Continuous Value Creation in

the Age of Innovation

PRESENTED BY:

DR. THOMAS N. DUENING

ARIZONA STATE UNIVERSITY

tduening@asu.edu
 Agenda

 The Age of Innovation

 What our clients are saying about innovation

 Innovation as a Teachable/Learnable Discipline

 Examination of the continuous value creation model

 Breakouts
 Create new value proposition for Age of Innovation clients

 Share ideas and iterate

 Discussion and Wrap Up

 The Innovation Imperative

“For the past 25 years we have optimized our organizations for efficiency and quality.
Over the next quarter century, we must optimize our entire society for innovation.”
--Innovate America Report, December 2004

“In the long run, the only reliable security for any company is the ability to innovate
better and longer than competitors.”
--Davila, Epstein, Shelton (Making Innovation Work)

“Quality improvement or process-management programs can hamper a company’s ability

to respond to technological change, by effectively forcing employees to focus on honing
routine tasks associated with older technology”.
--Michael Tushman (Harvard) and Mary Benner (Wharton)

“Nothing is more wasteful than doing with great efficiency that which should not be
done”.
--Ted Levitt, editor, Harvard Business Review
New Skills For the Innovation Age
 Innovation Types

 Radical or revolutionary (emergent, disruptive)

 Innovation frontier

 “New to the world”

 Incremental or evolutionary
 Sustaining innovation of large enterprise

 More common than revolutionary

 Can be equally potent in conveying competitive

advantage
 The New Face of Enterprise Innovation

 Innovations now diffusing at increasing rate

 It took 55 years for automobile to diffuse to 25% of U.S.
 35 years for telephone
 22 years for radio
 16 years for PC
 13 years for cell phone
 Innovation today is multidisciplinary and technologically complex
 Innovation today is collaborative and socio-technical in nature
 Business and consumers are embracing new ideas, technologies, and
content and are demanding more from innovators
 Innovation has become global in scope
 Business Mortality is Very High!

 Average life expectancy of all firms, regardless of size,

measured in Japan and much of Europe, is only 12.5
years.
 The average life span of a multinational organization -
Fortune 500 or equivalent - is around 45 years.
 One third of the companies listed in the Fortune 500 in
1970 for example, had disappeared by 1983 - acquired,
merged or broken to pieces.
 The first S&P index of 90 major US firms was created in
the 1920s. The firms on that original list stayed there for
an average of 65 years. By 1998, the average tenure of a
firm on the expanded S&P 500 was 10 years.

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The failure to implement
continuous value
creation is a leading
cause.

Too many companies

focus on competition
rather than customers.

Large Company Lifetimes are

Decreasing
 The Difficulty of Change

Anticipatory Most difficult to get going

Change

Reactive
Change Difficult to get going

Easiest to get
Crisis going
Change
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The Costs of Change
Least
Anticipatory Costs
Change
Moderate
Reactive Costs
Change

Crisis Most
Change Costs
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 Innovation in the Enterprise

 Products: Firms innovate new products to serve old and

new markets
 Services: Firms innovate new services to please old and
new customers
 Processes: Firms innovate processes to differentiate and
gain competitive advantage
 Assets: Firms innovate new applications to leverage
asset pool
 Business model: The fundamental way firms make
money is often the most powerful approach
 Strategies: Firms enter markets; acquire assets; pursue
customers
 Structure: Firm structure can increase or inhibit
innovation among employees

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 Innovation Examples
 Innovate Products  Apple I-pod

 Innovate Services  IBM is almost completely a service co.

 Innovate Processes  Nucor Steel automates manufacturing

 Innovate Business Model  Southwest Airlines

 Innovate Assets  Boeing ventures into recycling

 LG buys into “Blue Ocean” strategy, Kia

 Innovate Strategies
uses “disruptive innovation”

 Innovate Structure
 Glaxo pushes decision making to
individual scientists

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 Innovation Spending

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 Innovation Spending by Industry

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 The Most Innovative Companies

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 Critical Questions to Get Right

 Which customers should I focus on?

 How do I provide value to my customers?
 Will our targeted customers really buy our product?
 How should I structure this business?

