Leading Innovation: Making Stone Soup at UM B&F

1. Leading Innovation:Making Stone Soup at UM B&F Jeff DeGraff Ross School of Business, University of Michigan

2. How Innovation Really Works A

3. What’s Innovation in Your Book? • You have been asked to write a cover story article for a popular magazine on your selection of the most innovative organization • What organization did you select? • What makes it so innovative? • Why this organization and not the others? 3 www.competingvalues.com

4. What Makes These The Most Innovative Companies? • Apple • Google • Microsoft  • IBM  • Toyota Motor • Amazon.com  • LG Electronics  • BYD  • General Electric • Sony  • Samsung Electronics  • Intel  • Ford Motor • Research In Motion • Volkswagen • Hewlett-Packard • Tata Group • BMW  • Coca-Cola • Nintendo  • Wal-Mart Stores • Hyundai Motor  • Nokia  • Virgin Group  • Procter & Gamble  2010 1st Time Over ½ of Companies Not EU or US BusinessWeek, April 15, 2010 BCG survey of 2,700 executives in 70 countries 4 www.competingvalues.com

5. What do Executives want from Innovation? 5 www.competingvalues.com

6. What Stops Them from Having Innovation? 6 www.competingvalues.com

7. Who was the Most Innovative Company from 1996 - 2001? There isNO DATAon the future when breakthrough innovation pays 7 www.competingvalues.com

8. How Do Organizations Fail? • Study of 400 firms on Fortune 500 and 90 international firms since 1955 • Random sample of 50 firms • 87% had experienced a stall • Growth rates increased up to “stall year” • Dropped greatly in the following years • Few regained momentum • Fewer returned to growth rates within a decade after stall www.competingvalues.com 8

9. What Causes the Failure? • The presumption of an unassailable competitive position by management • Innovation management breakdown - Slow product development, reduced R&D spending, lack of coordination • Premature diversification from "core" activities • Shallow bench and leadership pipeline shortfall • POOR LEADERSHIP In 2008 Google made 97% of the Company’s revenue on a single product!!! www.competingvalues.com 9

10. Thought Experiment What if the key to innovation in your organization doesn’t entail STARTING something new but STOPPING something old? 10 www.competingvalues.com

11. What is Stone Soup? • Parable about the power of creativity in communities • Overcoming suspicion • Crossing boundaries • Contributing little bits • Role of diversity • Self- authorizing ring leaders that integrate • Village feasts www.competingvalues.com

12. Principle 1: Give Innovation a Wider Domain & Connect the Dots Innovation enhances something --Think Google Innovationobsolesces something --Think Schwab Innovationretrieves something --Think Barnes & Noble Innovationreverses into its opposite over time (time bound) --Think e-mail Innovation is how many things come together to create value (solutions) Growth producing innovation is just as likely to occur in inbound logistics or packaging as it is in marketing or R&D Innovation is everywhere because innovation isn’t a thing… it’s an attribute of many things! So the difference between change and innovation is simply magnitude 12 www.competingvalues.com

13. Remember Criticism is Nothing; Creativity is Everything In many ways, the work of a critic is easy. We risk very little yet enjoy a position over those who offer up their work and their selves to our judgment. We thrive on negative criticism, which is fun to write and to read. But the bitter truth we critics must face is that, in the grand scheme of things, the average piece of junk is probably more meaningful than our criticism designating it so. But there are times when a critic truly risks something, and that is in the discovery and defense of the new. The world is often unkind to new talents, new creations. The new needs friends. Ratatouille (2007) Anton Ego www.competingvalues.com 13

14. Principle 2: Ride What Moves…and Move Your Feet Ride What Moves Consumer demands Competition Shareholders Science and technology Government regulations Geopolitics Macroeconomics Environment Outrageous fortune … And Move Your Feet Beliefs Skills Choices Plans Actions Information Processes Measures NOT other people See the Wave; Don’t Be the Wave 14

15. What’s Moving in Your World? West to East Big to Small Money to Time Alignment to Collaboration

16. What’s Not Moving? The end of an era is typically marked by increased control, scale, centralization of power, and conflict The beginning of a new era is usually indicated by creativity, variation, distribution of energy, and conflict What’s ending in your world? What’s beginning? 16 www.competingvalues.com

17. Principle 3: How You Innovate is What You Innovate Lean (Reduced TOE) Double Digit Growth Incremental Innovation Relative Delivered Price for Comparable Quality Breakthrough Innovation Relative Uniqueness for Market Segments 17 www.competingvalues.com

18. Don’t They Create Paradoxes? Should we be focused and programmatic or flexible and opportunistic? (Reliable incrementalists or risky radicals?) Should we build our own innovation capabilities or acquire them? (Organic or inorganic growth?) Should innovation be pushed from corporate leaders or pulled from field leaders? (Closer to shareholders or customers?) Should we set our strategy and then develop the culture and competency to make innovation happen, or the other way around? Should the financial portfolio set the innovation development path or respond to it as a variety of innovations emerge? Should innovation be a departmental function in the organization or a distributed responsibility for all operating units? Should innovation be aligned with the core business or set free to create the new business? These tensions are typically signsof an organization in good health! 18 www.competingvalues.com

