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Creating and Leading Cultures of Innovation CESSE Annual Meeting Tucson, AZ February 13, 2007
Creating and Leading Cultures of Innovation
CESSE Annual Meeting
Tucson, AZFebruary 13, 2007
This Morning’s Agenda
Hour 1: Setting the StageInnovation Principles and Practice FACILITATOR PRESENTATION AND Q & A
Hour 2: Application in AssociationsCase Studies and Association ProfilesPANELIST PRESENTATIONS AND Q & A
Hour 3: Getting StartedIdea Exchange and Personal Reflections ATTENDEE WORKSHOP
This Morning’s Objectives
• A roadmap to a sustainable innovation capability in your organization
• An action plan for building a culture of innovation
Hour 1: Setting the Stage
Innovation Principles and Practice
I. Introduction
II. A Working Model
III. Guiding Principles
IV. Building an Innovation Culture
V. Case Studies
Innovation Principles and Practice
I. Introduction
II. A Working Model
III. Guiding Principles
IV. Building an Innovation Culture
V. Case Studies
We are In the Age of Innovation
Globalization• Trade liberalization• Emerging markets
– new customers– low cost engineering
and manufacturing• Low cost international
communication and travel• English language standard
Digital Revolution• Hardware: computers,
phones, PDAs, …• Software: PC, ERP,…• Internet: infrastructure,
search engines, web,…• Communications: cable,
satellite, cellular, WiFi,…
Driven By the Convergence of Two Major Complementary Economic Forces…One Societal and One Technological
These Forces Show No Signs of Slowing Down
1 2
Industry Leaders Stress Its Urgency…
“Constant reinvention is the central necessity at GE…We’re all just a moment away from commodity hell.”
Jeffrey Immelt, GE Chairman and CEO
…and Its Relative Importance
“All I’ve done since I got here is focus on one word: innovation.”
Ed Zander, Motorola CEO
Many Reasons to Pursue Innovation
• The obvious…direct financial impact of new products and services
• Less obvious…enhances your brand equity
• Unexpected…increases the morale and vitality of your organization
• Counterintuitive…cost reduction
The Ultimate Goal Sustainable Competitive Advantage
“Fred, we need you to think up another ridiculously crazy out-of-the-box idea like you did here.”
Concerned?
You Are At a Crossroads
Innovation Principles and Practice
I. Introduction
II. A Working Model
III. Guiding Principles
IV. Building an Innovation Culture
V. Case Studies
An Economic Definition
“Research is the transformation of money into knowledge. Innovation is the transformation of knowledge into money.”
G. Nicholsen, 3M Company
Whirlpool’s Working Definition
• Delivers new and differentiated solutions to our consumers…not presently available to the market
• Establishes sustainable competitive advantage…not easily replicated
• Creates positive shareholder value
1. Types of Innovation – three types of innovation to pursue… product, operational and business model
2. Levels of Innovation – three levels of innovation from incremental to distinctive to breakthrough
3. Stages of Innovation – four stages of the innovation process… discovery, development, commercialization and lifecycle management
4. Building Blocks of Innovation– five building blocks of a sustainable innovation capability… strategy, leadership, organization, people and process
Four Dimensions of Innovation
1. Product – the ‘offering’ that is acquired by the customer…a product OR service…plus the supporting “ecosystem”…also aftermarket products and services
2. Operational – internal practices and processes…includes innovation in management system, organization design, branding, supply chain process, etc.
3. Business Model – fundamental shift in an industry’s value proposition…tends to redefine the basis of competition, often without changing the core product
Dimension #1: Types of Innovation
Product Innovation
packaging
enabling system
translation ecosystem
societal trend
combination
enabling infrastructure
design & usability
Distribution ChannelSupply Chain
Brand Building Product Quality
Customer Experience
Operational Innovation
Business Model Innovation
New Customer Base
New Revenue Model New Cost Structure
New Customer Experience
New Distribution Channel
Dimension #2: Levels of Innovation
1. Incremental (merchandisable) – Gives the sales force and trade partners something to sell every season… sustains the business but little revenue or profit improvement
2. Distinctive – Increased revenue, share and profit in short term but price competitors or product copycats eventually erode all three
3. Breakthrough – Strong, sustainable revenue and profit boost with competition unable to easily follow due to patented technology or design or a sustainable roadmap of follow-on innovation
Dimension #3: Stages of Innovation
1. Discovery – customer insights, idea creation and concept development up to the investment decision point
2. Development – advancement of the concept from investment to launch, including aesthetics and usability
3. Commercialization – launch of the new concept and ramp-up to full scale deployment
4. Life Cycle Management – management of the remaining life cycle of a new concept from full scale deployment to end-of-life retirement
DiscoveryDiscovery DevelopmentDevelopment CommercializationCommercialization Life Cycle MgmtLife Cycle Mgmt
