© 2007 IBM Corporation
Driving Growth and Competitivenessthrough Service Innovation
Presentation at Helsinki University of TechnologyMarch 27, 2007
Dr. Richard StraubAdvisor to the Chairman, IBM EMEAChair of the Living Labs Policy Group
© 2007 IBM Corporation1
Corporate Strategy
Services Innovation March 2007
Agenda – Questions rather than Answers
The bigger Picture – Economic Cycles
Is Innovation changing in a fundamental Way?
Services Innovation – Engine for Growth?
Are Business changing in a fundamental Way?
The Gobally Integrated Enterprise – a new Model for the 21st
Century?
© Copyright IBM Corporation 2007HUT | March 28, 2007
What is innovation? A Warm-up Quiz
“The effort to create purposeful, focused change in an enterprise’s economic or social potential…the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.”Peter Drucker, professor and author of “Innovation and Entrepreneurship, Management Challenges for the 21st Century,”
“The creation of impact, value and differentiation in novel and unique ways, utilizing the many capabilities available to businesses today. Innovation occurs at the intersection of invention and insight. It’s about application of inventions to solve problems.“Sam Palmisano, IBM Chairman of the Board of Directors and Co-Chair of the National
Innovation Initiative
Introduction
“Innovation serves to create wealth through fulfillment of customer needs with five different Types of Innovation: New Products, methods of production, sources of supply, exploration of new markets and new ways to organize the business.”Joseph Schumpeter, 1934, “Theory of Economic Development”
© 2007 IBM Corporation3
Corporate Strategy
Services Innovation March 2007
Installation Deployment
The bigger Picture: Five Historical Waves of Economic & Social Transformation
Irruption
The Industrial Revolution
Age of Steam and Railways
Age of Steel, Electricityand Heavy Engineering
Age of Oil, Automobilesand Mass Production
Age of Information and Telecommunications
Frenzy Synergy Maturity
Panic1797
Depression1893
Crash1929
Dot.comCollapse
Coming period ofInstitutional Adjustment
1
2
3
4
5
Panic1847
1771
1829
1875
1908
1971
1873
1920
1974
1829
Source: Perez, C., “Technological Revolutions and Financial Capital”, 2002
Crash
• Formation of Mfg. industry• Repeal of Corn Laws opening
trade
• Standards on gauge, time• Catalog sales companies • Economies of scale
• Urban development• Support for interventionism
• Build-out of Interstate highways
• IMF, World Bank, BIS
© 2007 IBM Corporation4
Corporate Strategy
Services Innovation March 2007
The Lifecycle of a Technological Revolution
© 2007 IBM Corporation5
Corporate Strategy
Services Innovation March 2007
Installation DeploymentIrruption
Age of Information and Telecommunications
Frenzy Synergy Maturity
Dot.comCollapse5 1971
A global game board – doubling of the labor pool Social and political tension over globalization’s pace, impactOpen standards, and a proliferation of componentizationHost of collaborative tools and organizational modelsSignificant empowerment of individuals
Coming Period ofInstitutional Adjustment
The Particular Characteristics of the Coming Deployment
Crash
© 2007 IBM Corporation6
Corporate Strategy
Services Innovation March 2007
In 2006 over one billion individuals are using
the internet~17% of global population
Internet Connectedness
Source: Computer Industry Almanac http://www.c-i-a.com/pr0899.htm
# of I
nter
net U
sers
(M)
North America
Western Europe
Asia-Pacific
South Central America
Eastern EuropeMiddle East/Africa
0
100
200
300
400
500
600
700
800
1995 2000 2005
DeploymentInstallation Crash
Worldwide Internet Usage by Region
Source: http://www.internetworldstats.com/stats.htm
4%1%Middle East / Africa
6%1%Eastern Europe
7%1%South Central America
25%8%Asia-Pacific
28%20%Western Europe
30%69%North America
20051995Region
Regional Share
30%
28%
25%
CAGR 30%
© Copyright IBM Corporation 2007HUT | March 28, 2007
Is the coming deployment changing the Nature of Innovation?
