Diversity and Paradox:

Managing Modern Innovation

Mel Horwitch

Dean & University Professor

CEU Business School

September 30, 2011

Importance of Innovation:

An Emerging Stark Choice−

Pervasive Innovation & Value Creation vs. a Zero-Sum World

One Type of

Heritage:

From Malthus (19th

Cent) to Limits to

Growth (1960s) to

―Peak Oil‖ (Today)

Natural Resource

Intensity

Reflecting:

• A Zero-Sum/

Resource-

Constrained World

• Not an Attractive

Future

Another Type of Heritage:

Steam Power and the

Indus Revolution; the

Railroad & Telegraph (19th

Cent), the Green

Revolution in Agric, the

Internet, Wireless, etc.

Creating:

•An Innovation-Rich,

Resource-Growing

• Knowledge- Intensive

World, &

• A More Attractive

Future:

Needs A Planet

Comprising Intelligent

Communities

© Mel Horwitch, 2011

Key Characteristics of Modern Innovation:

Beyond R&D and Entrepreneurship

The ―New Geography‖ of

Modern Innovation

Global Innovation

High Value & Diverse Services Innovation

Revitalized Corp. R&D &

Technology Strategy

Increasing Global Importance of

―Intangible Capital

Dynamic, Increasingly

Complex & Multidirectional

A Distributed & Diverse Future

Innovation Ecosystems

Key Characteristics-1

An Increasingly Distributed & Diverse Future:

Primacy, Cyclicality, Dynamism

& Emergence (Re-Emergence) of New Key

Centers of Gravity

• 19th Century: Britain and Later Germany

• 20th Century: Germany, US, Russia and

Japan

•21st Century: New Geographic Centers

(Especially Cities as Loci of Innovation); New

Linked Innovation Models--Distributed &

Connected; Globalization of Innovative

Capabilities; Innovation of Innovation

© Mel Horwitch, 2011

Key Characteristics-2: MODERN INNOVATION NOW IS NOT EASY OR SIMPLE—IT’S DYNAMIC, INCREASINGLY COMPLEX & MULTIDIRECTIONAL

1950s 1960s 1970s 1980s 1990s 2000 9/11 2002 2011

Digital-Based Innovation (Hardware, Software, Design, Content, etc.)—E-Business (―Silicon Alley‖)

―Hybrid‖ Formsof Innovation

(Physical & Digital)

Emerging ―Platforms‖ of Bus. Innov./ (e.g. mobility, broadband, soc. networks, etc)

Technology a Distinct

Domain

& Industrial R&D

a Distinct FunctionLarge-Scale Corporate

R&D and Innovation:

Technology

Becomes Strategic

(Physical Space) Forgotten Legacy:

Big Government and the

Cold War:

DOD, NASA, DARPA

Big Government Again:

Security/Global Terrorism;

Global Warming &

Environment; Energy;

Cities; Disease/Health; etc

The New Sophistication: Tension/Variety in Innovation

Management– Prof. Mgmt vs. Creative Destruction

Dot-Bomb/NASDAQ Crash/(9/11/2008 Meltdown

Silicon Valley et. al.High-Tech Entrepreneurialism

Some New

Ingredients:

Glob.Rivalry/

Competitive-

ness, BRICs

et al, Energy,

Mega-Cities-

Regions

From Mfg Services (80%)/Know-Intensive Innovation

Internat. R&D Glob. Tech Strat Distrib. Glob. Innov

© Mel Horwitch, 2011

―Reverse Innova-tion‖

Key Characteristics-3

Revitalized, Opened, Linked

& Transformed:

Modern Global Corporate

R&D & Innovation Strategy

Samsung’s Global R&D Network

● Overseas Branches (USA, UK, China)

● Overseas Offices (Japan, Germany, China)

● Overseas R&D Centers (San Jose, NJ, Japan, China, Russia, Israel, India)

