric
company; to build a place
where people can come to
find and discover anything
they might want to buy
online.”
Google’s mission Apple’s mission
„to organize the world's „to bringing the best user
information and make it experience to its customers
universally accessible and through its innovative
useful.” hardware, software, and
services.”
Scott Galloway
“Big four”
Source: Scott Galloway (2017) “Big four” accessed at https://www.youtube.com/watch?v=n1xjdRRIzYw
Source: Scott Galloway (2017) “Big four” accessed at https://www.youtube.com/watch?v=n1xjdRRIzYw
Source: Scott Galloway (2017) “Big four” accessed at https://www.youtube.com/watch?v=n1xjdRRIzYw
Source: Scott Galloway (2017) “Big four” accesed at https://www.youtube.com/watch?v=n1xjdRRIzYw
Source: Scott Galloway (2017) “Big four” accessed at https://www.youtube.com/watch?v=n1xjdRRIzYw
Source: Scott Galloway (2017) “Big four” accessed at https://www.youtube.com/watch?v=n1xjdRRIzYw
Accessed at https://medium.com/@sohilgupta/the-four-the-hidden-dna-of-amazon-apple-facebook-and-google-notes-ca65ec5f8caf
 Experiments Customization

Resources
New channels

Key words in Innovation

Cooperation

strategy the Automatization

2010s???
Knowledge
Strategy

(‘10-’19) Variability
Structure
Development
Culture
Processes
Digitalization Diversity

Technology
23
Competetive advantage
Key resources and competences Sources of competitive advantage

• Market domination
• Amazon, Microsoft, FB, Bluenile
Strong brand + Quality and Niche player or
• Unique and advanced products Market position price premium short term
• Tesla, Apple, Salesforce (Marketing) advantage
• Unique and advanced processes
• Uber, Nordstrom, Ikea
• Teams and people
• Fashion, consulting (IBM), Google High quantity
• Unique resources and market Low costs
• Natural resources and share
infrastructure(dostawcy domen,
hosting: ATM)
Economies of scale
and cost advantage
INTERNET TRENDS 2019 Mary Meeker June 11 @ Code 2019
INTERNET TRENDS 2019 Mary Meeker June 11 @ Code 2019
INTERNET TRENDS 2019 Mary Meeker June 11 @ Code 2019
INTERNET TRENDS 2019 Mary Meeker June 11 @ Code 2019
INTERNET TRENDS 2019 Mary Meeker June 11 @ Code 2019
Competetive advantage
Key resources and competences Sources of competitive advantage

• Market domination
• Amazon, Microsoft, FB, Bluenile
Strong brand + Quality and Niche player or
• Unique and advanced products Market position price premium short term
• Tesla, Apple, Salesforce (Marketing) advantage
• Unique and advanced processes
• Uber, Nordstrom, Ikea
Innovation
• Teams and people
High quantity
• Fashion, consulting (IBM), Google Low costs
and market
• Unique resources share
• Natural resources and infrastructure
(hosting: ATM)
Economies of scale
and cost advantage
 Innovation

38 528 90 255
Number of times “innovation” was Papers last year days with “innovation”
mentioned in quarterly & annual in title
reports last year

Like Strategy?
What is the definitione of strategy?
What Is Innovation? (novelty + value)
Products & Services
Invention Innvation Channels & Markets
(Patents) (Novelty + Value) Processes
Technologies
Business Models

• Incremental (can be powerful)

• Breakthrough
• Disruptive
What is Innovation at Your Organization?

Thomke S. (2019) „Experimentaiton works”, HBR Press

iPhone
Holy Grail
 A steady and predictable stream of breakthrough
products, services, and businesses.

Growing High margins and growth due to first-mover

advantages.
Through
Innovation: High speed and productivity.
Management’s
Dream Investments in disruptive technologies address new
markets and customer needs.

Thomke S. (2019) „Experimentaion works”, HBR Press

Big four
Why Is Innovation
So Difficult?
 Management faces strong incentives to focus on
short term.

Innovation activities can be highly variable and

Growing difficult to plan and predict.

Through
Innovation: Customer behavior is very difficult to predict.

Management’s
Reality Organizational incentives encourage discourage risk
taking, experimentation and change.

Core Challenge: the ability to manage uncertainty is

fundamental to innovation.

