Ten Principles for Successful Innovation Management -- One Company’s Experiences and Learnings --

1. Ten Principles for Successful Innovation Management -- One Company’s Experiences and Learnings -- Walter H. Zultowski, Ph.D. Senior Vice President – Research and Concept Development LIMRA Strategic Marketing Issues Committee September 24, 2009

2. What is Innovation? • Trap #1: Innovation vs. Product Development vs. Continuous Improvement

3. Principle #1: Innovation needs to be viewed as independent of ongoing product development efforts or continuous improvement initiatives

4. What is Innovation? (cont’d) • Trap #1: Innovation vs. Product Development vs. Continuous Improvement • Trap #2: Innovation vs. innovation

5. What is Innovation? (cont’d) The Four Levels of Innovation Level I: Existing Products/Services (revision, updates, reprices) Level II: “Me too” or “New to your company” (fast followers) Level III: “New to your market” Level IV: “New to industry”

6. What is Innovation? (cont’d) “Something truly new (disruptive) that delivers against a business objective” - Zultowski

7. Principle #2: Need to define/set expectations as to what innovation means for your organization

8. Principle #3: A culture of innovation is a necessary but not a sufficient condition for success

9. A Rich History of Innovation • 1896: Introduced the industry’s first cash value policies • 1906: Introduced the industry’s first correspondence training course for agents • 1912: First life company to use direct mail advertising • 1925: First company to selectively waive medical exams • 1933: Introduced a “planned estates” approach to life insurance sales • 1955: Pioneered lower life insurance premiums for women • 1965: Introduced the industry’s first computerized service system

10. A Rich History of Innovation (cont’d) • 1967: First company to offer lower rates to non-smokers • 1968: First company to introduce video training for agents • 1971: The industry’s first toll-free call center • 1982: First U.S. company to introduce survivorship life • 1996: Creates a computer services company in India to address its Y2K challenges • 2001: Establishes the State Farm-Phoenix Alliance • 2005: First company to offer a GMWB “for two” Rider • 2006: First company to reduce life insurance premiums for maintaining a healthy weight • 2008: First company to offer stand alone living benefits on investment products

11. Principle #4: Innovation is more often viewed as an art rather than a process to be managed. To be successful, it needs to be viewed as a bonafide organizational function, appropriately staffed, managed, and positioned in the organization

12. Principle #5: Successful innovation management requires finding a balance on two dimensions Genius Informal Organization Formal Organization Process

13. The Evolution of Innovation Management at Phoenix (2004 – 2008)

14. Model #1: The “Out of the Box” Thinker Genius X Informal Organization Formal Organization Process

15. Model #1: The “Out of the Box” Thinker • Pros: Recognizes that innovation doesn’t happen by chance; it needs to be assigned to somebody • Cons: Asks too much of one person Individual easily divorced from the rest of the organization Doesn’t leverage knowledge/ideas from across the organization (Really not a viable model, listed here for purposes of completeness)

16. Model #2: The “Informal Idea Generation Group” Genius X X Informal Organization Formal Organization Process

17. Idea Generation and Management Process • Example • Literature places too much emphasis on “stage gate” models

18. Model #2: The “Informal Idea Generation Group” • Pros: Add process to the function Leverages knowledge/ideas from across the organization • Cons: Can easily be divorced from the rest of the organization (Walt’s group) Does not have analysis capability attached to it Can be a threat to existing functions in the organization (demand “representation” on the group)

19. A comment on managing the roles of both product development and the sales organization in the innovation management process (Innovator’s Dilemma, Clayton Christiansen, Harvard Business School Press, 1997)

20. Principle #6: Moving toward the formal organization also adds a bias toward incremental innovation and away from breakthrough innovation

21. The “Informal Idea Generation Group” Model -- Results Total # of Ideas Vetted: 35 16

22. Model #3: The “Idea Lab” Genius Informal Organization Formal Organization X Process

23. The “Idea Lab” Model • A formal organizational department • Designed by a lean event • Included the informal idea generation group • Added a high-level analysis function • Originally designed with a staff of 3 (but only 2 funded) • Considered the creation of a physical space (ala Timberland) • Implemented an electronic idea generation/vetting space (“Bright Ideas”)

24. A Comment on Electronic Idea Generation/Vetting Systems • Not a computerized suggestion box • There is a methodology on how to utilize (i.e., campaigns) • Generate a lot of ideas (+ / -) • Involves people who shouldn’t be involved • Letting “pet ideas” down easily • East to get bogged down, lose interest/energy

25. The “Idea Lab” Model -- Results 80 Ideas Generated/Vetted 70 Rejected 10 Presented to Management 7 Liked 3 Rejected • 1 Implemented • 4 “In Limbo” • 2 Rejected upon further analysis

26. Principle #7: Innovation management is more than idea generation, and must have a high-level analysis function attached to it to be effective

27. Model #3: The “Idea Lab” • Pros: Institutionalizes the innovation function Adds a high-level analysis function to idea generation Generates a lot of ideas • Cons: Generates a lot of ideas Success too dependent on the head of the department Department too easily divorced form the rest of the organization

28. Principle #8: The key success metric for innovation is not the number of ideas generated, nor the number of ideas killed, but rather the ratio of successful ideas to the total number of ideas generated

29. Model #4: The “Right for Phoenix” Model Genius Informal Organization X Formal Organization Process

30. The “Right for Phoenix” Model • Leverages the idea of “idea campaigns” • Customized idea generation groups for each campaign • Involves executive management on their terms • Selection of campaign topics • Select involvement in brainstorming sessions • Brainstorming sessions must be “seeded” • Embraced and owned by the head of Product Development • Embraces, but differentiates, incremental ideas (“Just-Do- Its”) from breakthrough ideas • Places analysis responsibility with the appropriate area • Relentless follow-up • Process run by one person, part-time

31. The “Right for Phoenix” Model -- Results (total of 6 brainstorming sessions/campaigns held) 73 Ideas Generated/Discussed 38 Rejected 35 Survived • 5 Implemented • 4 Under development/not yet implemented • 6 Under analysis • 14 Deferred for future considerations • 6 Decision not to pursue after analysis

32. Principle #9: The right innovation management model is the model that’s right for one’s organization. The challenge is in discovering it.

33. Principle #10: You need to have confidence in innovation as a strategy, and work at it relentlessly.

34. 860-403-6691 walter.zultowski@phoenixwm.com