THE GENERAL THEORY OF INNOVATION (GTI) Fundamentals, Capabilities, Applications Greg Yezersky, President Institute of Professional Innovators
Innovation as We See It: A Delta Innovation is perceived by the majority as a change in an object state 5 types of innovations: Product Method of production Sources of supply Markets Way to organize a business Schumpeter, J. The Theory of Economic Development (1934) The world complexity demands for the universality of a theory of innovation, but this complicates its creation 2
SYSTEM LIFECYCLE Innovation As It Should Be Seen Identify needs of the Environment System Conceptual Design (Value Offer Formation) Identify problems to be solved Problems analysis and solution Solutions evaluation System concept formation System design System Production (Implementation of the Value Offer), Its Use and Retirement System production System delivery to the market System use by the customer System retirement Subjects of innovation are systems As any result, innovation is determined by the preceding process! Definitions 1. Innovation is a process of value creation, which consists in changing the composition of a set of variables describing a system. 2. Innovation is a result of the process that fits the definition 1 3
The Definition Benefits The Process of Innovation Identify needs of the Environment Identify problems to be solved Problems analysis Problems solution Value offer content formation Definition 2 benefits: alignment with the rest of the world Definition 1 delivers MAJOR benefits: Innovation as a Process with clearly defined stages The need for control over the process of innovation Identifies the ROOT CAUSE behind the UNIVERSAL phenomenon of Growth Cessation, Market Share Loss and Eventual Death of business entities Defines a set of requirements for a theory of innovation 4
The GTI Foundation Requirements for a theory Universal (any type of a system) Analyze and solve existing problems Forecast (identify) future problems (needs of the market) Establish objective criteria of judgment Approach Evolutionary analysis of systems Investigation double focus Various systems; modifications Relationships between systems and their respective Environments, including Emergence of systems Results: success / failure A 5
Finding 1: Evolution as A Continuum of Problems and Solutions Evolution is a sequence of problems and solutions Multiple implications; major one: the supremacy of problems There are generic problems and generic respective solutions To control the outcome of an interaction, Create / Destroy the path of least resistance for attracting / diverting the Flow toward / away from a system. 6
MAJOR FINDING: Systems Evolve in the Predominant Direction C Freedom = A Functions =VALUE = Connections Evolution is governed by a set of Natural Laws. The Law of an Increasing Degree of Freedom The direction of a system evolution coincides with an increase of the CF of its Environment GTI is a theory concerned with the Natural Laws of the Evolutionary Cycle and their applications 7
The Law of an Increasing Degree of Freedom: an Example WHAT IS THIS??? This is the first Hard Disk. In September 1956 IBM launched the 305 RAMAC, the first computer with a hard disk drive (HDD). The HDD weight was over 1 ton, and it stored 4.4MB of data. 2007 Weight: less than 0.1 lb Capacity: 4GB Size: 64mm x 21mm x 10mm 8
GTI Major Capabilities and Implications for a Business The nature of being problem-free Correspondence to the Natural Laws of Evolutionary Cycle assures the problem-free existence and business success The nature of problems The conflict between the Choices we make and the Natural Laws of Evolution Effective solution of problems Reliable evolution forecasting Objective judgment of proposed changes 9
GTI Applications Description Applications Reactive Innovation 1. Value is known 1. A performance-based challenge 2. Cost reduction 3. Quality / Reliability improvement 4. Innovation assessment 5. Failure prevention* 6. Patent circumvention/protection* Pro-active Innovation 1. Business goal is typically known 2. Value is unknown 1. System evolution forecasting 2. Strategic Innovation Portfolio 3. Business applications such as Growth (HYLR), incl. turnaround Business strategy and/or model Increasing ROI (incl. R&D) Investment opportunities (M&A) On-Demand Innovation 1. Capability 1. Entity s capability (deployment) 2. Entity s resilience / survivability 10
Business Applications GTI DOES work for technical issues! Business applications provide greatest IMPACT: Long-term Advantage Sustainable Growth GTI Tools Evolutionary Templates Generic Growth Strategies Value Matrix Value Growth Templates Time-to-Value Reduction Template 11
A Case Study (2003 2004): Future Trends in the Movie Rental Market C Freedom = Functions Connections = VALUE No late fees No trips to stores Limited number of movies on hands 12
Market: the Movie Rental Niche Is on the Verge of a Major Change 1250 1240 1230 1220 1210 1200 1190 1180 1170 1160 1150 1140 1130 1120 1110 1100 1090 1080 1070 1060 1050 1040 1030 1020 1010 1000 990 980 970 960 950 940 930 920 910 900 890 880 870 860 850 840 830 820 810 800 790 780 770 760 BBI, NFLX, HLYW, SPc1 Blockbuster Hollywood Netflix SP500 Nov Dec 2003 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2004 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2005 Feb Ma 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 13
Movie Rental Niche Ultimate Destination: Movie On-Demand 14
The Future of Movie Rental: Download On-Demand In addition to Internet, download on-demand alternatives Cars Houses Office buildings, hotels, hospitals Phones, PDAs, DVD players 15
Movie Rental Retail Business: the Future of Competition The retail will stay but shrink greatly When download is not suitable Airports Vacations Cars Other opportunities Use resources Lower end of the market, incl. third world Retail stores will be replaced by Gas stations Convenience (grocery) stores 16
Blockbuster s 2005 Stock Performance 19.5 19.0 18.5 18.0 17.5 17.0 16.5 16.0 15.5 15.0 14.5 14.0 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 BLOCKBUSTER STK A (3.53000, 3.76000, 3.37000, 3.75000, +0.21000) Blockbuster Inc. stock performance in 2005 1/1/05 - $9.30 12/30/05 - $3.75 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2005 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 Feb Mar 19.5 19.0 18.5 18.0 17.5 17.0 16.5 16.0 15.5 15.0 14.5 14.0 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 17
August of 2007: The Saga Continues As Predicted In 2007, both Blockbuster and Netflix entered the DOD niche 08/2007: BBI might be a good buy now 18
Blockbuster s Stock Grew With an Improvement of Its Strategic Position August 13, 2007 August 4, 2007 Blockbuster acquired Movielink August 13, 2007 BBI $4.20 October 2, 2007 BBI $5.69 Growth More than 35% in less than 2 months 19
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Concluding Thoughts The needs being addressed To succeed continually, any entity MUST continually control the process of competition Innovation is the very first stage of this process that determines the content of Value Offer and, in principle, entity s fate! CAI movement success is directly dependent on the quality of an underlying theory of innovation General Theory of Innovation Satisfies the requirements Has proven capabilities Enables the On-Demand Innovation 21