Pipeline Construction Innovation

1. Pipeline Construction Innovation Steve Markham North Carolina State University Center for Innovation Management Studies

2. Introduction Personal Introduction • Professor at North Carolina State University • Research Foundation President for the Product Development and Management Association • BP’s Innovation Board • IBM’s Innovation Council • Nortel’s Business Venture Group • Innovation consultant for numerous fortune 500 companies • Founder/Director of 8 high technology startup companies • CFO for 5 startups, VP Product Development • Research: innovation, champions • Former Director of CIMS

3. Introduction CIMS is a virtual research center • CIMS network includes over 100 research investigators at 55 universities involved in CIMS research programs • CIMS is located on the Centennial Campus of NC State • First national research center (NSF sponsored IUCRC) devoted exclusively to research on the management of technological innovation • The International Association of Management of Technology (IAMOT) rated the College of Management 1st in Technology Management • Journal of Product Innovation Management article ranks College of Management 11th in the Management of Technology/ Innovation. Located in the Research Triangle Park (RTP) CIMS is in one of America’s most dynamic technological environments

4. Introduction Agenda • The Case for Innovation • Growth • The Innovation Cube • Definitions • Innovation, Invention, Management, Ideas, Opportunities, Radical,, Incremental • Objectives • Community: Individual/company/inter-company • Championing Projects • Building the case • Relationships • Selling Ideas • Rational Ignorance • Getting Approvals

5. Making the Case Phil Hopkins, Technical Director, Professorial Fellow at the University of Newcastle We must not always value experience above other attributes, such as a willingness to learn, a willingness to change, and new knowledge.

6. Making the Case The Case for Growth! • Growth is dominating discussions in boardrooms around the world1 • Barriers to competition have fallen precipitously… • 50% of sales of “successful” companies come from new products/services… over 60% for “most successful”2 • Next round of competitive positioning will be based on innovation • Only innovation increases the size of the pie – making its mastery vital • 2004 Global CEO Survey, IBM Business Consulting Services • PDMA Handbook of New Product Development

7. Making the Case Management is waking up to innovation April 24, 2006 edition of Business Week magazine

8. Making the Case Unfortunately many managers may be better at controlling costs • Companies have invested considerable resources and energy in becoming leaner and more nimble • The quest for productivity, quality and speed has launched a number of management tools: TQM, Reengineering, Six sigma, Outsourcing, etc. • Senior management is frustrated by their inability to translate gains into sustainable, profitable growth • The products and services of these firms are indistinguishable Bit by bit these tools have taken companies away from viable competitive positions

9. Making the Case But just “how to” innovate can be a difficult and complex problem • To get ahead of the pack, managers at leading companies are asking: • How can they move beyond producing only incremental products and create more radical innovations? • Which emerging technologies have the potential to be disruptive and generate breakout financial results? • Are there adjacent markets where they can leverage existing platforms? • What internal capabilities do they need to be successful innovators?

10. Making Innovation Easier CIMS IM Framework provides a systematic way to think about managing innovation • Levels: • Firm • Industry • Macro-environment • Dimensions: • Strategy • Organization & Culture • Process • Techniques & Tools • Metrics • Competences: • Idea Management • Market Management • Portfolio Management • Platform Management • Project Management It breaks IM down into elements that can be learned, practiced, measured, and improved i.e. managed

11. Determining IM Competence IM Assessment Tool – Maturity Model Definitions • Five levels of maturity separate ‘Ad hoc’ companies from those that are ‘Optimized’: • Ad hoc - Initial state; results from having no concerted focus on innovation. • Defined - Organization makes innovation a strategic imperative; resources are dedicated to improving the firm’s IM proficiency. • Managed – Manager’s actions reinforce the desired new behavior; their goal is to institutionalize the new innovation business model. • Leveraged - Synergies occur; company involves people / competencies from outside the boundary of the firm. • Optimized - New innovation model is fully internalized; business results are repeatable and predictable (This state represents CIMS knowledge of leading IM practice).