● Data Centers (Gwacheon, Gumi, London, Singapore, Beijing, Tokyo, Tijuana, New Jersey)

● Global Networks (250 nodes in 64 countries)

Singapore Asia IT Center

SDS AmericaSDS ChinaSDS

Europe

China

R&D Center

Office in Tokyo

Office in

Germany

Beijing China IT Center

Tokyo Japan

IT Center

Tijuana

e-Data Center

New Jersey e-Data Center

London Europe IT Center

India

R&D Center

Gwacheon & Gumi e-Data Center

Office in Shanghai

The Trading Floor of the NYSE

Wall Street/NYSE

Key Characteristics-4

Increasing Global Importance of

“Intangible Capital”

• Natural Capital: 5 % of Worldwide Value

• Produced Capital: 18 % of Worldwide Capital

• Intangible capital: 77 % of Worldwide Capital

Source: World Bank, Where is the Wealth of nations? Measuring Capital for the 21st Century; Reason, Aug-Sept, 2007

Key Characteristics-5

Resulting in Increasing Variety of Services

Rise of Value-/Knowledge-Intensive ServicesWithin services a major transition is occurring: from “traditional” services

(emphasizing low cost, economies of scale, etc.) to value- and knowledge-

intensive services (emphasizing knowledge, customization, integration,

analytics, etc.)

Then (Traditional Services) Now (Value- and Knowledge-

Intensive Services)

Standardization Customization

Transactions Relationships

Focus on Goods Focus on Service

Cost Reduct. Via Mfg Effec Revenue Expansion Through

Service

Mass Marketing Marketing to Indiv. Customers

Limited Ability Vastly Improved Ability

To Commun, Store, Process Info To Commun, Store, Process Info

(Source: Rust & Miu, 2006)

Key Characteristics-6

Rise of ―Global Innovation:‖

Building Blocks & Forces at Work

• Globalization of IT and Transportation Infrastructure

• Rise of High-Tech Regions Around the Globe (More on this Later)

• Rise of Modern Sophisticated Supply Chains

• Emerging Globalization of Entrepreneurship (So-Called ―Born Global‖)

• At Least ―Semi-Globalization‖ of Production and Especially Markets

• Talent Everywhere…and Globalization of Professionalization – Increasingly Higher Value ―Outsourcing‖

– Globalization of the ―Business School Industry‖

– Globalization of R&D

– Migration of Professional Services, e.g. Consulting, to Emerging Economies*

* ―Heeding Their Own Advice, Consulting Firms Head East,‖ WSJ, 10/11/10

http://online.wsj.com/article/SB10001424052748704394704575496071382791624.html?mod=ITP_marketplace_0© Mel Horwitch,2010

Key Characteristics-7

The ―New Geography‖ for Innovation & Changing

High-Tech Clusters:•Starting Point: Advanced Economies (Route 128, Silicon Valley, Cambridge, UK

etc.)

•Later: in small/medium size knowledge-intensive advanced economies:

e.g. Finland, Israel, Singapore, Taiwan, Korea, etc.

•Rise of BRICs and ―Mini-BRICS‖ & Further Shifting of Centers of Gravity for

Innovation Russia

Mexico

Vietnam

China India

South Africa

Brazil

TurkeyColombiaCosta Rica

Ghana

Some Other Key Dimensions:

• Pervasive Entrepreneurship & Startups

• Ingredients: Universities, Magnet for Talent, ―Culture‖ of Innovation, Industrial

Base, Core Industries, ―Amenities,‖ ―Complements‖ (Support Services, VCs, etc.)

• Sometimes Governmental Support

• Resilience and Adaptation of Such Clusters © Mel Horwitch, 2011

Hungary?

Key Characteristics-8

Rise of Worldwide ―Innovation Ecosystems‖What are ―Innovation Ecosystems?

A network of actors (e.g., firms or individuals) whose differing interests

are bound together in a collective whole for purposes of promoting

business development through innovation.

