Innovation Measurement

1. Innovation Measurement Kris Pederson Strategy and Market Development Leader IBM Global Business Services

2. 3 Things for Today’s Discussion • IBM’s CEO Study on Innovation • Results from IBM’s Innovation Metrics Survey • Innovation Index work Underway.. and Possible ASME participation IBM Global Benchmarking Program | IBM Confidential |

3. The Global CEO Study on Innovation (2006) • Scope: 765 CEOs and business leaders in all major countries • Purpose: Understand role of innovation on CEO’s agenda • Definition: “New ideas or current thinking applied in fundamentally different ways resulting in significant change” • Innovation focus: • Products, Services, and Markets • Operations • Business and Enterprise Models IBM Global Benchmarking Program | IBM Confidential |

4. The study probed innovation – its importance and its benefits – across 3 Innovation Types and 6 Innovation Enablers Innovation Types (3) Products, Services and Markets Innovation applied to customer-focused, go-to-market areas (1) Business and Enterprise Models Innovation applied to restructure and extend the enterprise (2) Operations Innovation to improve effectiveness and efficiency of core functional areas • Enhancing communication & collaboration • Eliminating redundancy • Increasing organizational effectiveness • Increasing external partnering • Improving both the effectiveness and efficiency of functions and processes within an organization • Developing and launching innovative products or services, • Entering new markets, • Reaching out to new audiences • Launching new channels and delivery paths ……….and six vital innovation enablers Climate for Creativity Working environment where inspiration thrive & creativity flourishes Idea Generation secure a continuous source of creativity and flow of new ideas Incubation Structures support the development and growth of ideas from innovation to delivery Metrics & Incentives measure outcomes from creative processes and recognize talent at the organization and individual levels Role of Collaboration & Partnering work externally and internally with organizations and specialists who have the strongest capabilities for innovation Integration of Business & Technology integrate technological capabilities with business insight to achieve innovation IBM Global Benchmarking Program | IBM Confidential |

5. Organization Structure Changes (66%) Building Strategic Partnerships (53%) Business model innovation gains prominence CEOs Innovation Focus 50% 40% 30% 20% 10% “We need to develop a business model based on strategic partnerships that creates value for our company…and for the industry…in this era of specialization” Products, Services, Markets Operations Business Model IBM Global Benchmarking Program | IBM Confidential |

6. Innovation Priorities (operating margin growth CAGR) 100% 80% Products/services/markets 60% % of respondents by innovation priority 40% Operation 20% Business Model 0% Outperformers Underperformers Outperformers double their focus on the business model “The business model we choose will determine the success or failure of our strategy.” “Products and services can be copied, the business model is the differentiator.” “Our greatest focus is on business model innovation, which is where the greatest benefits lie.” IBM Global Benchmarking Program | IBM Confidential |

7. Partners and customers edge out employees for ideas Sources of New Ideas and Innovation External Internal Employees(general population) Business partners Customers Sales or service units Consultants R&D (internal) Competitors Other Associations, trade groups, conference boards Think tanks Internet, blogs,bulletin boards Academia 45% 35 25 15 15 25 35 45% “Today…more capability and innovation in the marketplace than we could try to create…” IBM Global Benchmarking Program | IBM Confidential |

8. After the CEO Study, we launched an effort to understand how companies measure innovation – Innovation Metrics Survey • Joint research survey by IBM and APQC • 120 responses used in the analysis • Geographically dispersed organizations: United States, Australia, Brazil, Canada, Dubai, Finland, India, Indonesia, Iran, Korea, Libya, Malaysia, Mexico, Netherlands, Portugal, Saudi Arabia, Singapore, Spain, Switzerland, Thailand, Uganda, and UK • Diverse sectors represented: Non-profit and For-profit corporations • Participants were asked to evaluate the effectiveness of each metric in measuring innovation: • “For each measure, please rate the degree to which it accurately measures innovation in your organization.” • Not effective • Somewhat effective • Effective • Very effective • The following slide shows the top-rated measures selected as effective and very effective in measuring innovation. IBM Global Benchmarking Program | IBM Confidential |

9. Ranking of Product/Service innovation measures Customer satisfaction with 61.9% product/service features % of revenue/sales/gross margin 44.4% from new products/services Time to market for new 44.3% products/services Time to profitability for new 40.9% products/services Growth rate in share of key 40.2% customers’ purchases Growth rate in number of customers 39.4% Return on investment for new 38.8% products/services % of products/services making up 35.1% 80% of sales volume % of new products/services achieve 34.0% initial business objectives Number of patents 33.0% 0.0% 20.0% 40.0% 60.0% 80.0% Percentage of Respondents indicating "Effective" or "Very Effective" IBM Global Benchmarking Program | IBM Confidential |

10. Ranking of Business Model innovation measures IBM Global Benchmarking Program | IBM Confidential |

11. Ranking of Operations innovation measures IBM Global Benchmarking Program | IBM Confidential |

12. Top rated 20 metrics to measure innovation N=120 IBM Global Benchmarking Program | IBM Confidential |

13. Top rated 10 metrics selected by IBM’s Innovation Community N=120 IBM Global Benchmarking Program | IBM Confidential |

14. Next Steps: IBM and APQC Innovation Index Launching an “open” innovation study to compare performance on key innovation metrics • Who is APQC? • Member-based nonprofit serving approximately 500 organizations worldwide • Global focus on innovation, performance benchmarks, productivity, knowledge management, benchmarking, and quality improvement initiatives • Long-term partnership with IBM to collaborate on collecting metrics and best practices • What is it? • Survey will collect data across core CEO Study Innovation areas: • Product/service/market • Operational innovation • Business model innovation • Enablers of innovation (e.g., collaboration, innovation agenda) • How could ASME participate? • Online survey accessed via a link from ASME’s Web page • Members input their data at no charge and in return receive a comparative report showing how the organization compares to top performers • All data will be kept fully confidential per APQC’s Benchmarking Code of Conduct • Background—This survey will build upon prior research conducted by APQC and IBM: • “Innovation: Putting Ideas into Action” consortium benchmarking study (2006) • IBM’s CEO Survey • Innovation Metrics Survey IBM Global Benchmarking Program | IBM Confidential |