Thomke S. (2019) „Experimentaion works”, HBR Press

 Processes How to change innovation system?
• How things are done

Culture Organization
• Which values and practices • Who does what

Management
How to design an innovation system? • What gets done and when

Thomke S. (2019) „Experimentaion works”, HBR Press

Innovation system - creation and

management
Innovation
gap at Ideo:
INNOVATIVE ORGANIZATION HIRED BY FIRMS TO CULTURE IS BUILD AROUND
BUILD AROUND THE DEVELOP TRULY INNOVATIVE PROTOTYPING
PREMISE OF PLAYFUL PRODUCTS
EXPERIMENTATION

Fail often to
succeed
sunner
ENGLIGHTENED TRIAL AND CELEBRATE FAILURES AS PLAYFUL ATMOSPHERE WITH
ERROR LEARNING OPPORTUNITIES THE FLAT HIERARCHIES AND
LITTLE FEAR

Thomke S. (2019) „Experimentaion works”, HBR Press

 Prototyping 3R
1. Rough
To prototype effectively, you have
to go just far enough to give users
an idea of how it would work. Don't
worry about getting all of the kinks
out of the system at this stage. You
want it to be just good enough to
show off the idea in the fastest,
least expensive way.
perfection is your enemy, the whole idea is to show ideas asap
2. Right
When you prototype, you are
working to learn. What do you
want to learn through prototyping?
When you decide what that is,
design the prototype to help
answer that question.
3. Rapid
We almost never do anything fast
in health care organizations. We're
inherently deliberate. But with
prototyping, speed is important. It
helps you liberate yourself from
obsession about detail and helps
you keep track of what you're
learning. Make it fast.
 Learning from failure is central to product,
service and business innovation

Important
innovation Failures are not mistakes

principle:
Learning from Organizational culture and incentives lead
to counter-productive behavior and slows
failure the innovation

Managerial feedback often fails to

distinguish between failure and mistakes
 Ideo decision

Ideo’s innovation system

How do you chellenge your
was build over years Innovation system have to
Prototyping as a strategic innovation system? What
through business be constantly chellenged to
tool: business experiments do
experimentation and get better
you run?
prototyping

Handspring projects tested

To test product concepts To innovate the innovation
and streched Ideo to show
within projects system itself
what does and doesn’t work

Thomke S. (2019) „Experimentaion works”, HBR Press

 Why Business Experimentation Drives Innovation

Source of uncertainty How can uncertainty be resolved?

R&D
• Does “it” work as intended?
1. Experience?
Production/Scale-Up
• Can “it” be effectively produced? 2. Data?
Customer Needs
• Does “it” address actual needs?

Market/Business
• Does the opportunity justify the (resource) investment?

Thomke S. (2019) „Experimentaion works”, HBR Press

 More Novelty = (Is It Really Novel If
Someone Has Done It
Less Data Before?)

But What Can

We Learn Context Matters
(Does Experience
Transfer to Other
From Data? Contexts?)

Correlation ≠ (Does Management

Action Lead to
Causation Desired Outcome?)

Thomke S. (2019) „Experimentaion works”, HBR Press

 (Common
Palm size correlates cause: women
have smaller
with life expectancy palms and live
longer)

Famous
Correlations: Ice cream sales
Don’t Trust
(Common
correlates with cause: warmer
temperatures)
drowning deaths
Observational
Studies
More cleaning by (Common
cause:
men correlates unknown, many
with shorter lives factors possible)

Thomke S. (2019) „Experimentaion works”, HBR Press

 Why Business Experimentation Drives Innovation

Source of uncertainty How can uncertainty be resolved?

R&D
• Does “it” work as intended?
1. Experience?
Production/Scale-Up
• Can “it” be effectively produced? 2. Data?
Customer Needs
• Does “it” address actual needs?
3. Experiments
Market/Business
• Does the opportunity justify the (resource) investment?

Thomke S. (2019) „Experimentaion works”, HBR Press

 The Digital
Opportunity:
Competing
Through Online
Experiments

Thomke S. (2019) „Experimentaion works”, HBR Press

 Experimentation
Organization Needed:
How Microsoft (And
Others) Do It

Key Data at Bing

• > 15,000 online experiments per

year.
• Experiments run on millions of
users (billions of variations).
• Only 10-20% of experiments
generate positive results.
• 80% of proposed changes are
tested as controlled experiments.

The Surprising Power of Online Experiments (Harvard Business Review, 2017).

Scale and
Velocity Pays

Thomke S. (2019) „Experimentaion works”, HBR Press

 Capacity: How many experiments can
you run simultaneously (infrastructure,

Advice 1: user population)?

Scale and
Velocity Creativity: Can you generate enough

Could You hypotheses that are worth testing?