Key Features:

• Exist in the physical, digital and “blended” worlds of modern knowledge and value creation.

• Can be Configured as ―centralized: and ―decentralized‖ networks

• Can be dynamic, organic and non-linear network, i.e. multi-nodal and multidirectional, with a changing set of strong and weak ties.

• Function, often to access high-value talent and ideas from practically

• Populated with an increasingly diverse array of talent and sources of new value creation, including users and other outsiders.

• Inter-linkages can be malleable, adaptive.

• Flows of ideas and knowledge within the linkages are multidirectional on a global scale.

• Core & Periphery: Links are increasingly diverse and comprise globallydispersed sources, developers and users of innovation (possibly “reverse innovation”)

Illustration-1:

Reverse Innovation at GE:

One Way to Conceptualize Cycles of Global

Innovation: Example Portable MRIs

• Phase One: Globalizing Market Presence (1950s-60s)

• Phase Two: Globalizing the Resource Base (1970s-80s)

• Phase Three: Glocalization (1990-2005)

– Winning market share by adapting global offerings to meet local needs)

• Phase Four: Reverse Innovation (2005-?)

– Develop products ―in country, for country‖

• Phase Five: Bringing Innovation Home (2005-?)

– ―In country, for the world’

Source: Vijay Govindarajan, “The Case for „Reverse Innovation,” BusinessWeek, 10/26/09

Illustration-2: Smart Grid Innovation Ecosystems for GE, IBM, & Cisco, Circa 1/10

From: Ari Ginsberg, Mel Horwitch, Subhendu Mahapatra, & Chhavi Singh, Ecosystem Strategies

for Complex Technological Innovation: The Case of Smart Grid Development, Paper Presented at

PICMET 2010 Conference, Phuket, Thailand July 22, 2010

Mapping this Illustration: Comparing Smart Grid Innovation Ecosystems for GE, IBM & Cisco, Circa Jan. 2010

GE IBM Cisco

From: Ari Ginsberg, Mel Horwitch, Subhendu Mahapatra, & Chhavi Singh, Ecosystem Strategies

for Complex Technological Innovation: The Case of Smart Grid Development, Paper Presented at

PICMET 2010 Conference, Phuket, Thailand July 22, 2010

Illustration-3:

Radically Expanding & Scope

of Global Innovation Ecosystems

for Innovation Strategy:

Leveraging Social Networking

New Arenas: Innovation-Based Opportunities-

The Myriad Cleantech-Innovation Connections

−Redefining Cleantech &

Catching the Next Wave

RISING ENVIRONMENTAL CONCERNS•Global Warming•Other Concerns

FINANCIAL MELTDOWN(A “Substitute” for Financial Services?)

ENERGY• Supply—”Below Ground”•—Geologists-The “Peak Oil” Perspective• National Security• New Sources of Energy• Management

“GREEN”: BASIS OF NEW INDUSTRIAL REVOLUTION? MAYBE-BUT NOT JUST “RENEWABLE ENERGY”

Gov’t Policy: Jobs, Stimulus, Etc.

SECTOR-LEVEL-TOPICS:•Automobiles•Alternative Energy•Cities

Thought Leadership(From the Gloomy ‘06 Stern Report to Stern’s Emphasis Now on the “Next Industrial Revolution”

Global Competition: The EU; China, India, Japan

Cleantech-Innovation Opportunities: Linking Smart

Grids & Microgrids-An Emerging Opportunity Globally

The Global Embracing of Smart Grids

• Smart Grids permits an electricity network to uses a wide array of

information technology to monitor and manage the flows of electricity

& energy usage. They can be configured on a massive scale, regional

and continental.

