Chapter 6: Controlling and Innovation

Question 1

What Controlling?

Answer 1

Check how good on track you are on aiming your goals based on data
Monetary factors to control (revenues)
Non-monetary: image of the company for example to check
==> But these have to be backed with KPIs that you still can measure

Question 2

What are countable KPIs?

Answer 2

• Sales
  
  • Cost-cutting/efficiency
  • Market share
  • Repeat purchase/customer retention rate
  • Length of stay
  • Number of visitors

Question 3

What are characteristics of marketing controlling?

Answer 3

• supports marketing and management decisions by controlling the impact of the marketing
• measures the extent to which monetary financial goals (sales, product and customer marginal returns etc.) and non-monetary material goals (familiarity, image, market share, customer satisfaction etc.) are met.
• is a continuous process up to and including marketing information system
• includes market research as a key task of marketing controlling

Question 4

What does it mean that controlling is a continuous process?

Answer 4

It is a constituent part of every systematic management cycle.
Controlling is not the conclusion of a process
==> it s results should directly influence the decisions about objective, strategy and measures of the next round or acompany measures

Question 5

What is done in management cockpits?

Answer 5

Controlling results are used to adjust measures, strategies and goals in management cockpits

Question 6

What is the traditional approach to the management cycle vs. the SGMM approach?

Answer 6

Traditional approach:
Multi-round management cycle
(Preview and planning to organization to management to coordination to controlling cycle)

SGMM:
Has shifted the focus to the constant stabilizing and changing in overlapping processes

Question 7

What is the pipeline effect when introducing new products?

Answer 7

Retailers buy large quantities of those products because they cannot resell the old ones and have to restock warehouses.
Sales to customers can slow down, though.
If the producer does not pay attention to those sales, they are under a delusion regarding actual sales volume.
Depending on the contract, he has to take back the unsold products later or cannot sell new ones to retailers for a long time.
==> after the first citicism from retail the focus should have been on sales to end customers and end-customer consumption and not on quantities produced.
This can be done on the basis of a consumer or community household panel
In other words: on the basis of the observation of defined groups of consumers whose behavior is analyzed for longer pereiods of time.

One could also collect customers’ assessment of the new product after the first critical media reports released.
==> through this customers’ purchase-decision attitudes and preference structures could have been observed as early warning indicators.

The chocolate packaging example in the book shows that controlling systems have to be constantly adjusted to the development or streams of events and that indicators that are closer to actual customer behavior have a higher “early warning” value

Question 8

What is one characteristic of marketing controlling?

Answer 8

Rationality

“a specific way of thinking, talking and acting that makes logical sense in itself.
It works as a filter for the perception of the environment and provides patterns for the construction of a seperate reality”

Marketing controlling is not always conflict free:
==> because of fundamentally different rationalities in the areas of marketing and controlling.

Example:
Fast and straightforward market reactions and innovative, often unconventional decisions are crucial for success
Controlling on the other hand is precise, often quantitive and starts from the premise that success comes from a systematic operating principle

Question 9

What are the main features of marketing controlling?

Answer 9

• It supports marketing decisions by providing relevant KPIs
  
  • Encompasses monetary and non-monetary goals
  • Integrates itself into a continuous process that extends to a marketing information system
  • Includes market research preciely because customer behavior is the most important early warning sign

Question 10

What are the key objectives and goals of marketing?

Answer 10

Have to be structured in goal and effect hierarchies.
There typically are a number of key objectives and goals
These include:
- Overall marketing objectives,
which are deduced directly from corporate objectives
- Strategic objectives,
which relate to strategic success potentials such as market shares and reputation
- Tool goals
for example goals that shall be reached with specific actions
=> advance impact indicators for example customer perception or other behavioral outcomes often add to such systems.

Question 11

What is the basic problem of marketing controlling?

Answer 11

Marketing is “creative-initiative” and Controlling is “precise-quantitive monitoring”

Question 12

What are contribution margins?

Answer 12

a financial metric that shows how much of each sale contributes to covering fixed costs and generating profit.
It’s calculated by subtracting variable costs from sales revenue.
==> important marketing KPI (key performance indicator)

Question 13

What happens in a break-even analysis?

Answer 13

During a break-even analysis the directly attributable costs per reference (range group, strategic business segment, customer group, market segment) are deduced from the proceeds.

Question 14

What does contribution accounting do? What does it show?

Answer 14

Distinguishes between “job-conditional” variable costs (e.g. for a flight, fuel, catering and airport handling costs necessary per passenger) and independen fixed costs (e.g. for a flight, the basic costs for the use of the airplane)

==> shows what contribution a product group, a customer or a customer group makes toward covering the fixed costs accruing in a company.
Respectively there are differently designed, multi-level contribution-accounting analyses according to objective and type of performance

Question 15

What are marketing-management cockpits?

Answer 15

Today marketing controlling data is often processed as a part of an IT function in so-called marketing management cockpits and supplied to decision-makers’ desktops.

Question 16

What are NOT innovations?

Answer 16

• Small adjustments
  ==> innovations mean fundamental novelties in the sense of an actual change of a product, a market or an industry
  
  • Novelties that have not yet led to an acquired surplus on the market of have not been implemented.
    ==> innovations require a market realization
  • A onetime process.
    ==> imitation follows the innovation, which in turn leads to invention and to new innovations.
    This is consistent with a continuous process

Question 17

What is the definition of innovations?

Answer 17

Market realization of novelties.
Productive factos that entrepreneurs and organization combine in a novel way and implement on the market.
==> the new combinations should lead to higher revenues in the form of monopoly profits in the market. These in turn attract imitations.

Question 18

What is the difference between inventions and innovations?

