CHAPTER 7

Innovation
 Innovation
 Innovation is about having a new way of doing things with
commercial success.
 It targets to solve, in a novel way, pain points of customers or
non-customers who are willing to pay for the solution, either
through a product or a service.
 Innovation in product, service, process or business model can be
sustaining, differentiated or disruptive.
 No innovation can happen unless there is a new truth or an
insight discovered, so entrepreneurs must hunt for the new
truths – what people like or dislike, why they feel that way, what
barriers do they encounter and why these are important.
 4 Competencies of an Innovator
1. Creativity – forming a mental image or new idea about the future
• Am I visionary?
• Am I able to see the big picture where innovation can reside?
• Do I challenge the status quo?

2. Critical Thinking – offering unique ways to solve defined problems

• Do I understand different processes and approaches to solving
problems?
• Am I able to generate novel but relevant ideas to solve problems?
• Am I able to get inspiration from various industries or situations?
3. Collaboration – developing relationships with the right partners to
attain objectives
• Do I understand the jobs-to-be-done?
• Am I able to define synergy benefits and share credit with each
collaborator?
• Am I able to have good interdependent relationships with my
collaborators?

4. Communication – engaging constituents to make them understand and

accept your message
• Am I able to have conversations and listen to the opinions of my
constituents?
• Am I able to make others see what I can see?
• Am I able to get others excited about my idea on solving their
problems
 How to Improve Creativity and
Be an Innovator
A. Knowledge Update – new ideas gained from experience and/or
education
1. Read – to study diverse topics
2. Watch – to observe other categories and industries
3. Online browsing – to do social listening

B. Process – a sequence of steps to attain new ideas

4. Conversations – to have interactions with experts and those
with divergent views
5. Think like a child – to be curious and keep asking questions
6. Probe – to do data gathering and look for people’s motivations
and deeper meanings
7. Rest and recreation – to have a well-rested mind to welcome
ideas with clarity
C. Reflections – serious thinking about a particular problem or idea
to increase and retain creative proficiency
8. Openness – to listen to the opinions and ideas of others
9. Mind mapping – to have a process of organizing
information
10. ME time – to practice tasks and habits regularly

D. Experiences – actual encounters with subjects

11. Inspiration – to be mentally stimulated with different
sources like visuals, plays, etc.
12. Travel – to take trips, especially in trend hubs, to
observe new ideas in other places
 8 Tips to Create an Innovation Mindset
1. Hiring – recruit some people who are non-conformists with
uncommon sense, instead of acquiring the usual people with familiar
skill sets and common sense.
2. Training – create innovation competency by providing tools,
frameworks and methods that are duplicable, ending with an annual
innovation tournament, instead of a passive suggestion box where
random ideas are given.
3. Idea Channel & Champion – provide employees a “safe place” to have
the option to submit to a high-level innovation executive, if their
immediate superior would turn down a major proposal which they
believe has high potential.
4. Behavioral Requirement – establish innovation as a pre-requisite for
promotion and merit raise on top of revenue and profit growth.
5. Focus – mull over business model innovation, instead of just
product and process innovation.
6. Bottom line – look into the long-term effect of market
penetration, and not just short-term market shares as a key
performance indicator.
7. Reward and recognition – create a climate where innovation is
rewarded or recognized.
8. Time – allow specific time for people to work on focused
innovation projects during regular work hours.
 Exhibit7-1: Comparison of the Old and New
Business Models of Waters Philippines
Old Business Model New Business Model
Offering
Target Market • Buyers: Middle class(safety • Buyers: Middle
but best value conscious) class(safety but quality
• Large and medium size conscious, buyers from
appliance dealers water refill stations)
• Distributors: Struggling
Filipino breadwinners

Value Proposition • Buyers- peace of mind • Buyers-peace of mind

• Dealers- profit generator without the lifetime
and image enhancer expense, pay on
installment rather than
cash for comparable
affordability
• Distributors- people’s
franchise(save and earn
money by being a
distributor)
Channel • Appliance retailers • Pre-sale: Exhibits and public
service
• Transaction: Direct selling
• Post-sale: Field service
representatives
Customer Bonding • Pull events to the • Training, events and
Strategy store functions
• Participation of store • Yearly-travel plan
sale, anniversary and • 5-year-Car plan
store operating • Long-term-housing
support • System- inheritable rank and
privileges
Revenue Model • Revenue from dealer • Sale of units
sales • Interest income(for
installment sales)
• Parts, filters and home
service
 Old Business Model New Business Model
Operating Model • Manufacturer Importer • Manufacturer
Distributor Retail stores Promo Importer
personnel End users Distributor Independent
salesforce Independent
servicing distributors
End users Regional 3rd
party collection agencies
Resources and • Exclusivity • Exclusivity
Processes • Product knowledge training to • Relationship with sales
storekeepers leaders
• Order fulfillment • Training (class and field
buddy)
• Credit scoring
• Collection tracking
• Recognition
management
Complementors • Store personnel’s • Convert interested users
recommendations into distributors
• Collectors
Configurations • None • Independent pay system
• Incentivize cash sales to
reduce money cost
Cost • Product cost • Product costs
• Trade investment • Variable selling costs
• Longer terms • Administrative costs
• Print Advertising
and sales
promotions
 5 Tips on Innovating the Business Model
1. From Facts to Assumptions
Look at how the industry operates and challenges every element of this
industry logic. Just because some companies have been successful do not mean
they have been doing all the right things right.

