Choosing Your Innovation Engines

1. Choosing Your Innovation Engines Dr. Bill Davidson May 2012

2. Getting Started If innovation is 1% inspiration and 99% perspiration, strategy is 50% contemplation and 50% implementation. Where and how do we focus our innovative energies and talents?

3. Innovation Arenas • Product • Process • Solutions • Channel • Organizational • Business Model

4. Core Strategy and Business Model BUSINESSSTRATEGY Structure, job roles& reporting lines Organization Culture People Beliefs, values,norms & style Skill levels, Management and Leadership Capability Business Portfolio And Model(s) Systems Processes, infrastructure

5. IBM’s Client-Centric Solutions Model E N T E R P R I S E R E S O U R C E S Front –End OMS C L I E N T N E E D S Champion Opportunities Proposal Proposal Team Delivery Team Back- End Function and Infrastructure

6. Entrepreneurship And Order “At IBM, we tolerate wild ducks… so long as they fly in formation.” Tom Watson Jr., IBM CEO

7. Core Strategy and Business Model BUSINESSSTRATEGY Structure, job roles& reporting lines Organization Culture People Beliefs, values,norms & style Skill levels, Management and Leadership Capability Business Portfolio And Model(s) Systems Processes, infrastructure

8. The Volvo Way • Strategic Coherence • Focused set of similar businesses based on common technology • Market Leadership positions • Global strategies • Departure from the consumer automotive business • Strong Management System • Core Principles and Practices • Team Focus • Consultative/collaborative leadership • Enterprise Functions and Processes • Limited Entrepreneurship • Audit and Intervention Top Executives Leadership Program - Learning Expeditions

9. The Volvo Way • Clear Business Strategy – Global Market Leadership in Long Cycle Industrial businesses with common core technologies • Single environment type, single strategy permits single organization and management model • Very clear, explicit Management System ~ Volvo Way Right Results Right Way Top Executives Leadership Program - Learning Expeditions

10. The Volvo Way • Team Focus • Customer Focus • Clarity of Goals • Human Potential Conviction • Collaboration • Trust • Respectful Communication and Feedback • Relationship Focus • Volvo Production System Top Executives Leadership Program - Learning Expeditions

11. The Volvo Way • Team Effectiveness Reviews • Organizational Survey of all teams, plus Senior Team • “if the senior team is not working well, it will waste the teamwork of the rest of the company” • Numeric ranking – scores below 75 receive intevention • Were goals clear? Inclusion in setting goals? Quality of PBP review? • Universal Leadership Development Process • Annual Ratings and Reviews • Personal Business Plans – all employees • Management Team Reviews of Personal Plans • Succession Planning Top Executives Leadership Program - Learning Expeditions

12. The Volvo Way • Introduced Matrix in 2005 • “If you get agreement in a matrix, you win” • “No place for entrepreneurs” • KPI was reducing number of systems • Harmonizing processes • Standardization not centralization • Lean corporate functions • Went from 2 Business models to one(auto)‏ • “Not new but a discovery of who we were already” • Company has Chosen - FIFO Top Executives Leadership Program - Learning Expeditions

13. Volvo’s Integrated Value Chain • Complementary Businesses allow effective integration of Product Development, Procurement and Power Train technology(PPP1) activities in a single supply chain structure. • Significant gains realized also from Pre-Production Planning(PPP2) to align design, supply chain and production. (Why not do this with other parties?)

14. The Power of Self-knowledge • Clarity about competitive advantages • Confident, quick decision making • Commitment • Staffing • Development of key competencies

15. G,SA/Sales ↓ GSA + GM < Comp GSA CGS ↓ Price < Comp Cost Procurement “Buy For Not Sell To” Wal-Mart's Strategy Diamond IS Real Time POS IS Low Margin High Volume Cross Dock Low Everyday Prices Supply Chain DC Trucking Store Config. Inventory Turns ↑ DTS Store Network Sales/SF Real Estate Costs ↓ Location Strategy Limited Competition Labor Costs ↓

16. Starting A New Cycle

17. The Critical Duality Perform Operations Strategy Optimization Innovation Discipline Creativity Customers Processes Metrics Markets Transform BU’s/Projects Functions Internal External Bottom Line Top Line

18. The World's 50 Most Innovative Companies* *Business Week 2009

19. Supply Chain Innovation

20. Apple’s Strategy Innovations } Parts to Profit Cycle Reverse Razor and Blades OPB Virtual (not vertical)Integration EcoSystem Supply Chain Innovation Cycle Time Acceleration Negative Working Capital Market Development Focus KISS Black Hole Sector Strategy

21. TV Calculators Music Systems PDA’s Watches PC GPS Digital Camera Portable TV Protable Music Devices Dictation Device Smart Phone As Black Hole Luxury Laptop Tablet DSLR Smart Phones IPOD Mobile Phone Utility (e.g. Leap)

22. Management Model and Strategy Focus Innovation HP VIRGIN IBM NOKIA Autonomy Enterprise GE EXXON TOYOTA Optimization

23. InnovationOptimization Internal Assets Metrics Returns Bottom-line Operations Standardization Optimization External Customers Markets Growth Topline Sales Creativity Bus Dev

24. Economic Cycles% of GNP 100% Hunting & Gathering Agriculture Industry Info Bionano 1950 2015 10,000 BC 1800 AD 1 Million BC

25. Cisco’s Innovation System • Cisco outsources more than 90% of operations • More than 90% of manufacturing is third party • 1000 plus component suppliers • 31 EMS/ Contract Mfg partners • 17 logistics providers • More than 90% of sales and service is third party • Thousands of channel partners • Focus on Value Chain Management, Strategic Alliances • Company focuses on opportunity identification and development • 30 plus strategic development initiatives • E.g. Telepresence, IPTV, Smart Home • Half the company is current business, half is strategic initiatives

26. Cisco Strategic Programs China 2.0 Virtualization Cisco 3.0 Video Compression Emerging Markets 2.0 SAAS(software as service) Green Cloud Computing Smart Grid Smart Home Connected Buildings

27. Innovation Processes • Geoffrey Moore Playbook – Find/Filter/Incubate/Initiate/Accelerate • I Zone – Idea Zone on web • I Prize – global contest for new product ideas • Sales is as active as engineering in development phase • “Sync or Sink” • Agile Development – “scrums”, lots of intermediate releases, quick turn around, wisdom of crowds, ecosystem

28. Cisco’s Innovation strategy • “Collaboration accelerates productivity, growth and Innovation” • “A lot of our life is in the strategic innovation/transformational arena” • Innovation Ecosystem includes Governments, NGO’s, Industry Associations, Academia and supply chain partners • Global Program office oversees the portfolio of 30 plus strategic initiatives, each with its own leadership board(virtual) • 23 Councils, more boards and more task forces • Distinguish between Ops half of the company(structured), and strategic development half(virtual)

29. Business Model Innovations • Informationalize the business • Smart Products • Product to Solution migration • Service Innovation • Value Proposition reengineering • Channel Innovation • Customer Centricity • Mass Customization • Market Redefinition(Seize Transition opportunities)

30. Netting it Out • Numerous Opportunities for Innovation • Supply Chain is particularly fertile ground • Customer Facing process Innovation delivers strong, sustainable results • Business Model Innovation is most powerful and most demanding • Collaboration is critical inside and out • Nothing focuses the mind like a crisis