Innovation and Collaboration: Focus on Payback

June 2, 2010

A few thoughts

What is Innovation and why collaborate?

The "cash traps" in innovation Leadership principles for success True innovation comes from collaboration

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What exactly

is

innovation and why do we do it better when we collaborate?

'...combination of unique product, design, and customer insights wrapped with an artful business model and structure' 'I recognize innovation, when I see something done differently from an existing way of doing things' '... ability to create uniqueness coupled with an ability to capture value from that uniqueness'

How do you define innovation?

'Finding new ways of solving problems' 'A process that uses new knowledge to generate change and impact'

Collaboration is critical

'... development of new technologies and business approaches to create value for all stakeholders' '... radical new approach to business model, a new differentiated product or service, or a change in how products are delivered' '... ability to identify new trends, create needs and satisfy them' '... creating new value in providing new business models, technologies' Berz-Innovation-19May10-TOR-KB-sjb.ppt

2

Innovation can impact all parts of a company

2 Services 1 Products 3 Customer experience Innovation 5 Business model 4 Process

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3

Many components to successful innovation

Customer insight New technology Competitive patterning Concept development Testin g Evaluation Launch preparation Market launch Measurement/ Evaluation/ Adjustment What gets tested?

What concepts get developed?

What gets launched?

Do we have awareness?

Do we leverages the possibilities of technology?

Do we create unique insights?

Do we turn unique insights into ideas?

How do we measure, learn and adapt?

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4

3 stages of the innovation cycle

1 Idea generation 2 Commercialization 3 Realization

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5

Typical path to impact

Cumulative cash flow Launch Idea generation Commercialization Realization

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Time

6

4 factors determine the shape of the cash curve

Cumulative cash flow 2 Speed to market 1 Start-up costs Launch 3 Time to Scale Support costs 4 Time Cash Trap!

Idea generation

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Commercialization Realization

7

Manage your portfolio of ideas with discipline

13

Manage the innovation portfolio

Accelerate Reconfigure

Likelihood of success

• Fit with company assets (eg, distribution system) • Competition • etc

Measures overall likelihood of success

7 2

X U X

Reallocate

U U X X U U Customer relevance score U U

5

Measures customer acceptance

Stage of NPD process: Stage 1

X

Project Killed Stage 2 Stage 3

U

Project un-funded Stage 4 Launched Steady state Incremental profit Berz-Innovation-19May10-TOR-KB-sjb.ppt

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The seven roles of a leader in innovation

Convincing an organization that innovation matters Allocating resources 'Getting people to believe in what they did was a challenge.' 'Sometimes you don’t get 100% success, but if you have no risk, you have little chance of a breakthrough.' Choosing the innovation business model 'Sometimes we can’t find a good model in our company ... but there are many ways to go.' Focusing on the right things 'You have to be prepared to argue very hard, even to your own board, to stop a project — it's not so easy.' Reshaping dynasties 'We knew that the new technologies were coming, but our business was still extremely successful ... that success delayed our shift.' Assigning the right people to the right place 'Hiring the right people is important, but it’s even more important to put them in the right place.' Encouraging and modeling risk-taking 'Intelligent failure is the way you react and learn — but if you want to learn, you have to work at it.'

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Three business models to achieve payback

Integrator Orchestrator Licensor

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Choice of innovation business models is highly strategic . . .

Amount and allocation of cash Allocation of non-cash benefits Knowledge Eco-system Organization Brand

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Allocation of risk

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. . . and can affect an idea’s potential

Integrator Owns and manages entire innovation process Shoulders all risk, but also reaps highest cash payback Orchestrator Manages all aspects of innovation, but executes only parts of the process Risk (and reward) sharing Licensor Primarily owner of the idea, with no ownership of commercialization Less total cash, but high margins

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Model choice is strategy choice and dramatically impacts payback

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How good are we in judging the prospects of changes?