1. Open collaborative innovation2. The primacy of the individual: 3. Focus on Intellectual Capital (IC)4. Growing non-product innovation5. Integration of existing technologies
Trends
The resulting trends have expanded the way we innovate:
Technology changes: maturing platforms provide communication everywhere, access to knowledge, collaboration
Societal, economic and technological maturity creates stable platforms for innovation.
Historical precedents such as steam power and electricity show that the scope and pace of innovation grows dramatically as platforms stabilize
Society changes: globalization, the rise of the individual, changing values & environmentalism
Economic changes: incorporation of developing economies in the global market, and the rise of services and intangible assets
© Copyright IBM Corporation 2007HUT | March 28, 2007
Innovation Trend: Open collaborative innovation extends decades of evolution from corporate innovation to networks of innovation
Centralized inward looking innovationClosed Innovation
Ecosystem centric, cross-organizational innovation
Innovation Networks
Sources: Chesbrough 2003, Forrester 2004, von Hippel 2005
Trends
Externally focused, collaborative innovation
Open Innovation
© 2007 IBM Corporation9
Corporate Strategy
Services Innovation March 2007
Innovative Milieux
A spectrum of innovation models
ClosedNarrow, Tight
Proprietary
Public
ScopeBroad, Loose
Evolutionary
System Models
Proprietary R&D(Technology Pushand Market Pull)
Open Academic R&D
Open Source
Increasingly Collaborative
Much would be lost if the academic research lost its historically open, collaborative nature
© Copyright IBM Corporation 2007HUT | March 28, 2007
Innovation Trend: Non-product innovation
Product innovation dominates managerial thinking.
Differentiating new-product breakthroughs are increasingly rare and new products are more rapidly copied and commoditized
Business Process Innovation
Innovative business models or operations
Services Innovation
Businesses create and improve their capability to innovate systematically
Management and Culture of Innovation
Sources: Chesbrough 2004, The Economist 2004, Slywotzky 2003
Trends
Innovation Policy
© Copyright IBM Corporation 2007HUT | March 28, 2007
Open Collaborative Innovation: Some of the most significant sources of innovative ideas reside outside the organization
Assoc’s, trade groups, conference boards
051015202530354045%
Academia
Competitors
Consultants
Customers
Business partners
R&D (internal)
Employees (general population)
Other
Think tanks
Internet, blogs, bulletin boards
Sales or service units
0 5 10 15 20 25 30 35 40 45%
Source: The IBM Global CEO Study 2006
Sources of Idea Generation
InternalExternal
© Copyright IBM Corporation 2007HUT | March 28, 2007
Business Model Innovation is now nearly as important as more traditional innovation around products/services
“We start from the product concept and move to the business model and operations that best fit.”
“All [innovation] areas are linked.”
“An appropriate business model is a fundamental enabler for innovation and competitiveness.”
CEOs say:
P oint Alloca tion of Innova tion Type s
0%
10%
20%
30%
40%
50%
P S M OP S B E M
P ointA llocation
Products/Services/Markets
Operations Business Model
42% 30% 28%
© Copyright IBM Corporation 2007HUT | March 28, 2007
Innovation Trend: The primacy of the individual – the “Knowledge Worker”
Trends
Increased autonomy of the individual in businesses & employment:Project-based temporary employment Communication cost reductions create decentralized decision making, loose hierarchies, internal quasi-markets and elements of democratization.