1. Strategy – decisions about how to build your innovation capability in the context of competition and overall strategy
2. Leadership – executive actions and behaviors that provide a model for and inspiration for the organization to follow
3. People – the talent that is hired and the management and development of this talent at the individual level
4. Organization – organization structure, governance model, accountabilities, metrics and reward & recognition systems
5. Process – day-to-day running of the innovation “operation”including the four stages plus portfolio management, etc.
Dimension #4: Building Blocks
Innovation Principles and Practice
I. Introduction
II. A Working Model
III. Guiding Principles
IV. Building an Innovation Culture
V. Case Studies
Stalled?Has Your Innovative Spirit Stalled?
Many Internal Barriers to Overcome
• Fear of change; contentment
• Aversion to risk
• “Not invented here” syndrome
• Politics of funding
• Organizational complexity
“Nothing is more difficult than to introduce a new order. Because the innovator has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new.”
Niccolo Machiavelli, The Prince
So What’s the Secret?
Five Principles to Guide Your Journey
1. Become the Customer
2. Stay in the Execution Zone
3. Mitigate the Risk
4. Broaden Participation
5. Sharpen the Focus
Principle #1: Become the Customer
Increasing Effort Applied
Increasing Insights
All great innovations rely on a compelling customer insight
ASK
OBSERVE
BECOME
• Customer immersion• Shop-alongs• Be a user
• Ethnographic studies
• Quantitative surveys• Focus groups
“You can observe a lot by just watching.”
Yogi Berra
Principle #2: Stay in the Execution Zone
OPERATIONAL• Day-to-day• Achieve the profit plan• Respond to crises
EXECUTION ZONE
STRATEGIC• 3-5 years out• Build the future• Value creation
Maintain a healthy balance between the operational and the strategic…both are essential to innovation success
Whirlpool Corporation framework
Stay in the Execution Zone
There are four organization personality types
Weaver
Kiwi Falcon1
2
3
4
Phoenix
“Vision without execution is hallucination.”
Thomas Edison
Principle #3: Mitigate the Risk
1. Employee Risk• Establish a culture that accepts failure as a natural part of innovation
• Provide avenues for ideas outside the management hierarchy
• Ensure adequate compensation for risks taken
2. Financial Risk• “Create” the innovation resources…don’t add them
• Time is risk…streamline the decision and development process
• Build experimentation into your innovation development process
Innovation risk is real and aversion to this risk is the silent killer of innovation…accept it, define it and deal with it
“This really is an innovative approach, but I’m afraid we can’t consider it. It’s never been done before.”
Principle #4: Broaden Participation
• Member Companies• Other Associations• Other Regions• Government Agencies• NGOs• Universities
“Procter & Gamble’s radical strategy of open innovation now produces more than 35% of the company’s innovations and billions of dollars in revenue.”
- Harvard Business Review, March 2006
Don’t go it alone…partnering with external entities greatly increases your odds of success
• Transferable innovations• Customer insights• Funding or resources• Collaboration• Content
Principle #5: Sharpen the Focus
• Define the types and levels of innovation expected
To think “out of the box”, you first need a box
• Identify novel customer insights
• Define complementary functional innovation roles
• Screen ideas using clearly defined innovation criteria
• Measure innovation outputs…and inputs
Focus the organization to reduce wasted time and expense
“Work on what’s important, not just what’s interesting. There is an infinite supply of both.”
Frank GuarnieriResearcher, Sarnoff Corp.
Innovation Principles and Practice
I. Introduction
II. A Working Model
III. Guiding Principles
IV. Building an Innovation Culture
V. Case Studies
1. Define your innovation strategy
2. Align your leadership team
3. Address organizational dynamics
4. Build the toolkit
5. Launch the ship
Five Steps to Get the Journey Started
LeadershipTeam
BroaderOrganization
Step #1: Define Your Innovation Strategy
• Articulate a vision • Position innovation within the overall strategy context• Define your target customer(s)…Member companies? Other?• Profile the competition…who is your competition?• Define your focus in terms of types and levels of innovation• Build the economic case• Establish your burning platform
Create a vision and strategy that are clear and inspiring
Establish Your Burning Platform
“I’d like to thank all those people [critics]. Our pre-game speech was easy.”