12. Your Questions & Challenges What are your company’s innovation enemies? Source: April 24, 2006 edition of Business Week

13. Definitions First, some definitions… • Innovation Defined • Invention is a new device or method derived through experimentation. Often confused with ‘innovation’ • Innovation is turning ideas into a business success; it must always be user focused. Innovation is much broader, it is ‘the commercially successful use of inventions’. • Innovation Management is a multidisciplinary process that involves Strategy, Marketing, Finance, Economics, Logistics, Operations, etc. to create new and valued products, services, and business models. • Idea is the recognition that something has a commercial advantage • Opportunity is an idea grounded in needs and capability to deliver • Incremental vs Radical Few words are so ubiquitous…its on the minds of CEOs, government officials, and academic leaders as they search for a way to survive.Sam Palmisano, IBM CEO

14. Definitions For incremental innovations, problems are structured at the corporate level and information flows outward to the organization Boundary Interface Gate-keeping Interface Project Interface Problems and opportunities are identified and directed to individuals/small groups for information search Macro- environment Boundary Spanners Gatekeepers Corporate Decision Makers Project-level Decision Makers Small Groups of Individuals You are here Front End of Innovation Reid and de Bretani, The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model. Journal of Product Innovation Management, May 2004.

15. Definitions However, for breakthrough innovations information flows inward and decision making is individual and fragile Boundary Interface Gate-keeping Interface Project Interface Search for new technologies; intuit unaddressed markets Determine value to organization; reduce uncertainty Macro- environment Boundary Spanners Gatekeepers Corporate Decision Makers Project-level Decision Makers Small Groups of Individuals Greatest source of discontinuous technologies/ideas Idea Management Reid and de Bretani, The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model. Journal of Product Innovation Management, May 2004.

16. Definitions Opportunities for Partnership Difficulties • One partner has interest in radical innovation the other wants incremental • One partner wants to talk about ideas, the other wants to talk about opportunities • Neither partner knows the difference • A partnership agreement includes a “development” project that could be an invention or an innovation project • How Partners ability to go at the same speed differs • Boundary Spanners and Gatekeepers do not know their roles – can’t talk to their partners or internally to their own companies

17. Agenda • The Case for Innovation • Growth • The Innovation Cube • Definitions • Innovation, Invention, Management, Ideas, Opportunities, Radical,, Incremental • Objectives • Community: Individual/company/inter-company • Championing Projects • Building the case • Relationships • Selling Ideas • Rational Ignorance • Getting Approvals

18. Objectives Objectives • Build an Innovative Community Around On-Shore Pipeline Construction • Innovation at this conference • Innovation between companies • Innovation inside your company

19. Objectives Innovation at this Conference • Innovation in the next 36 hours – How do we use our relationships to increase value by jointly benefiting each other through adoption of new practices? • This is not a detailed technical discussion • Not creativity by itself • Not invention alone • Not just new “ideas” • Nor is it a “what are all the problems” session • This is not just a brainstorming workshop • This is a “how do we collaborate” discussion • Individually, company, collectively . . . But may include all of these

20. Objectives Individual Participation at this Conference • Open discussion • Offer ideas without fear of being assigned to do it • Talk about innovation without fear of competition • Suggest how we can work together without fear that your company can actually deliver it • Talk about early concepts without fear of looking bad • Think about future opportunities without skepticism of the past • Participate without worrying about language barriers • Help set expectations about what can be done Innovation is a difficult choice we make

21. Objectives Innovation Between Companies • Requires a community (This meeting?) • Mutual interest • Willingness to share • Requires trust • Setting and meeting expectations • Reassess what is competitive and what is cooperative • Requires a strong reason for doing things differently • Risk • Resources • Discussion: What do you hope to get out of this meeting? • System approach – not just doing things good for your company but shifts problems/costs to others • No use to do it alone – needs other parts of the supply chain to make an innovation work • Innovation Partners?