Answer 18

Inventions are NOT put on the market, innovations are something new PLUS certain market capacity

Inventions lead to innovations if companies turn them into market solutions.

Question 19

What are the five types of innovations?

Answer 19

• Product innovation
  
  • Process innovation
  • Opening of new markets (market innovation)
  • New forms of organization (business model innovation)
  • (Development of new productive factors)

Question 20

What do novelties activate?

Answer 20

The novelty activates innovation, imitation and invention process.
=> this process is seen as an effective driver of growth in a dynamic economic development

Inventions lead to innovations if companies turn them into market solutions.
These attract imitators because of the higher revenues that they generate.
The innovation spreads via those imitators, which ultimately initiates growth effect.

Securing sufficient innovation activity is a goal of whole economies on a regional or international level, not just on an individual product manager, range area or strategic business area or an enterprise

Question 21

What are tools for innovation promotion?

Answer 21

• Education
  
  • Research activities
  • Sufficient enterpreneurial freedom, so that the realization of innovations is possible.
    Example: one example for this is the telecommunications sector. Today’s innovation activity would harly have been possible under the former state monopoly.
  • Securing a sufficient return on innovation through tax policy (smaller taxation of summation profits), patent protection (protection of innovation profits), or financial support for developments (reduction of innovation costs)

Question 22

What is the return on innovation?

Answer 22

The estimated difference between the costs of the innovation and the expected profits resulting from the innovation.

Question 23

Are innovation costs lower for smaller or bigger companies?

Answer 23

Typically innovation costs are lower for smaller companies, because they can react faster and their switching costs can therefore be lower.
==> on the other hand, the innovation profit is limited by the market size a company can reach.

Question 24

How do you compute the return on innovation?

Answer 24

Profit from innovation * probability of success over investment in innovation

Question 25

What are factors that determine a company’s innovation capacity?

Answer 25

• Core competencies as internal resources that determine a company’s skill potential
  
  • Adjusted management systems that do not allow variation because of over-controlling will rather hinder innovation capacity but will be necessary for efficient production of standard products.
  • Adequate team structures that ensure learning communities
  • Adequate cultures that attract and reward people who are curious to learn new ways of thinking and who develop collective though and behavior patterns together.

Question 26

What does the return on investment depend on on the economic level?

Answer 26

On the economic level, the return on innovation mostly depends on a skillful balance between protecting an innovation (and thus monopolizing the return) and ensuring that other companies can imitate it.
==> This relation between protection and public access is mainly determined by patent systems

Question 27

What is an innovation process?

Answer 27

Innovation activity in an organization can be described best with the model of the innovatino process or can be managed in this way.

(Basic research -> gaining ideas -> testing ideas -> applied research -> development -> product /service design -> Introduction -> Growth/differentiation -> customer)

Question 28

What is important in research or product pipelines?

Answer 28

Many companies regularly assess their innovations portfolio by the number of projects at different stages in the innovation process
==> this is especially important for innovation-dependent industries such as the pharmaceutical industry, in which one speaks of a research or product pipeline.

Question 29

When can a company face shortfalls in funding liquidity?

Answer 29

A company can face shortfalls in funding and liquidity if it has many products in the maturity phase that are subject to increasing cost competitions and at the same time many products in an earlier development phase that require high investments.

Question 30

What kind of innovations costs are typical for services?

Answer 30

Typically relatively low-research and idea-testing costs accrue for services.
High costs accrue for market introduction and for market penetration (customer acquisition, selling customers on the new product, building up the trust necessary for service products)

BUT: high costs immediately accrue during basic research for research-intensive products for example in the pharmaceutical industry

Question 31

What is a pull innovation?

Answer 31

One example: A product resulting from the trend for more fitness and running and especially the marathon-sport boom

Question 32

What is a push innovation?

Answer 32

One example: the invention of mobile internet
(no specific demand for it yet)

Question 33

What is a continuous vs. a discontinuous innovation?

Answer 33

discontinuous = new product, a new service, creating a new market (might be technologically driven)

Continuous = Working on existing products

Question 34

What is the innovation cube?

Answer 34

It follows from the definition of innovation that innovations do not only concern products but also production processes, markets and especially when all three innovation perspectives are involved, innovation of business models

Question 35

Notes on the innovation cube:
What does the direction of action of product innovation mean?

Answer 35

New products with new features or a new combination of existing features.

Example:
Apple launches a TV

Question 36

Notes on the innovation cube:
What does the direction of action of process innovation mean?

Answer 36

The value chain is redesigned

Example:
Nike only does the design and marketing of its sports items itself, all other processes are performed entirely by external partners

Question 37

Notes on the innovation cube:
What does the direction of action of Market innovation mean?

Answer 37

The type and method of market nurturing is new.

Samsung decides to completely abandon traditional advertising and only run viral marketing in the future.

Question 38

Notes on the innovation cube:
What does the direction of action of Business model innovation mean?

Answer 38

Combination of the above directions of action

the change of an entire business model in the sense of a basic concept as with an enterpise or an industry that generates added value.
(Sum of product, process and market innovation)

AirBnb enter the market with a completely new product.
For acting as a broker, new processes and technologies are necessary.

Question 39

What is the contribution margin I?

Answer 39

Net turnover - Variable manufacturing costs (e.g. use of materials)

Question 40

What is the contribution margin II?

Answer 40

Contribution Margin I - Part Variable costs (e.g. manufacturing salaries, transport, costs for sales)

Question 41

What is contribution margin III?

Answer 41

Contribution Margin II - Divisional fixed costs (e.g. cross-divisional marketing campaign, expenditure for market research)

Question 42

What is Net profit?

Answer 42

Contribution Margin III - Corporate Fixed Costs (e.g. administration costs for sales and marketing)