The individual is the ultimate source of new ideas:Management practices including internal motivation enhance the likelihood of innovation Individuals and team autonomy fosters creativity when there exists a sense of ownership and control over their day-to-day efforts and ideasChallenging work, sufficient resources, and organizational encouragement further promote innovation
The user of the products or services influences how they are created and utilizedUser Driven InnovationLiving Labs
Technology andInfrastructure
Organisation
Living LabExpertise
Living Labservices
USERCommunity
Methodology
Living Labs – invertingthe Innovation Process
“Customers” – Companies, Public SectorIndividuals, Academia
© Copyright IBM Corporation 2007HUT | March 28, 2007
Innovation Trend: Integration of existing technologies
Integrative multidisciplinary innovations leverage existing Information and Communication platforms to create new services, new processes and new business models
– Easy connectivity between customers and suppliers, – Focus on new ways to create value with excisting Technology– Maturity of Information and Communication Technology allows combination
of existing technological components in new ways (e.g. eBay, Google, iTunesand Skype).
– Utilization and integration of existing technological components and focus on innovative processes and business models.
– Network Effects around new Service, Process or Business Model
Sources: Roadmap for Open ICT Ecosystems, Berkman Center for Internet and Society, Harvard Law School, 2005. Carl Shapiro and Hal Varian, Information Rules, HBS Press, 1999.
Trends
© Copyright IBM Corporation 2007HUT | March 28, 2007
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1810 1835 1860 1885 1910 1935 1960 1985 2010
0%
10%
20%
30%
40%
50%
60%
70%
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100%
1810 1835 1860 1885 1910 1935 1960 1985 2010
0%
10%
20%
30%
40%
50%
60%
70%
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90%
100%
1810 1835 1860 1885 1910 1935 1960 1985 2010
The Global Marketplace has fundamentally changed
Japan
China
Russia
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
United States
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
Germany
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
India
AgricultureManufacturing
Service
© Copyright IBM Corporation 2007HUT | March 28, 2007
The overwhelming economic Importance of the Services Sector and Services Innovation
Services Account for 70 % of Value Add and Employment in OECD– Market Services (excl. Government Services) account for 50 %
Positive Impact of Knowledge-Intensive, ICT-based Services– GDP Growth, Productivity Increase and Job Creation– Performance for Market Services – Telecoms, Transport, Wholesale, Retail Trade,
Finance, Insurance and Business Services -> 60 % of New Job Creation– Non-Market Services -> 40% of New Job Creation (Community, Social and Personal
Services, Health and Education).
Megatrends driving the Growth in Business Services– Investment in “Intangibles”– Focus on Knowledge, Collaboration and Community (Knowledge Creation Bottom-Up) –
Web 2.0– De-composing – re-composing: Businesses as Network of Components – Connected via
Services Relationships (Outsourcing, Offshoring, Business Process Transformation Services)
– Globally Integrated Enterprises – New Service Oriented Model including the technical Infrastructure (SOA)
Sources: Seelly-Brown & Duguid, Evans & Wolf, Neely
© Copyright IBM Corporation 2007HUT | March 28, 2007
Is Services Innovation different ?
Services Definition– Intangible in Nature– Cannot be stored – Production & Consumption simultaneous
Service Innovation– Less R&D driven than Product Innovation – external Sources– Interactive Process, multi-dimensional and increasingly co-creative process– Asset based Services vs. “one of a kind” (Scalability, Replication)– Skills Dependency – HRD challenge – Entrepreneurship as a driver of Services Innovation
Enhancing the Role of the Customer/User -> Living Labs– From User as “Target”, to User providing Feed-back, to Contributor and Creator– Passionate Users as Lead-Users– Liberating the “Creativity of the Crowds”– “Democratizing of Innovation” (Eric Von Hippel, MIT)– Markets for Ideas and for IP– Driving Innovation at various levels (business, civil society, public sector, societal)– Providing Capabilities, Methods and Tools – Network of Living Labs across Europe