“High-speed trains are impossible because passengers would die of suffocation“

D. Lardner, professor at the London University (1850)

"What could our company possibly do with electric games?“

William Orton, CEO of Western Union, refusing to purchase A. Graham Bell's telephone (about 1876)

"It is impossible to fly objects that are heavier than the air“

Lord Kelvin, Chairman of the Royal Society (1895)

"Horses will always remain while automobiles are but novelties that will disappear“

CEO of the Michigan Savings Bank, advising Henry Ford's lawyer against investing in the automobile industry (1903)

"Airplanes are amusing gadgets, but without any military interest“

Maréchal Ferdinand Foch, in charge of the French military strategy and war commandant (1911)

"But who may possibly wish to hear movie actors speak?“

Harry M. Warner, CEO of Warner Bros (1927)

"I think there is a worldwide market of about five computers“

Thomas Watson, CEO of IBM (1943)

"Guitarists bands are dying out“

Decca Corporation, justifying the refusal to sign with the Beatles (1962)

"There is no reason why people would ever have a computer at home “

Ken Olsen, CEO of Digital Equipment (1977)

"Thanks to the greatness of the Shah, Iran is a pocket of stability in the Middle East“

Jimmy Carter, President of the US (1977)

"A 640K memory should be enough for everyone“

Bill Gates (1981) 13 Berz-Innovation-19May10-TOR-KB-sjb.ppt

120 ways to kill a new idea (I)

It will not work We have no time It is not included in the budget It is not serious Stop talking nonsense It is contrary to the rules It is too expensive We already tried It is already done What will our clients think?

We'll talk of it another time Let's do a market survey first It's been working like this for 20 years We've always done so Basically, it… Let's to back to basics We like people like you It is politically unacceptable You don't mean it I've got a better idea It is not a simple as you think It only solves part of the problem Even if we wanted to do it… It is technically impossible The computer is not powerful enough I'd like to see his face...

You might as well say that we are closing down It would take a lot of time We're not in America here You must be realistic Well, of course We'll not change the world "We must keep the church at the center of the village" Don't dream There is no miracle Let's stick to the point People will not understand French people think that… Let's keep our feet firmly on the ground We're not a lab We're losing our way Nothing will come of it A bit of common sense!

While we're at it, why not...

Let's form a committee It's not our problem It's none of our business They'll think we're nuts Wait and see There aren't all that many solutions If ifs and ands were pots and pans there's be no need for tinkers Let's put it in writing We already said it It will enrage trade unions

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120 ways to kill a new idea (II)

I don't see the relationship It does not belong to the plan It's not in line with strategy It is not our business It will give us more work It's too early It's too late They will be shocked Maybe that isn't stupid, but...

That is a great idea!

I am not a specialist, but… You shouldn't bit off more than you can chew Too academic The only problem is that… We can see what you're leading up to It would be a good topic for another meeting There are only 24 hours in a day Talking is easy Did you read my memo?

Business is business This it not a priority I already heard this idea somewhere We are too small This is not concrete enough What do you want?

You don't understand our problem Don't exaggerate Don't make me laugh This is unworkable This is not legal It's against the rules The boss will never accept Beautiful idea, but not for us This is a good theory, but practically… Let's get back to the subject People don't want to change Calm down Our competitor doesn't do it either You can laugh, but...

Let's ask the opinion of an expert There's nothing to add I'll have warned you Is there any precedent?

You'll never change...

One can fantasize, but… Why do you want to change at any price?

This it not the point This is not in our culture Let's come to the point It's obvious that...

Did you measure the risks, consequences?

We cannot take this risk We don't need that We don't have the staff, the equipment We'll get back to it later Etc.

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True Innovation comes from collaboration

Clear focus on managing the innovation process and impact Committed, consistent, visible leadership True innovation comes from collaboration

1. Idea generation: connecting many different capabilities 2. Implementation: collaborating in a web of partners 3. Realization: measuring the total impact and contribution of each partner 16 Berz-Innovation-19May10-TOR-KB-sjb.ppt