Urban MeyerHead Football Coach, Florida GatorsJanuary 9, 2007
Step #2: Align Your Leadership Team
• For Associations, leadership might be defined as the Board, committee heads, ED and the ED’s direct staff
• The leadership group must be fully on board
• Involve your leadership team in the why, what and how…but not the if
• Clearly define expected actions and behaviors for you and your leadership team
• Train the leadership team in the innovation toolkit so that they can speak and act with authenticity
Expected Leader Actions and Behaviors
Behaviors• Lead by example…commit to
personal transformation • Tell stories…create heroes• Challenge conventional thinking
from time to time• Celebrate non-conventional
thinkers• Be optimistic about the future of
innovation• Be authentic!
Actions• Create time and space for people
to innovate• Remove cultural barriers• Set challenging targets• Establish seed funds• Participate on innovation project
review boards• Sponsor innovation projects• Network with senior leaders in
other Associations
Step #3: Address Organizational Dynamics
• Governance mechanism• Organization structure (hard and soft)• Roles and responsibilities• Performance metrics• Reward and recognition• Talent management
Performance Metrics
• Balanced Scorecard– Customer: Share, Preference, Loyalty– Employee: Embedment, Talent,
Diversity– Shareholder: Revenue, Profit,
Earnings, Cash Flow, EVA– Internal Processes: Time to Market,
Quality
• Transformation Scorecard– EVA– Loyalty– Innovation:
• % of revenues or profits from innovation
• average selling price• Net promoter score: % who
recommend minus % who won’t
Output Metrics• Senior leadership actions against
leadership roles
• Levels and percent of capital investment in innovation projects
• Number of resources committed to innovation activities
• Number of innovation experts trained
• Employee pulse surveys
Input Metrics
Reward & Recognition
• Invitation to an innovation team
• Investment in professional development
• Visibility to senior management
• Entrepreneurial opportunities
• Broad internal recognition
• Invitation to an innovation team
• Investment in professional development
• Visibility to senior management
• Entrepreneurial opportunities
• Broad internal recognition
• Ad-hoc “spot awards”for front-line employees
• Project performance incentives
• Annual bonuses for all employees
• Long-term incentive plans for senior leaders
• Ad-hoc “spot awards”for front-line employees
• Project performance incentives
• Annual bonuses for all employees
• Long-term incentive plans for senior leaders
EXTERNAL PSYCHIC FINANCIAL
• Wall Street Journal• Harvard Bus. Review,
Sloan Mgmt Review• Business magazines• Trade journals• Association journals• Conference speaker
invitations
• Wall Street Journal• Harvard Bus. Review,
Sloan Mgmt Review• Business magazines• Trade journals• Association journals• Conference speaker
invitations
Step #4: Build the Toolkit
• Brand construct• Customer research• Idea generation• Idea management• “Portfolio” management• Development• Commercialization
Brand Construct
Benefit 1 Benefit 2 Benefit 3 Benefit 4
Customer Insights: Insights regarding target customers’ behavior, passions and expectations that provide clues to their unarticulated needs
Touch Points: Those activities, occasions or experiences which trigger a strong positive or negative emotional response by the target customer
Customer Benefits: Those characteristics of the product which are important to the target customer; e.g., style, value, or quality
Attribute A:
Attribute B:
Attribute C:
Attribute A:
Attribute B:
Attribute C:
Attribute A:
Attribute B:
Attribute C:
Attribute A:
Attribute B:
Attribute C:
Brand Benefits
Customer Segments: Definition of brand’s target customers from segmentation research
A Well Defined Brand Construct Provides Clear Direction to the Innovator
Whirlpool Corporation framework
Customer Research
How Information is GatheredGuided Questionnaire Observation/Experience
ArticulatedBy Customer
InterpretedBy Company
Ethnographic Research
Trends Analysis
Focus Groups
Exit Interviews
Needs Gap Surveys
Habits & Practices Survey
UNBIASEDUnanticipated needs lead tobreakthrough innovation
HEAVILY BIASEDAnticipated needs confirmed by consumers
lead to incremental innovation
RESEARCHER BIASEDNeeds that researcher can anticipate
CUSTOMER BIASEDWhat customers already know they need