• Smart grids are globally a huge opportunity, with smart grids being

proposed throughout the world, including the US, Australia, Northern

Europe, the UK, India, China, Taiwan, etc. (According to IBM, China is

the Biggest Market for Smart Grids

• (Over Next 10 Years: In US $36 Billion vs. in China $208 Billion on

Renewable Energy; Current Announced Smart Grids allocation: US:

$4.5 Billion vs. China $7.3 Billion; IBM is Establishing Energy &

Utilities Solutions Lab in China)

• Source: “IBM’s Chinese Smart Grid Ambitions,‖ earth2tech, 3/4/10

Further Cleantech-Innovation Opportunities: Linking

Smart Grids & Microgrids

Introducing Microgrids• Microgrids are also intelligent & they utilize advanced IT. They represent small-

scale power supply networks. The can provide power for small areas, such as

rural, a campus, neighborhood or factory. Energy sources include a portfolio

of decentralized energy technologies, often connected at a single point to the

larger utility grid.*

• The benefits of microgrids include: more Community control to manage its

energy generation & distribution and connect to the utility grid as a single

entity (allows a community to be less dependent on a national grid); greater

flexibility & more options in planning energy source strategies; more

experimentation due to lower size & capital requirements; decrease of energy

losses due to lower transmission distances; utilizes space more effectively;

promotes energy awareness; adapts more easily to local conditions.*

Note: An Opportunity for Leapfrog: Linking Smart Grids &

Microgrids*Adapted from Jaise Kuriatkose, Distributed Generation, Smart grid & Micro grid, Centre for Alternative Technology, circa June, 2010,

www.cat.org.uk (accessed on Sept. 3, 2010)

Further Opportunities: Barrowing from Another Innov.

Infection Point: From Pure Energy Perspectives to

Incorporating Intelligence Cleantech: An ―Energy

Internet‖ Convergence

Communication

Standards and

technology

Media

Website,

BlogsTwitter,

Facebook

DataSmart Appliances, Power Monitoring, Smart Grid

Energy

Utility Companies

Power

Transmission

Energy

Internet

Companies

Source: MBA-ITM Team Presentation on 4/18/09 in NYC

An Energy Internet Viewpoint:

“The goal in the next six or seven

decades should be to produce

„squanderably abundant,‟ cheap

and clean energy.”

-Bob Metcalfe, 2008

-Speaking about the energy internet

in Scientific American

Source: MBA-ITM Team Presentation on 4/18/09 in NYC

Startup Manifestations of

“Energy Internet” Startups

Source: MBA-ITM Team Presentation on 4/18/09 in NYC

Leveraging Mobile Smart Phone Innovation in

Cleantech: e.g. iPhone Apps for Remote Home

Power Monitoring

Increasing Varieties of Modern

Innovation Beyond Technology:

Business Model Innovation

Manufacturing Innov.

High Technology Innov.

Services Innov.

Business Model Innov.

Innovation of Innovation

19th Century 20th Century 21st century

A Contribution from the Field of Management:

Providing a Language for Better Understanding and

Implementing Business Model Innovation

•Subscription – [Economist, WSJ (so far)].

•Leveraging Power of Networks – [CNN’s iReport].

•Disintermediation & Analytics– [Amazon].

•Collectives & Communities – [Commune Buildings in Brooklyn;

Public Wifi, Green Maps].

•Optimizing Efficiencies in Services – [McDonalds, Wal-Mart].

• Becoming Services for Previously Physical-Based Products

– [IBM, Xerox]

•Competing on Cost [EasyJet, Southwest, Chinatown Bus

Companies-Fung Wah].

•Compelling Content – [WSJ, ]

•Open source – [Linux, Apache].

•Traffic, Leverage Analytics, Smart Advertising – [Google].

•Ecosystem Innovation – [Smart Grids]

Source: Based Partially on Neely, 2007

The Commerce Bank in NYC

• ―No Stupid Fees‖

• Burger King to Banking

(Retailers, not Bankers)

• Lollipops

• ―Saturation is Good‖?

• Dog Biscuits?