Run >10x
Experiments? Communication: Can you manage large
test programs and absorb the results?
Do they really impact decision-making?
Experimentation
Capasity
Infrastructure Should
Not Be the Bottleneck

Thomke S. (2019) „Experimentaion works”, HBR Press

 INVEST IN CAPACITY: NON- ALIGN OBJECTIVES: FOCUS

Actions That LINEAR RETURNS (SPEED) ON RESPONSE TIME

Can Increase
Velocity

NO IDLE TIME: MAKE EXPECTATIONS: CREATE

“DEVIATIONS” EASIER TO STRATEGIC SLACK (3M,
SEE GOOGLE)

Thomke S. (2019) „Experimentaion works”, HBR Press

 Failure ≠ mistakes;
Learning from mistakes produce
Advice 2: failure is central
to innovation.
no new or useful
information and
Culture are without value.

Create
Learning Not winning ≠
losing; failed Biases, incentives,

Organization
experiments are and governance
the source of new can slow down
hypotheses and experimentation.
iterations.

Thomke S. (2019) „Experimentaion works”, HBR Press

 III Research findings: entrepreneurial patterns

Entrepreneurial strategy patterns

START3UP)

RQ4: What PRE)START3UP) PROTOTYPING) DELIVERY)

INFANT)FIRM)

antecedents EXPANSION)

and when may

CONSTRUCTION)
drive shift in VISIONERS)
MAIN)OPPORTUNITY)
SOURCE:) TRANSFORMATIVE) VISIONARY) VISIONARY) VISIONARY)
Main)goal:)
start-up’s SOCIOPOLITICAL)
IdenBfy)opportunity,)
fit)within)Bme)
Main)goal:)
Build)organizaBon)
Main)goal:)
UBlize)network)

DML? window)

POSITIONING)
MAIN)OPPORTUNITY)
EXECUTORS) SOURCE:)ECONOMIC)
PLANNING) PLANNING) VISIONARY)
Main)goal:) Main)goal:)
implement)plan) control,)fit)deadlines)

CONSTRUCTION)
MAIN)OPPORTUNITY)
SOURCE:)
VALIDATORS) SOCIOPOLITICAL,)
TRANSFORMATIVE) TRANSFORMATIVE) VISIONARY)
CULTURAL)COGNITIVE) Main)goal:) Main)goal:)
verify)hypotheses) scale)up)

Main)goal:) Main)goal:) Main)goal:)

CHANGING)WITH)NEW)
EXECUTIVE)TEAM)
Build)execuBve)team) verify)hypotheses) scale)up)

MEMBERS)
TRANSFORMATIVE)

MIXED)
MAIN)OPPORTUNITY) (ADAPTIVE)OR) TRANSFORMATIVE) TRANSFORMATIVE)
COVALIDATORS) SOURCE:)ECONOMIC) TRANSFORMATIVE)) PLANNING) PLANNING) PLANNING)
Main)goal:) Main)goal:) Main)goal:)
Build)execuBve)team) Implement)plan) control,)fit)deadline)

Decision Making Logic in Start-ups Szymon Wierciński, PhD Dissertation

The myth is that venture capitalists invest in good people and good
ideas. The reality is that they invest in good industries.
Bob Zinder
 Invest in testable hypotheses that have
welldefined, measureable variables

Advice 3: Strong: “Opening stores one hour

later to reduce operating costs will
not lead to a significant drop in sales”
Weak: “We can extend our brand
upmarket”

Quality
Pay Attention
to Discipline
and Rigor Build trust in the data
Follow Twyman’s law:
Safeguards: A/A tests,
Understand the “Any figure that looks
outlier detection,
statistics interesting or different
simplicity, etc.
is usually wrong”

Thomke S. (2019) „Experimentaion works”, HBR Press

 Does the experiment Specific management decision, clear
have a clear purpose? learning objective.

Disciplined Will the stakeholders Agreed changes/actions, results

Business abide by the results? aren’t ignored.

Experiments: Is the experiment Testable prediction, required sample

doable? size, minimum duration.
Some
Essential How can we ensure
reliable results?
Control group, systemic biases,
randomization.

Questions
Have we maximized the Targeted rollout, components with
experiment’s value? highest ROI, causality.

Thomke S. (2019) „Experimentaion works”, HBR Press

The myth is that venture capitalists invest in good people and good
ideas. The reality is that they invest in good industries.
Bob Zinder
 Venture capital

• Startup
• Adolescence
• Marutiry and shakeout

Angel investors

Zider B. (1998) https://hbr.org/1998/11/how-venture-capital-works