19. What About Services and Solutions? Companies with the most scope and scale have a predatory advantage in creating solutions Services are seldom scalable 19 www.competingvalues.com

20. One Size Doesn’t Fit All Everything in the universe is both whole and part of a larger system Compatibility, fit, synchronization and timing are key issues for innovation Diversity is essential to produce creative tension, but within the context of a larger system Innovation is mostly about connecting the dots and crossing boundaries 20 www.competingvalues.com

21. How Would You Make Innovation Happen at UM B&F in One Year? How do they interact with each other? How do they decide who becomes the leader? What tools, methods, and processes do they use to improve the firm? For what offenses do they fire (sack) people? Where do we find these people in the firm? Other firms? What value do they create? Are they fast or slow? Are their approaches breakthrough or incremental? www.competingvalues.com 21

22. Apathy is the Death of Innovation; Competing Values the Élan Vital The Innovation Genome How Much? How Fast? 22 www.competingvalues.com

23. What are the Key Approaches to Innovation? www.competingvalues.com 23

24. Value Propositions: Breakthrough Innovation & Organic Growth Be the first to tackle the treacherous areas to create blockbusters: Autoimmune disease like multiple sclerosis, rheumatoid arthritis, lupus and AIDS Challenge standards, convention and dogma (Rituxan) – “The crowd is usually wrong” Establish a culture of the “outsiders” on the “inside track” Spend big on discovery - 50% of sales on R&D, 2x industry standard (Multiple shots on goal) Cozy up with top research universities and cherry pick when necessary (Richard Scheller of Stanford and entire autoimmune lab from Univ. of Minnesota) Innovation is not instant perfection, big failure happens Chase the impossible to develop unimaginable competencies Look for the unusual resume to increase diversity of thought From lab to boardroom, challenge authority www.competingvalues.com 24

25. Workplace Stimulating projects Flexible hours Free from everyday constraints New initiatives Independent work streams Diverse workforce Leaders Visionary dreamers Clever Optimistic Enthusiastic Quick on their feet Expressive Big-picture thinkers Innovation Practices Futuring and scenario planning New market speculation Innovation societies and fellows Diversified radical experiments Early technology adaptation Corporate venturing and spin-offs Greenhouse funds www.competingvalues.com 25

26. Value Propositions: Efficiency & Quality Refocused after ACC in 1990s (Digital Media, Semiconductor, Telecommunication Network, and LCD Digital Appliance) Integrated architecture platforms to minimize cost and maximize minor variation (Dominate components in a few key industries) Clearly defined and consistent process for most routine functions (E-mail, meetings) Standards maintained by departments (Voluminous checklists) Derive simple rules from all failures and build replicable processes (After action review) “Scientific” processes: Total quality management, continuous improvement, just in time inventory, lean manufacturing and flexible platform design Chief Design Engineer intensive mentorship of high potentials in the esprit de corps of the “Samsung Way” End to end technological capability from product design to manufacturability www.competingvalues.com 26

27. Samsung Workplace Clear roles and responsibilities Stable project management Logical objectives Methodical processes Standards and regulations Ordered and structured work Leaders Pragmatic Organized and methodical Scientific or technical By the book Problem solver Objective Persistent Innovation Practices Continuous process improvement Reverse engineering Benchmarking Lean manufacturing Total quality management Simulations Platform innovation End to end IT systems Supply chain innovation 27 www.competingvalues.com

28. Ask Yourself “What Works; What Doesn’t When and Where?” Where does Genetech’s approach to innovation work at UM B&F? Samsung's? Why? Where doesn’t Genetech’s approach to innovation work at UM B&F, but should? Samsung's? Why? What are the leadership traits required to manage these competing values in UM B&F? www.competingvalues.com 28

29. Value Propositions: Speed & Profits 100 year old business went from 12 to 62B in 4 years (High quality revenue targets) Lean conglomerate with large scale businesses in software, cars, steel, phone services, solar panels, biotech, hotels, wrist watches and tea (60% of profits to charitable trusts) Capitalize on undervalued cast-offs (Jaguar and Landrover) Move quickly on acquisition opportunities (Corus) Focus the portfolio but allow most businesses to operate as self-directed units with own P&L Many businesses and products but only one global brand, brand, brand Mid-term revenue focus on opportunity with an eye on sustainability Hire the clear thinking, intelligent, and vital; not critics Free and responsible leadership; accountability to all stakeholders www.competingvalues.com 29

30. Workplace Competitive High pressure and impact Fast moving and high energy Image enhancing deal making Quantifiable results Winners and losers Leaders Goal and action oriented Impatient Assertive Driven Decisive Challenging Competitive Innovation Practices Mergers and acquisitions Portfolio management Rapid action problem solving teams Revenue insight processes Branding Market adjacencies Business solutions www.competingvalues.com 30