© Copyright IBM Corporation 2007HUT | March 28, 2007
High Value Jobs moving into Services
0102030405060708090
100
1800 1850 1900 1950 2000 2050
Services (Info)Services (Other)Industry (Goods)Agriculture
Estimations based on Porat, M. Info Economy: Definitions and Measurement,Augmented with recent data and projections from http://www.bls.gov/
© Copyright IBM Corporation 2007HUT | March 28, 2007
Promoting & Enabling Services Innovation
Trends
Companies: Embed in company strategic direction Make the Customer/User central to the Innovation Process (Lead-Users)Innovation Culture supported by HR Practices – Creativity, Learning, Collaboration and Creativity Create a Collaboration Infrastructure to engage Employees and External PartnersMove R&D from Technology to Innovation
Academia:Prepare Students for the Services Economy and for Services Innovation Implement a new Academic Discipline (Services Science Management and Engineering –SSME).New Joint Ventures Academia – Industry (EIT – Knowledge and Innovation Communities)
GovernmentsDevise Policies targeted at Services InnovationEmbed Services Innovation in the “Innovation System”Supportive Regulatory Regime (Open Standards, Market for IPR)New Services Innovation Infrastructures as part of the “Democratic Process”
© 2007 IBM Corporation21
Corporate Strategy
Services Innovation March 2007
In the New Landscape, Global = Local
Markets
Partners
Resources
Markets
Partners
Resources
Markets
Partners
Resources
Markets
PartnersResources
National (Local)Physical, technology, legal, cultural barriers foretell geographical proximity to clients, resources and partners
Old Paradigm
Companies with global reach typically
operate as independent “local” entities
Multi-National
Markets
Resources Partners
All firms, large or small, mature or emerging, have easier access to global sets of clients, resources and partners enabled by the
global digital infrastructure.
Globally Integrated Enterprise
New Paradigm
© 2007 IBM Corporation22
Corporate Strategy
Services Innovation March 2007
A Component View of A Business Supports Modular Designs
Category
Salvage & Subrogation
PaymentsFraud Investigation
Policy Transactions and
EventsPremium Audit
Collections
Billing
Claims ProcessingCorrespondence
Execute
Asset Management
Fraud Management
Procurement/ Vendor
Management
Control
Cash FlowPlanning &Budgeting
Bus AdminCash FlowClaimsPolicyholderPolicyRisk Management
Touch PointHandling
Treaty & Facultative
Reinsurance
UnderwritingDecisioning
Salvage & Subrogation
Fraud Investigation
Correspondence Handling
Document Printand Imaging
HumanResources
ClaimsProcessing
Policyholder / Affiliated Party
ProfilePolicy
Administration
Exec
ute
TechnologyManagement
FraudManagement
Asset Management
Cash TransactionsManagement
& Control
LitigationManagement
Risk and Exposure
Management
ClaimsInvestigationManagement
Policy AdministrationService Level Management
ActuarialControl
PolicyholderSatisfaction
Management
Con
trol
BusinessStrategy
ClaimsStrategy
PolicyholderRelationship
Strategy
Policy Administration
Strategy & Planning
Risk, Compliance, Legal
Management StrategyD
irect
Business Administration& Infrastructure
Cash FlowClaimsPolicyholder/Affiliated Party
PolicyRiskManagement
Financial reporting &
Metrics
Investment Management
Financial Capacity
RegulatoryComplianceReporting
InvestmentOperations
Financial Reporting& Metrics
InvestmentManagement
Treasury / BulkReserves
Management
InvestmentStrategy
FinancialManagement
ProductDeployment
Product Defineand Design
Product Economics& Performance
Product Planning & Analysis
Product PortfolioStrategy
Product Management
Campaign Planning
Sales Generation & Enablement
Commission/ Profit Sharing
New Business Processing
CampaignExecution
Rate Negotiation
Channel Mgmt/ Plan &
Performance
Sales & Channel
Managementt
Sales Generation& Enablement
ProducerCompensation
New BusinessProcessing
Channel Administration
Channel Management
ChannelSegmentation
Strategy & Planning
ChannelRelationship
Strategy
BusinessAcquisition &
ChannelManagement
AccountingFunctions