22. Objectives Innovation in Your Company • Know what is needed to participate in the community • What is the advantage for your company • Not obvious at first • Automotive (Paint) / Electronics (SRC) • Identify what is negotiable and what is not • “Sell” innovation (building a community) to others in your company • Discuss the obstacles • Trust • Risk • Resources / Priority

23. The ProblemC The Valley of Death Decision space between discovery and development Existing Commercialization Resources Resources Existing Research Resources (Technical and Market) Discovery Early DevelopmentCommercialization Level of Development Used by permission

24. The Problem Championing Projects Decision space between discovery and development Existing Commercialization Resources Resources Use relationships to prepare case and sell the opportunity Existing Research Resources (Technical and Market) Discovery Early DevelopmentCommercialization Level of Development Used by permission

25. Rational Ignorance Rational Ignorance • People can’t be experts about everything • They are selective about what they care to be knowledgeable about • Yet . . . People have opinions about everything • They manage the world by habit • When people do not accept your ideas its because of rational ignorance • They don’t know the value of your idea Rational people protect their ignorance carefully

26. Rational Ignorance Rational Ignorance Brilliant Idea

27. Rational Ignorance . . . but who is Ignorant? • Decision makers are rationally ignorant of the value of the idea • The inventors are rationally ignorant about how decisions are made • Effective selling requires knowledge • of both sides of the decision

28. Rational Ignorance Combined Ignorance • Discussion: • What don’t decision makers know that they should? • What don’t innovators know that they should? • How are these gaps closed?

29. Selling Ideas Selling Closes the Gap • All ideas must be sold to overcome rational ignorance • FIRST - Selling provides a reason to transfer an idea from a habit, relatively uninformed state, to an actively considered concept • SECOND – Selling provides salient information about the idea to decision makers. Requires both the decision maker and innovator to make sense.

30. Selling Ideas Opportunity: Identify Your Company Needs Opportunity: Identify Your Company Needs • Who is the intended customer • Why is your IDEA a necessity to them • Cost savings, Production improvement, HSE. • What is the decision process for adoption • Who, Criteria, Process, Timing Often there is an over emphasis on criteria

31. Selling Ideas Why do they need it? Features vs Benefits • Performance improvement (10X) • Cost reduction (30%) • Something new and valuable Quantify in salient terms

32. Selling Ideas Targets • Who are the decision makers • Talk their language • Not technical capabilities or features but benefits assuming it works; simplify your information

33. Selling Ideas Selling Tools Opportunity: Identify Your Company Need Selling Tools • Compelling Case • Explain so people can see the value • Provide whole picture to decision makers • Create an “object of support” • Get other people to help • The Story – the idea as a: Benefit, Problem, Solution, Opportunity, Indispensable, Interesting, Dramatic . . . • Selling tools • Selling Tactics • Target identification • Safety Tips Sell • Elevator Pitch • Explain their opportunity in less than 2 minutes • “Killer” Graphic • Make value obvious • Simple representation • Variables and relationships Value Proposition Compared to base line

34. Selling Ideas Safety Tip • Never go into a meeting to get an approval • The meeting must be a formality of the decisions that have already been made • Get buy in from decision makers before meeting • Count votes before the vote • No surprises • Don’t beg, grovel or tantrum • Be willing to walk away • Keep being genuine

35. Conclusion Breakthrough Innovation - Objectives Innovative companies will be able to: • Create and evaluate innovative product ideas that are based upon unique technology capabilities, and link these to partners. • Research both the technology and the partner opportunity efficiently utilizing an information-gathering hierarchy. • Research and evaluate the business opportunities on operational and strategic dimensions to uncover ‘fatal flaw’s at an early stage. • Develop a business model and commercialization strategy for the best opportunity. • Build an appropriate business case for innovations, venture, alliance or new line of business, with the case tailored to the appropriate decision-makers.

36. Conclusion Result = acquiring new behaviors - collectively • Work as a project team -- locally or remote. Coordinate multiple, interdisciplinary tasks in order to achieve innovation in an action-oriented business setting. This includes familiarization with critical management issues such as governance and performance measurement. • Conceive, develop and market innovations.Lead innovation projects including the design of the innovation team and use of effective performance metrics. This includes proficiency in quantitative and qualitative techniques in market research, technology commercialization, and portfolio optimization. • Wire the organization for success. Participants will be able to assess the drivers of an organization’s culture, determine corrective actions, and facilitate organizational change. This includes dealing with the tougher HR issues that are often pushed under the rug. • Create the case for change. Initiate the development of specific execution strategies to better align innovation activities with the firm’s business strategy. This includes being able to objectively assess the maturity of their own organizations IM competence. i.e. you will be able to increase your organization’s capacity to innovate.

37. Your Questions & Challenges Thank You!