Customer Research Utility Map
Persona Modeling
How Needs are Revealed
Live-In Research
Shop-Alongs
Idea Generation
Problem-Driven
Battery Tester
Solution-Driven
Vehicle RFID
Societal Trends New Technology
INC
REM
ENTA
L IN
NO
VATI
ON
BR
EAK
THR
OU
H
INN
OVA
TIO
N
Customer Problems Existing Technology
IDEA
Idea Generation
Target Level of Innovation
Incremental(merchandisable)
Breakthrough
Product/ Service
Business Model
Targ
et T
ype
of In
nova
tion
Focus Group Brainstorming
Altshuller/TRIZ
Aimed Innovation StrategosLens Smashing
Seven Idea Generation Techniques
Operational
Distinctive
Blue Ocean
Shapiro’s “The Seven R’s”Kaizen/Continuous
Improvement
Idea Management
Consumer observations and insights and any research source references
“Idea bank” –A tracking data base for insights, needs, ideas and solutions
Insights
Needs
Ideas
Solutions
1
2
3
4
Conscious and latent needs, the linkage to related insights and any research source references
Ideas, the linkage to related consumer needs and summary of idea test results and “go/no go” decision rationale
Solutions, the linkage to related ideas and summary of solution test results and “go/no go” decision rationale
Portfolio Management
Strategic Factor Weighting Metric WeightingConsumer Value 40% • Need Satisfaction
• Willingness to Pay• Uniqueness
20%10%10%
Sustainable Competitive Advantage
30% • Patentability• Technology Lead Time• Migration Path
15%5%
10%
Financial Risk and Reward
30% • Expected Return• Range of Returns• Execution Risk
15%5%10%
Simplified Opportunity Assessment Matrix
Portfolio Management
Technology
ConsumerNeed
Existing
Existing
New
New
IncrementalInnovation
Distinctive Innovation
Increased sales, share and profit in short term but copycat
competitors can erode all three.(every 1-3 years)
Strong, sustainable revenue and profit boost with competition
unable to easily respond.(every 3-5 years)
Increased sales, share and profit in short term but price
competitors can erode all three.(every 1-3 years)
Satisfies the sales force need for something to sell to sustain the business, but little upside sales
or profit impact.(every launch season)
Breakthrough Innovation
DistinctiveInnovation
Portfolio of Innovation
Innovation Development
Traditional Stage-Gate View of Product Development
Iterative View of Product Development to Support Experimentation
IdeaScreening
ConceptSelection
ConceptEvaluation
BusinessEvaluation
LaunchReadiness
Launch PostAudit
IdeaScreening
ConceptSelection
ConceptEvaluation
BusinessEvaluation Launch
Readiness
Launch
PostAudit
FinalLaunch
PostAudit
Ready-Set-Go Transformation Model
Ready• Recruit a champion• Train leadership• Create change plan
Set• Allocate resources• Survey organization • Train i-experts
Go• Communicate• Create short-term wins• Manage knowledge
Step #5: Launch the Ship
“They say time changes things but you actually have to change them yourself.”
- Andy WarholAmerican Artist
In Summary:
• A sustainable innovation capability is becoming a competitive requirement
• Benefits beyond new product development…brand equity, organization vitality, cost reduction
• A working model of innovation provides a shared language, enables focus and supports metrics
• Guide your effort with a set of innovation principles…this is the list that you put on your office wall
• You can bring method (left brain) to innovation (right brain) so that miracles do not have to occur
Concerned?
You Are At a Crossroads
Innovation Principles and Practice
I. Introduction
II. A Working Model
III. Guiding Principles
IV. Building an Innovation Culture
V. Case Studies
Case Study #1: Business Model Innovation
• Transitions in membership models– Promotional Products Association
• 6,300 company members: $18B industry– Suppliers, distributors, branches
• From trade-only to add individual component– External challenges: labor market, strong resistance from
company owners, independent contractor issues– Internal challenges: price tolerance, willingness to pay,
identification of prospects– Environmental scan: learn from 850+ ASAE member
hybrid associations, interviews, surveys• From independent regional association network
to federation with chapters– Joint billing, membership offers with 28 orgs.
Case Study #1: Membership Model Innovation
• Stems from cultural change/future charge: – “We serve members best by serving the industry first.”