31. Value Propositions: Community & Knowledge Freedom to encourage, help, and allow other associates to grow in knowledge, skill, and scope of responsibility No central innovation function - everyone in the firm is responsible for making innovation happen No business unit of more than 50 people Great ideas emerge over time, as do great innovation teams Culture is king, create an atmosphere where patient learning is encouraged Competencies are developed through coaching and new opportunities Spend 15% of your time and budget on new ideas, projects and ventures Make a little, sell a little, review what works and doesn’t, and revise The ability to make one's own commitments and keep them Consultation with other associates before undertaking actions that could impact the reputation of the company www.competingvalues.com 31

32. WL Gore Workplace Family atmosphere Collaborative workplace Shared values and vision Integrates personal goals Informal Teaching and coaching Leaders Sees potential Builds commitment and trust Sensitive and caring Patient listeners Encourage participation Respects differences Empowers people Innovation Practices Knowledge management Mentoring and coaching Team building Collaborative communities of practice Search and reapply Culture and competency development Collaborating with customers Open source www.competingvalues.com 32

33. Ask Yourself “What Works; What Doesn’t When and Where?” Where does Tata’s approach to innovation work at UM B&F? Gore’s? Why? Where doesn’t Tata’s approach to innovation work at UM B&F, but should? Gore’s? Why? What are the leadership traits required to manage these competing values in UM B&F? www.competingvalues.com 33

34. Are You Saying That A Firm Has One Conscious Approach to Innovation? No But it does play to it’s strong hand by… Industry Department function Location 34 www.competingvalues.com

35. Is the Reunion of Opposites Really Possible? U.S. looks to hackers to protect cyber networks By Lolita C. Baldor, Associated Press (4/20/09) WASHINGTON — Wanted: Computer hackers. Buffeted by millions of digital scans and attacks each day, federal authorities are looking for hackers — not to prosecute them, but to pay them to secure the nation's networks. Well Not All the Time 35 www.competingvalues.com

36. How Do We Manage these Positive Tensions? • Collaborate • Social Approaches • Long term relationships • Community decides • Sustainability • Inclusive • Evolutionary • Create • Generative Approaches • First adaptor customers and markets • Customized offering • Segment specific • Diversify • Channel pull • Core customers and markets • Generic offering • Widest possible market • Align • Corporate push • Control • Technical Approaches • Limited window of market opportunity • Markets decide • Time to market • Exclusive • Ballistic • Compete • Business Approaches Services Products Expertise Solutions Customers Suppliers Platforms 36 www.competingvalues.com

37. …And Affected by the Development of Organizations Compete Collaborate Control Create 37 www.competingvalues.com Where is Your Organization on the growth curve?

38. Principle 4: Forget the 80/20 Rule and Follow the 20/80 Rule It’s Easier to Change 20% of the Firm 80% Than 80% of the Firm 20% • Crisis • Seeks to survive • Risk of change low • Reward of change high • 20/80 rule • Outstanding • Seeks to grow • Risk of change low • Reward of change high • 20/80 rule • Normal • Seeks to maintain equilibrium • Risk of change high • Reward of change low • 80/20 rule The more radical the innovation, the more it needs to start on the fringes 38 www.competingvalues.com

39. Principle 5: Show, Don’t Tell Innovation is about what doesn’t exist yet Most of our brain is used to visualize Seeing is believing You need to help people see Put them in the movie A day in their life Proof the concept 39 www.competingvalues.com

40. Principle 6:The Cavalry Isn’t Coming What Are You Going to Do? • Wait, Fight or Deviate…Positively • Growth requires personalownership www.competingvalues.com 40

41. Principle 7: Remember The DeGraff Hypothesis “The amount of innovation a company produces is inversely related to the number of PowerPoint slides or elaborate process diagrams it makes about innovation.” Only Known Photo of the Hypocrite 41 www.competingvalues.com

42. Jumpstarting Innovation B

43. Basic Steps to Making Innovation Happen at UM B&F? High quality targets Deep and diverse domain expertise Multiple shots on goal Learn from experience & experiments www.competingvalues.com 43

44. Identify High Quality Targets www.competingvalues.com

45. Enlist Deep and Diverse Domain Experts

46. Think Around the Challenge and Integrate the Solution Differentiate Consider the challenge by thinking around the four perspectives Use breakout groups to divide and conquer Integrate Integrate the perspectives and develop hybrid solutions Integrate the breakout groups if appropriate to sync it the solutions www.competingvalues.com 46

47. Practice Kaleidoscopic Thinking Are you ready to travel some new neural-nets today? • Change your point of view • Listen to your intuition • Draw it • Run thought experiments • Magnify and minify • Reverse your ideas • Go on an expedition www.competingvalues.com 47

48. Inhibitors of Creative Thinking www.competingvalues.com 48 The Creative Edge. William Miller

49. Your Challenge [Here] • What exactly are we doing and why? • Who’s the boss? • Who’s on the team? • How much time do we have? • How much money do we have? • What is out of bounds? • What are the deliverables? • How do we keep score? • What happens if we succeed? Fail? www.competingvalues.com

50. What’s Working and What’s Not? www.competingvalues.com 50