2. From Pain Points to Pain Killers

In the Philippines, many upper and upper middle households have an
extra car for ‘number coding’ days.

3. From Competitor’s Strength to Competitor’s Weakness

Lux(formerly Euroclean) was market leader in home water purifiers in the
Philippines in the 1980’s using knock-on-the-door type of nationwide house-to-house
operations done by full time sellers. With households more concerned with security,
more women working and the popularity of condominium living, Waters Philippines
entered the market in 1995 and challenged this traditional direct selling approach.
4. From Non-Users to Users
Cebu Pacific Air targeted those who are users of sea and
land transportation as well as those who do not travel or do not
travel as much as they would like to. It turned out that the
numbers of non-users of air transportation were much more than
the users. The key to stimulate demand was to lower cost in order
to have lower price.

5. From Niche to Mainstream

Disruptors would often start as a niche before becoming
mainstream. The offer of a disruptor may not be attractive initially
to the existing users, especially if it would mean additional
investment. New users may be early adopters eventually attracting
existing users.
 Learning Innovation
1. Ask a question about your company (or your school) everyday
starting from the more obvious ones, and find out for yourself
whether the reply has some basis or are simply assumptions.
2. Ask what has been the greatest innovation in your industry for the
last three to five years and study the insights behind the innovation.
3. If there has been no innovation in your industry the last three to five
years, stop benchmarking and studying best practices, the latter is
only as good as the next practices.
4. Do not insist on getting an expert from your industry because they
will have the same conventional wisdom as all others. Conventional
wisdom leads to the usual or ordinary practices, not innovation.

• Innovation is a big lifeline of companies, a potion to avoid

commoditization and price war.
 Innovating the Choice of Target Market
 In February 2004, Facebook (which used to refer to a printed
directory with photos and basic information of students from a
particular school) initially targeted schoolmates of founder Mark
Zuckerberg as members, connecting student in the Harvard
University. From this base, it quickly expanded to other colleges
in and near the Boston area in the East Cost of the United States.
It then invited other Ivy League schools, eventually welcoming
all other universities in North America. In September 2006,
Facebook changed its college education focus to accept anyone
above 13 years old with an email address, reaching over two
billion members in twelve years.
 Innovating the Value Proposition

 Martin Luther led the Protestant reformation in the

15th century and offered an alternative religious choice
based on “Faith alone” (from God’s grace) rather than
the “Faith and Work” principle of Catholics. Luther
allowed the Bible to be available in language other
than Latin to expand his audience and allowed priests
to marry.
 Innovating the Channel Strategy
 Netflix started as a DVD subscription business where customers
choose a plan that allowed Netflix to deliver a fixed number of
DVDs by mail, and then with the next set mailed to them after
the previous set had been mailed back. This disrupted market
leader Blockbuster with their dominance in brick-and-mortar
retailing, as Netflix did not have to pay for costly retail locations
and used fewer staff. In the Netflix business model, there were
no overdue fees, a pain point under the Blockbuster business set
up. The motivation for Netflix customers to return the DVDs
once they are done is to receive the next batch of DVDs under
the plan they availed. Eventually, the channel was changed to
online streaming, another success. This time, Netflix disrupted
cable TVs.
 Innovating the Customer Bonding Strategy