Case Study #2a: Product/Service Innovation
• NAHB networking services• 240k members; 105k show attendees
– Federation of “HBAs” (800 local orgs.)– 70% of members don’t know they belong
• “Builder 20” clubs: started 1996– 2x/year meetings with builders, remodelers
in non-competing markets (www.nahb.org/20clubs)» “Meeting behind closed doors with open books and
open minds“» “Fresh perspective”… “Why reinvent the wheel?”» Tracking participant financial statistics» Expansion into specialties: land development,
urban infill, multi-family, and seniors housing
Case Study #2b: Alternative Meeting Models
• NACDS & for profit competition • 180 retail, 1200 associate members, $35MM budget• Model built on non-dues (retail dues 3%), growth • Historically lavish, appointment based shows
– Annual Meeting: elite (Breakers/Phoenician, $2,800+) cabana meeting environment, lots of golf/little educ.
– Marketplace: purchasing focused (traditional show floor)
– ECRM (Efficient Consumer Response Management)• Founded by drug wholesalers in Ohio• Innovative meeting model: far smaller, targeted by category• Free travel, entertainment for retailers, high service level
– Staff on hand to take notes, deliver with category
Case Study #2b: ECRM-EPPS for profit
– Outcomes: – Strong performance, difficult to replicate model– Very high customer loyalty, any similar programs would be
seen as imitative– Limited range without over-expansion: EPPS (web), Ad
Comparison program, show pubs, international presence– Wider range of categories; traditional suncare, vitamins,
health & beauty, skin/bath, cough & cold, OTC– Now pharmacy, snacks, breakfast, private label, electronics,
GM, pets, Hispanic, photo, school/office– Choosing association good partners (FMI, NCA)
» Friendly relationships: :no “join us or die”• Achieving the defined goal:
– To be the business process that streamlines the consumer packaged goods sales and marketing supply chain
Case Study #2b: ECRM-EPPS for profit
– Very association-based tone• Core Values: “We….
– Embrace integrity, honesty and sincerity in our relationships with our clients and teammates
– Are committed to radical, revolutionary change every day– Are driven to expect excellence from one another– Embrace cultural diversity and individuality– Aggressively seek out opportunities to give back to our
communities– Understand that profitability is essential to our future growth– Are dedicated to actively developing each other and
celebrating each other’s successes• Passion ensures our clients’ success”
Case Study #2c: E-commerce Expansions
• NACDS/ChainDrugStore.net – Portal concept morphed into a targeted messaging service,
launched 2000– Content management system (Vignette)– Private network for sending promotional information targeted
by person, size of chain– Subscribers generate content
» Free access, training, support: food/drug/mass retail purchasing/merchandising
» Suppliers (pharma, CPG manufacturers) subscribe: $10-$75,000
» Limits on volume and content of messaging» Profile of early adopters» Small manufacturers looking for market introduction» Large manufacturers compete for shelf space with
competition
Case Study #2c: E-commerce Expansions
Case Study #2c: ChainDrugStore.net
– History, Structure and Future• Launch: part of “front end services” program in 1998
– Expand appeal beyond health care/pharmacy– Launched Services Corporation/portfolio of services
» Joint chain drug loyalty marketing program» Affinity programs: insurance, HR screening,
merchandising, zone-targeted advertising» Traditional launches such as newsletter failed » Experimentation with a mild “fear of failure”
• Structure: for-profit subsidiary, moved “off campus”• Future: private equity buyout in 2006
– Shifted focus back to pharmacy (core NACDS strength)– Leadership transitions: Ron Ziegler founded, Craig Fuller
funded, Bob Hannan sold
Case Study #3: Operational Innovation
• Texas Medical Society• State association: 45k universe, 180 staff• Data warehouse
– Organized information scattered among different sources, extracted and transformed
– Data marts drawn from data warehouse, tables of summary data for analysis levels
– Data mining for decision support with new tools to access/analyze contents
– Selecting, exploring, modeling large data to uncover previously unknown patterns
Case Study #3: TMA
– Old report environment: same year after year• Not leading to ask new questions; new questions rarely get
answered• Decision cubes allow asking questions with immediate
answers, new views, comparisons to historical info– Different perspective views– Manipulate parameters, derive operational metrics– Immediate display, visual graph/charts
• Requirements: MS SQL Server – Use ProClarity, Excel, Cognos– Up-front costs: $8-$10k setup,
2 weeks IT staff, ProClarity $700+– Impacts:
• CE targeting and delivery• Membership development• Integrated marketing
