C IO as Innovation Leader - Innovation Mechanism-

1. CIO as Innovation Leader- Innovation Mechanism- October 28, 2007 Akihiro KurodaIBM Business Consulting Services Taro KamiokaHitotsubashi University

2. Japanese CIO’s Thoughts on Innovation (1/2) 1. CIO’s Roles & Responsibilities (R&Rs) Japanese CIOs’ perception is that they have 2 major R&Rs for innovation.They believe they need more organizational power to lead innovation. R&Rs • Promoting/leading cross-functional innovation by building “mechanisms” • “CIOs should lead innovation which is cross-functional or which involves external partners.” • “CIOs should build mechanisms to lead innovation effectively. In addition, CIOs need strong support by Business Units (BUs).” • Sending out value-added information • “Showing technology-driven innovation examples is a big value of CIO.” • US/EU CIOs only: Connecting wisdoms of various kinds of people for ideation of new business models Issues So as for CIOs to lead innovation, they believe they need more organizational powerwith new performance evaluation standards • “Leading innovation means responsibility. Traditional evaluation standards for CIOs & IT departments (QCD of routine work) hinder innovation.” • “Perception of CIO’s R&Rs by top management has to be changed.”

3. Japanese CIO’s Thoughts on Innovation (2/2) 2. Innovation Targets • The purpose of innovation is to win in business competition. Thus, innovation should be made for what needs to be differentiated, while agile/low-cost/safe operations based on integration/standardization are sufficient for other areas • The current situation is that operational innovation is the majority(Confirmed only with CIOs of the manufacturing & utilityindustries) 3. External Partners • In addition to outsourcing of non-core areas, strategic partnership in core areas is increasingly important so as to obtain skilled resources and methodologies • “Innovation can be stimulated, by utilizing networks of external wisdoms.” • “Consultants made a great job in transforming our IT organization.” 4. Human Resources • Key to business innovation is an organization which puts together BU people with a sense of IT and IT people with that of business • Skill Development: • “Core competency for the new R&Rs of a CIO dept. (IT, business, strategy, etc,) should be defined first. A big change of their mindset is also required.” • “Leading innovation is a good experience of a CIO, who should become a business executive.”

4. Japanese CIO’s Thoughts on Innovation (1/2) 1. CIO’s Roles & Responsibilities (R&Rs) Japanese CIOs’ perception is that they have 2 major R&Rs for innovation.They believe they need more organizational power to lead innovation. R&Rs • Promoting/leading cross-functional innovation by building “mechanisms” • “CIOs should lead innovation which is cross-functional or which involves external partners.” • “CIOs should build mechanisms to lead innovation effectively. In addition, CIOs need strong support by Business Units (BUs).” • Sending out value-added information • “Showing technology-driven innovation examples is a big value of CIO.” • US/EU CIOs only: Connecting wisdoms of various kinds of people for ideation of new business models Issues So as for CIOs to lead innovation, they believe they need more organizational powerwith new performance evaluation standards • “Leading innovation means responsibility. Traditional evaluation standards for CIOs & IT departments (QCD of routine work) hinder innovation.” • “Perception of CIO’s R&Rs by top management has to be changed.”

5. Two Types of Activities/Mechanisms for Innovation Policy Policy Policy Plan Plan Plan Strategic Positioning Strategic Positioning Strategic Positioning Bullets Bullets Bullets Operations Operations Operations Targets Targets Targets Fulfillment Fulfillment Fulfillment Check Check Check Do Do Do Bullets Bullets Bullets Operations Operations Operations Targets Targets Targets In addition to (A) activities to realize each innovation, it is of critical importance to (B) establish innovation foundation (a set of “mechanisms”) for a company to realize effective innovations continuously New Business Business Model (Current) Innovation Business Model (Future) Conversion to Create New Customer Values (A) Realization of Each Innovation（Ideation & Implementation of Each Innovation) (B) Establishment of Innovation Foundation • New Markets & Customer Segments Development • New Products & Services Creation • Operational Transformation • Revenue Structures Reformation • Innovation Management • Innovation Processes and IT • Innovation Organization and Human Resources

6. Business Model (Current) New Business Business Model (New) Innovation Conversion to Create New Customer Values Policy Policy Policy Plan Plan Plan Strategic Positioning Strategic Positioning Strategic Positioning Bullets Bullets Operations Operations Targets Targets Bullets Operations Targets Check Check Check Fulfillment Fulfillment Fulfillment Targets Targets Bullets Bullets Operations Operations Do Do Targets Bullets Operations Do (A) Realization of Each Innovation（Planning and execution of each innovation) (B) Establishment of Innovation Foundation • New Markets & Customer Segments Development • New Products & Services Creation • Operational Transformation • Revenue Structures Reformation • Innovation Management • Innovation Processes and IT • Innovation Organization and Human Resources Innovation Foundation Innovation foundation is essential to realize innovation continuously. A CIO organization is capable of leading its establishment. Elements of Innovation Foundation Innovation Management Innovation ProducerInnovation leader with business/IT skills and leadership Incubation Management PlatformManagement system to coordinate innovation and existing business Innovation Processes and IT Ideation ProcessEstablished process to collect and integrate various kinds of wisdoms Collaboration PlatformMechanisms for information sharing and collaboration Resource Channels for:(1) Partnership with best-practice companies(2) Collaboration with R&D organizations Execution PlatformFlexible business processes, PMOs, and IT that enable quick realization of innovative ideas Innovation Org. & HRs Innovation CenterOrganization that is responsible for promoting & leading innovation Intrapreneur EnablementMechanisms to obtain or develop innovative human resources

7. Innovation Promotion with an Innovation Center Establish competitive advantages in the company’s core business areas through technology-driven innovation Objective Roles & Responsibilities Establish and maintain innovation mechanisms (B) Lead innovation projects (C) Establish and make the most use of collaborative relationship with external partners and BUs (D) Prioritize projects and supervise IT implementation Board of Diectors Innovation Center Center Director (A) (C) (D) Innovation PMO Alliance & Partnership IT Dept. (B) Innovation Producers External Partners Research Companies • Lead innovation projects from ideation to implementation • Collaborate with external partners and BUs Business Partners BUs R&D Sales &Mktg Mfg & Logistics Controls Customers Provide market research, best practices, customer needs, and innovation ideas • Provide business needs, BU strategies, and innovation ideas • Assist in business case creation, pilots, and business maximization

8. Thank you.

9. Wide-Sense Definition of Business Models A business model is a bird’s-eye view of how a company creates customer values in terms of markets/customers, products/services, and delivery mechanisms. It also includes strategic positioning, such as scenarios of value creation and differentiation. • Vision & Mission • “Profitability, Growth , Stability” Which direction do we proceed? Policy Plan Where do we differentiate ourselves and make money? • Value Creation Scenario • Differentiation Scenario • Management Issues Strategic Positioning Bullets Operations Targets Check Fulfillment Do How to do it? Targets Operations Bullets • Markets • Customer Segments • Processes • Strategy, Product Planning, R&D • Sales, Mktg, Production, Logistics • Organizations, HRs/Skills • Business Rules & Standards • IT • Products • Services Business Model(Wide Sense)