• Sundays & Holidays Are for Banking (7 Day Lobby/Drive Through Hours)

• ―Penny Arcade‖ Coin Counting Machines("We are writing to commend the outstanding service we received from your team, enabling us successfully to close on our new house in Westport, CT under an extremely tight timetable.‖ Evan, Connecticut (http://www.TDBank.com/inside_tdbank/fanMail/index.cfm))

10/2/07: Canada's TD Bank Financial Group Acquires Commerce Bank for $8.5B

7/23/08: Commerce Bank & TD Banknorth change the brand name for combined

operations to “TD Bank, America's Most Convenient Bank,” in place of “TD

Commerce Bank”

Continually Evolving State of the Art: Ongoing

Stream of Concepts Expanding Modern Innovation

Sources: Economist Special Section, 10/13/07; HBS Press Releases in 2011; NYC-ACRE Incubator at NYU-Poly

• Leveraging Shock and Intensive Rivalry:―A crisis is a terrible thing to waste‖

• Increasing Ambiguity & Greater Difficulty in Defining Innovation

• Not R&D; Not Simply Technology or Invention; & Hard to measure• New Centers of Gravity for Innovation

(A New Innovation Arms Race: Purposeful Clustering)• New Corp Structures (Modularize, Localize)• Open Innovation vs. ―Beacons‖ vs. Users?• Concurrent Innovation• Forces: Globalization/IT• Globalization of Entrepreneurship• Clusters vs. Firms (Resilience)• ―Real breakthroughs require and the ability to absorb failure,and large organizations are incapable of such risk.‖ (P. 4)• ―Mass Innovation‖• Instilling an ―Innovation Culture‖• Difficult to Control: ―Information Wants to Be Free‖ (p.14)• ―Innovation Labs;‖ Purposefully Designed ―Incubators;‖

Some Key Implications for Modern Innovation

Management Past leadership is no guarantee for the future, especially since valuable

knowledge is scattered, sophisticated, & sticky; new sources of

differentiation exist, latent needs are everywhere;

Thus, modern innovation offers continuously opportunities to create

unique advantage;

• Don’t Fight Last War−Focus on Present & Future

• Go Beyond Simple IT & Even Broadband & Aim to be Strong in Newer Sets

of Technologies and Associated Capabilities

• Leverage Partners of Diverse Kinds, e.g. Firms, NGOs, etc.

• Technology is Necessary But By No Means Sufficient−Education & Human

Networking are a key Components for Modern Innovation Clusters

(The Role of Modern Business Schools as High Value Neutral Zones)

• Aim to be a Participant in Best Practices--Not Settling to be a Second

Mover—Leap-Frog Opportunities Exist Throughout the Globe

• Learn from Best in Class—Don’t Be Limited By Geography

(Again, the Role of Modern Business Schools as High Value Neutral Zones)

• Meaning of Innovation “Periphery” & “Core” Changing in Fundamentally

Observation Based on Perspectives of

Strategy & ManagementThe Paradoxical Impact of Innovation’s Primacy in the

21st Century: The Resuscitation of the General

Management Tradition (Previously Prominent in the 1950s

Through the Late 1960s) due to the Imperatives of

Modern Innovation:

– The Importance of Multifaceted Leadership

– Adaptive and Strategic Direction Without Rigidity

– View the Firm as a Whole

– Universal Managerial Characteristics

– Optimism & Fun

– The Universal & Adaptive Professional Manager

– Human Talent: A Key Resource

– Importance of Hard-to-Define ―Implicit‖ Strategy

– A Sense of Purpose (From ―Organization‖ to ―Institution‖)

FURTHER PARADOX: • THE REDISCOVERY OF “ARTFUL

MANAGEMENT” FOR SUCCESSFUL

MODERN INNOVATION;

• THE RISING PLACE OF BUSINESS

SCHOOLS IN CREATING ROBUST,

RELEVANT AND WINNING CLUSTERS OF

INNOVATION; and

• AS AN ANSWER TO THE CHALLENGES

OF THE OPEN SOCIETY AND THE NEED

FOR HOPE IN THE 21ST CENTURY.