 Amazing Race is a TV show that features teams

competing to reach a destination while the host
country displays the beauty of their location.
They have innovated on a tourism show using
gamification instead of the usual documentary.
 Innovating the Revenue Model
 Recession Coffee in Eastwood is located at the
front area of the store of Digital Walker, which is
like their traffic builder. They had a pay-what-
you-want offer for their coffee which was a
novelty in the industry, but has since fixed the
price at P99.
 Innovating the Value Network
 Xiameter, an affiliate of Dow Corning USA,
collapsed the processes of manufacturing,
warehousing and inventory management, by
shipping out on the day their silicones are
produced, thus, no longer requiring inventory
management or warehouse space. This resulted
in lower costs, enabling them to reduce the
prices of commoditized products with expired
patents.
 Innovating the Resources and Processes
 Ikea furniture is known for ready-to-assemble furniture
in flat packs. Its late founder, Ingvar Kamprad, was in
the mail order business when he was young, he knew
the importance of easy-to-ship/transport products. The
flat pack process enabled them to save on space in the
warehouse as well as in transportation, while also
reducing the cost for the customers who can opt to
save delivery charges by picking up and assembling the
furniture themselves.
 Innovating the Complementors
 Hindustan Unilever offers income opportunities
to women in rural India. They tie-up with micro
lending institutions, non government offices
(NGO) for self-help groups, local government,
geographical stockists and local drama troops to
deliver their brand message via comedy shows.
 Innovating the Configuration
 In the US, coupons are popular among fast food
brands. At one time, McDonald’s decided not to
print coupons and just post an announcement
outside the store that they will honor coupons
of other brands, saving them printing costs
while having the same effect as sales
promotions.
 Innovating the Cost Model
 Instead of advertising in mass media, Arce Dairy
ice cream sells to Philippine Airlines, which
serves its ice cream to international passengers
after meals. The consumption by passengers
serves as a substitute for awareness and paid
sampling, enabling Arce’s ice cream to be tried
without having to spend the media cost of
bigger competition.
 How to Innovate the Marketing Mix
on Demand
 One tool used to innovate marketing mix is a 5-
Point Marketing Innovation Tool used by Mansmith
and Fielders Inc. and adopted by the White Space
Club.
 It provides five ways to “reinvent” each element of
the marketing mix. The choice of which of the five
ways to use, depends on what can help solve the
pain points effectively in a novel way.
Point Marketing Mix Innovation Tool
On Demand
+ −
What can be raised or created? What can be reduced or
eliminated?

COMBINATION
What can be combined or united?

× ÷
What can be enlarged or What can be subdivided and
amplified? rearranged?
 Exhibit 7-3: Product/Service
+ x - ÷ Combination
Innovation on Demand
2-in-1 Phone with Debit External Hard Online
Shampoo + Internet, Card(cashless) Drive Shopping
Conditioner Cable, and free (+new
shows Drive Thru Acer Channel,
Lip and Cheek Restaurant Transformer x Time Open,
Tints Laptop -Parking
SM Advantage ÷ Vendors :
Reward Logistics)
Card(SM +
BDO + Bayad Center
Watsons, etc.) (+ Vendors
x Locations
-Dressing Up
÷ Payment
Buying
Services)
 Special – What are you willing to do if someone
special like your own mother experienced pain
points?
 Crisis – Suppose your sales target has been
increased 500%, what else will you consider
doing?
 Else – Who else have you not considered? What
else can you do? How else can you do it?
 SCENIC Innovation Questions

 Another way to foster innovation thinking is

through the SCENIC framework shared by
Mansmith and Fielders Inc. to help
entrepreneurs and innovators reflect on
innovation possibilities based on pain points
they are focused on solving.
 Not – Instead of thinking things are impossible,
think “Why Not” and look for new possibilities.
 If – Scenario building is another possibility, with
“What if” question.
 Constraint – suppose the government imposed
restrictions and you cannot do what you are
doing, what else would you do?
 How to Kill Innovation

 Protecting financials came out as the most

frequently cited answer why market leaders
freeze when it comes to innovation, though
there is evidence that also shows how
innovation, and not just incremental
improvement, can be introduced by incumbent
market leaders.
 10 Reasons …..

1. Protecting Financials – The CFO’s role is ensuring healthy

financials. This means increasing revenues and profitability,
and not necessarily launching innovation, which may be seen
as an expense rather than as an investment.
2. Culture of Complacency, Status Quo and Conservative Attitude
– Market leaders often become too comfortable with their
success. They have succeeded based on what they have done
in the past and are no longer as hungry and driven to change
their success ‘formula’ for growth; after all, they already have a
name and the money.
3. Limited Paradigm, Knowledge and Methodologies – A high
market share can blind recipients of the need to improve
market penetration radically. Also, being better is the
greatest enemy of being different.
4. Arrogance and Pride – When a company is at its peak and
has a lot of resources, some of its key officers may think
they are indestructible for having high brand loyalty.
5. Focus on other strengths – Market dominance may inhibit
strategic thinking, especially of new market spaces. Market
leaders have many areas they consider strengths and may
just allow a new player to do their thing.
6. Industry Conditions, especially Speed to Exploit Technology
and New Knowledge – Availability of new technology online
has given rise to many new innovations and many new
billionaires.
7. Lack of an Idea Channel – Employees may have very restricted
access to top management or may somehow be limited to
what their immediate bosses will endorse or not endorse for
management approval, prematurely killing good ideas in the
process.
8. Operational Issues – Some companies are affected with many
internal inefficiencies that keep them in a perennial trouble-
shooting crisis. Innovation is then relegated to another
timetable.
9. Lack of the right marketing talent in the team – Managers
should not only be able to provide directions with the usual
planning, organizing and allocating, they should be able to
make sense of the fast changing needs and wants of customers.
10. Focus and lack of vision or foresight – Major innovations
happen when the proponents are able to connect the dots and
see a different future.
 Exercise:

1. Choose either the 5-Point Innovation on

Demand framework or the SCENIC
framework of Mansmith and Fielders Inc. to
come up with a potential innovation to
increase visit frequency to Abenson or similar
appliance stores. Explain how value can be
created for the consumers and how Abenson
can capture value.
 Caselet

1. Robinson’s Land launched Go Hotels in 2010

encouraged from the success of a sister
company, Cebu Pacific Air. Decode the
business model map of Go Hotel and identify
the innovations the have instituted to create
value for their target customers at low prices
but still have profitable operations.
 Q&A with Cebuana Lhuillier President
Jean Henri Lhuillier on Innovation

 Cebuana Lhuillier is in the Guinness Book of

World Records as the largest chain of
pawnshops in the world with over 2,200
outlets, bigger than many banks combined,
serving mostly the ordinary “unbanked”
population.
Q1: How do you go about understanding your
target consumers and what have you
discovered about them?

 A: We know a lot about our clients, and the

market we serve. We talk to our clients in so
many ways, at our branches, thru our Customer
Care hotline and on our digital platform. On top
of this, we engage them on a national scale UAI
study complemented with other several
consumer researches thru FGD, etc.
 Q2: From pawnshops, you also have remittance, bills payment,
collection, e-loading and insurance. In fact, you have tie-ups with
some 100 companies. Which of these products are you most
excited about? Which represent the future of Cebuana Lhuillier

 A: Cebuana Lhuillier believes in empowering the

masses thru financial inclusion. Each product we
come up with ensures more access for our clients to
gain financial access and security. We are excited in
every product we bring to the market. We have the
full application of the “sachet” concept to make it
within the reach of our market. From
microlending/loans to remittance to microinsurance,
all of which are part of our community
empowerment vision.
 Q3: You are pioneering in micro insurance with over a million
policies sold monthly. In 2012, you launched ‘Barangay Cebuana’
where your branch personnel visited 750 barangays resulting to
over 300,000 policies but partly cannibalized the store sales. What
changes are you instituting to gain big wins on both fronts?

 A: For micro insurance, out-of-branch efforts were

meant to educate communities about the value of
insurance. And the true measure of the success of such
info dissemination campaign was the number of
people who availed of it, and we were successful in
doing that. Bottom line, in business you can’t wait for
your clientele, you need to reach out physically, and
electronically. This is our strategy to provide more
customer touch points thus access is not limited to our
brick and mortar branches.
 Q4: One of your core values is innovation. What
innovation are you proudest of so far?

 A: Cebuana Lhuillier is a game changer, we have

changed the face of pawning, remittance and micro
insurance. We don’t walk around telling our market of
our capabilities, they tell us what they need and we
develop the capabilities to serve them even better. Our
innovation is born out of our move in creating a culture
of appreciating our clients, making sure that the clients
who are the “unbanked” be treated even better than
those who are “banked”.
 Q5: What other programs or products can you
also claim as the industry’s first?

 A: Loyalty program, micro insurance, bills payment in

the pawnshops, customer convenience programs
(renew anywhere, send / receive anywhere), digital
platform for transaction updates, deposit links to
bank accounts, network remittance, collection
services, Cebuana Lhuillier On Wheels, insured pawn
items, web promos, social media based promotions
etc.
Q6: You now have over 5 million members in your 24k
rewards program. Other than your existing products,
what can you do to leverage on your power to radically
help improve the lives of your cardholders?
 A: We know every cardholder we have. Our in-market
strategy for new products and services are normally
intended toward them based on their behavior,
financial transactions and general profile. For example,
our upcoming non-collateralized micro loans for
entrepreneurial purposes are geared toward targeting
our international remittance members who are either
already on a small scale business who wants to expand
or planning to put up one. We take our 24k members
to heart.
Q7: Cebuana Lhuillier launched the annual Happiest Pinoy
contest with over 10,000 nominees yearly and the annual
My Happiness photo contest. What was the insight behind
these contests? What are you trying to accomplish?
 A: The search for the Happiest Pinoy is actually an advocacy of
our micro insurance brand with a long-term objective to
become a full brand campaign for the entire Cebuana Lhuillier
ecosystem of brands. Traditionally, insurance was introduced
to the market almost like a scare campaign. We wanted to do
it differently by anchoring on happiness which we Filipinos are
known for. It links to the very culture of our people thus the
instant connection it has to our market. This campaign will not
just improve our relationship with our market but also lift the
stigma of the old pawnshop concept. Who doesn’t want to be
happy? We want to have happy clients, happy employees and
happy shareholders.