Systems Development &Maintenance
Salvage & Subrogation
PaymentsFraud Investigation
Policy Transactions and
EventsPremium Audit
Collections
Billing
Claims ProcessingCorrespondence
Execute
Asset Management
Fraud Management
Procurement/ Vendor
Management
Control
Cash FlowPlanning &Budgeting
Bus AdminCash FlowClaimsPolicyholderPolicyRisk Management
Touch PointHandling
Treaty & Facultative
Reinsurance
UnderwritingDecisioning
Salvage & Subrogation
Fraud Investigation
Correspondence Handling
Document Printand Imaging
HumanResources
ClaimsProcessing
Policyholder / Affiliated Party
ProfilePolicy
Administration
Exec
ute
TechnologyManagement
FraudManagement
Asset Management
Cash TransactionsManagement
& Control
LitigationManagement
Risk and Exposure
Management
ClaimsInvestigationManagement
Policy AdministrationService Level Management
ActuarialControl
PolicyholderSatisfaction
Management
Con
trol
BusinessStrategy
ClaimsStrategy
PolicyholderRelationship
Strategy
Policy Administration
Strategy & Planning
Risk, Compliance, Legal
Management Strategy
Dire
ctBusiness
Administration& Infrastructure
Cash FlowClaimsPolicyholder/Affiliated Party
PolicyRiskManagement
Financial reporting &
Metrics
Investment Management
Financial Capacity
RegulatoryComplianceReporting
InvestmentOperations
Financial Reporting& Metrics
InvestmentManagement
Treasury / BulkReserves
Management
InvestmentStrategy
FinancialManagement
ProductDeployment
Product Defineand Design
Product Economics& Performance
Product Planning & Analysis
Product PortfolioStrategy
Product Management
Campaign Planning
Sales Generation & Enablement
Commission/ Profit Sharing
New Business Processing
CampaignExecution
Rate Negotiation
Channel Mgmt/ Plan &
Performance
Sales & Channel
Managementt
Sales Generation& Enablement
ProducerCompensation
New BusinessProcessing
Channel Administration
Channel Management
ChannelSegmentation
Strategy & Planning
ChannelRelationship
Strategy
BusinessAcquisition &
ChannelManagement
AccountingFunctions
Systems Development &Maintenance
Illustra
tive
Strategic Differentiation
Differentiated
Competitive
Basic
Cost Reduction
Opportunity
Business Competencies
© 2007 IBM Corporation23
Corporate Strategy
Services Innovation March 2007
Support Your Business
Service Your Customers
Setup Your Resources
Build Your Product
A Universe of Modular Business Services Allows Even small Businesses and Start-ups to Become Globally Integrated
Reach Your Customers
Google Apps for Your Domain
Used by Aural New York
© 2007 IBM Corporation24
Corporate Strategy
Services Innovation March 2007
Source: “How we Compete” Suzanne Berger and the MIT Industrial Performance Center, 2006
Each business must determine its own unique path based on its history, competencies and market realities
All firms, regardless of size, must address global pressures and competitionLow wages do not necessarily translate to low costProduct and service innovation are alive and wellComponentization increases speed to market and therefore competitive intensityCustomer insights enable tailored solutions for multiple distinct customer segments
Client Selection
Value Proposition
Value Capture
Scope of Activities
Sustained Value Add
Which clients should we serve based on new global market insights and new points of innovation?
What unique value propositions should we build to differentiate in an industry of increasingly specialized players?
How will we make money? Who’s charged for what? Can we connect cost and benefit?
Which activities do we perform? Which are done by value net partners? How do we secure the learning we need for ongoing innovation?
How can we structure the business for continuous, rather than transactional value add? What are the new services models?
© 2007 IBM Corporation25
Corporate Strategy
Services Innovation March 2007
How do we tap the Power of Globalization?
How do we deliver unique value in an open,
collaborative ecosystem?
How do we forge a strategy for
Specialization?
Enable Collaboration
Build a Specialized Enterprise
Leverage Global Assets
Serve Distinct Global Markets
Manage Value in an Open
Ecosystem
Address Shared Risk and Control
A Globally Integrated Enterprise addresses key globalization questions with a suite of six capabilities
Globally Integrated Enterprise