M501

Innovation Management & Digital Transformation

Introduction — Week 2

Prof. Dr. Peter Konhäusner

M501 - Innovation Management and Digital Transformation

Today
• Let us talk about
• Asynchronous content
• The video (What leads to failure of digital transformation?)
• Re-read case study
• Questions about the assessment
• Gain some understanding of how to categorize and compare
innovations and digital innovations
• Look at technical vs. non-technical innovation
• Study the Spotify case
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Definining Innovation — Subtle
Modification
• Conventional distinction: technical vs. non-technical innovation
• Wikipedia says: “Technology ("science of craft", from Greek τέχνη, techne, "art, skill,
cunning of hand"; and -λογία, -logia[2]) is the sum of techniques, skills, methods,
and processes used in the production of goods or services or in the accomplishment of
objectives, such as scientific investigation. Technology can be the knowledge of
techniques, processes, and the like, or it can be embedded in machines to allow for
operation without detailed knowledge of their workings. “
• Hence: there is no innovation without technology or technique!

• We distinguish between DIGITAL and NON-DIGITAL innovation

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 Non-Digital innovation
Before Reengineering After Reengineering Incremental Innovation
Radical Innovation

At an intersection, the question of which A simple right-of-way rule replaces the The reengineered solution shows
side or direction has the right of way is binary rule and can better adapt to limitations of efficiency of the prior
solved in a hard-wired, binary way. asymmetries in traffic volumes. solution.

The right-of-way rule exists regardless of The roundabout allows far better traffic A turbo roundabout provides a flow of
traffic volume and possible asymmetries, flow than the intersection. traffic, requiring drivers to choose their
direction before entering the
roundabout.

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Business Process Reengineering

Reminds us of which
process?

Guha, Kettinger, and Teng (1993)

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Example: Travel expenses
• The total cost of the accounting group is €1.050.000 p.a

➞ Take 10 minutes time in breakout groups to find a

non-digital and a digital solution.

An organization employs 1,200 salespersons.

Each individual salesperson travels on average 40 weeks p.a., and spends on average €1,000 per week on
accommodation, food, miscellaneous travel expenses.
Salespersons are required to hand in expense reports at the end of each week. After the reports have been
checked for accuracy, salespersons receive reimbursement of their expenses.
In your headquarters, you have a team of 15 accountants checking the accuracy of the travel expenses.
The accountants find that on average 1.3% of all expenses claimed are inaccurate and need to be dismissed.
Inaccuracy creeps in when salespersons makes mistakes or claim expenses unjustified.
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Solutions
The overall most important question is about the cost of the accountants vis-à-vis savings
they incur (for finding inaccurate expense claims).
Non-Digital Solution:
• Close down the accounting department checking the expense reports

Digital Solution:
• Require salespersons to fill out expense reports forms that they can only submit when
expenses have been claimed accurately.
• Then close down the accounting department.

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Business Reengineering Case
Study

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Functions of a Business Model
1. Articulate the value proposition i.e., what is the value created for the customer
2. Identify the market segment that is populated by the user to whom the offering
creates value.
3. Define the value chain upstream (i.e., suppliers) and downstream (i.e., customers)
4. Specify the revenue generation mechanism including the cost structure and profit
potential
5. Describe the position of the firm in its ecosystem (competitors, complementors)
6. Formulate the competitive strategy by which the innovating firm will gain and hold
advantage over its competition.

Adapted from: Chenbrough, 2007

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 Recorded Music

DIGITIZATION: converting analogue signals into digital signals.

• Separation of medium, content, format, player — changing reach
and accessibility dramatically
DIGITALIZATION: sociotechnical process of leveraging digitized
products or systems to develop new processes or business models
• Changes processes of commercialization of music
DIGITAL TRANSFORMATION: sociocultural process of adapting firms to
the new organizational forms and skill sets needed to remain viable
and relevant in a digital landscape
• Changes how the music industry and record companies compete in
the future
Digital domains, cf. Saarikko et al. (2020)

Saarikko et al. (2020)

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Digital Transformation Explained by
RedHat

https://www.youtube.com/watch?v=_nSJYGEBYrg

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VISOR Framework for Digital
Business Models
1. Value proposition: Reason why a particular customer is willing to pay for a product or
service.
2. Interface: Interaction between the customer and the service platform — customer
contact points
3. Service platforms: Engines to enable delivery of products or services — digital platforms
4. Organizing model: Structure and processes of the ecosystem to create the products and
services
5. Revenue model: Distribution of revenues and cost among the ecosystem participants.

El Sawy and Pereira (2013)

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Example: Taxonomy of Digital Business Models in
Mobility-Related Servives

Source: Remane et al., 2017 M501 - Innovation Management and Digital Transformation 13
Discovering Digital Business Models

Source: Remane et al., 2017 M501 - Innovation Management and Digital Transformation 14
Digital Transformation (Vial, 2019)

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Business Model Innovation
Value
Network

New products to new consumers

New products to existing consumers

Existing

Incremental | Architectural | Radical

Existing Technology

Financial Lower than

Hurdle expected
Adapted from Koen, Bertels, and Elsum (2011)

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Sharing Business Models

Code of Uber: F1, T1, W1, H4

Code of Air B’n’B: …?

Source: Pouri and Hilty, 2020

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Designing and Explaining the Business
Model

Source: Standing and Mattson, 2016M501 - Innovation Management and Digital Transformation 18
Digital Business Models

Source: Weill and Woerner (2003)

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Spotify Case Study

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Effectiveness
of Strategies

Source: Weill and Woerner (2003)

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Assessing the Position of the Firm

Source: Weill and Woerner (2003)

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Do you know the Ansoff matrix?
Where is it being used?

Options for
Business
Models

Source: Weill and Woerner (2015)

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Digital
Threat

Source: Weill and Woerner (2015)

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Concerns of
Managers about
Digitalization

Saarikko et al. (2020)

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Digital
Consciousness

Saarikko et al. (2020)

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Digital Transformation is not about Technology, but
about Strategy

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