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 The Ingredients of Innovation

 Leadership
 Strategy
 Processes
 Resources
 Performance metrics
 Measurement
 Incentive systems
 Organizational structure
 Organizational culture
 Corporate Examples of Innovation

 Ford Motor Company re-commits to innovation

 General Electric “work out” programs
 Coke “innovation centers”
 Creation of “Red Lounges” in shopping centers
 Enables direct observation of target market
 Enables experimentation with new products

 Procter & Gamble

 Everyday solutions
 Derived from anthropological research in user “habitats”
 Microsoft
 Bill Gates’s annual “Think Week”
 Enterprise Innovation Model

Enhances
Enterprise Innovation

Work Group Individual

Innovativeness Affects Innovativeness

Product/ Produces
Produces
Structure Process
Service
Innovation Innovation
Innovation
Innovation Innovation
Training Training

Governs
Governs

Strategy Innovation
Executive Level Foundation

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WIIFM Model
External Environment

Executive

Vision
Managerial

Supervisory
Control

Core
Six Oversight
Sigma
Skills

Team Work
Process Innovation

Cross-Functional Decision
Making
Product Innovation

Strategy
Market Innovation

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Continuous Value Creation

THE SRI INTERNATIONAL APPROACH TO

INNOVATION AS A DISCIPLINE
 SRI International’s NABC Framework

 What is the market need?

 What is your approach to addressing this need?
 What are the benefits per cost of your approach?
 How do those benefits per costs compare with the
competition?
 Five Disciplines of Innovation

 Discipline 1: Focus on Important Needs

 Discipline 2: Value Creation
 Discipline 3: Cultivate Innovation Champions
 Discipline 4: Create Innovation Teams
 Discipline 5: Organizational Alignment
 Three Keys to CVC

 Focus the entire organization on all aspects of

customer value—not just quality and cost
 Improve innovation processes so that creation of
high value innovations is more reliable
 Make continuous improvements to current
products/services while capturing major new,
breakthrough opportunities for the future
 Starting Points to CVC

 Who is your customer?

 What is the customer value you provide and how do
you measure it?
 What innovation best practices do you use to rapidly,
efficiently, and systematically create new customer
value?
 Best Practice

 Net Promoter Score

 Based on one question: “Would you recommend us
to a friend or colleague?”
 % of Promoters - % of Detractors = NPS
 Some benchmark scores:
 USAA: 82%
 Harley Davidson: 81%
 Costco: 79%
 Apple: 66%
 Southwest Airlines: 51%
 The Exponential Economy

 Success = Important needs x Value creation x

Innovation champions x Innovation teams x
Organizational alignment
 Metcalfe’s Law: Law of Exponential
Interconnections
 What do you do with the first fax machine?
 Characteristics of Exponential Economy

 Quality is required JUST TO ENTER THE GAME

 Innovation is global
 Growth in productivity is unprecedented
 Root of the Problem

 Many companies have been built to fight the last

competitive war
 Are encumbered by legacy induced delays
 Customer experience and world view of senior
managers based on earlier career experiences
 Best Practice Executives

 Jack Welch: General Electric

 Some called him “Neutron Jack”

 Instituted “work out” and other programs

 Andy Grove: Intel

 “Only the paranoid survive”

 No room for arrogance or complacency

Product Development Life-Cycle
 Product Development

 Going from A to B can be 10 to 1000 times greater

investment than getting to A
 Vehicle for getting from A to B is your “Value
Proposition”
 Going from A to B should be an “iterative process”
 Focus on “knowledge compounding”
 Developing “deep knowledge” of customers
 You need an “exponential improvement process”
 The Exponential Improvement Process

 Work on important customer needs

 Access many new, valuable ideas to make largest
possible improvement at each step
 Employ an iterative compounding process
 Have necessary financial, human, and other
resources to drive the process
 Types of Value

 Customer value
 Company value
 Shareholder value
 Employee value
 Public value

You can’t develop the other types of value until you

understand your customers’ needs.
The objective of all healthy
enterprises is to constantly strive
to create greater customer value.
 Watering Holes

 A multi-disciplinary collaborative environment

 Goal: Improve your value proposition
 Differs from “brainstorming”
 Brainstorming collects ideas

 Watering holes “leverage reactions from a disparate audience

in a structured format to create customer value”
 Best Practice
P&G’s Connect & Develop

 P&G Connect & Develop program seeks “to connect

with innovators around the world”
 P&G employs 7,500 people in R&D
 There are 1.5 million scientists around the world with expertise
in P&G’s areas of interest
 C&D leverages “open innovation” approach
 Today, 35% of P&G new products have elements that
originated outside the company
 Five years after stock collapse in 2000
 P&G has doubled its share price
 Has a portfolio of 22 billion-dollar brands
 Connect & Develop

 P&G focuses product development through:

1. Identifying top ten consumer needs
2. Adjacencies (alternative uses or markets)
3. Technology game boards
 No source of ideas is off limits
 Technology entrepreneurs
 Suppliers
 Open networks
 NineSigma
 InnoCentive
 Workshop

A NEW VALUE PROPOSITION FOR THE

AGE OF INNOVATION
 Getting the Value Proposition Right

 Write down initial NABC value proposition

 Get feedback and collect more new ideas
 Focus on actively LISTENING

 Synthesize ideas collected and revise the VP

 Continue this process over and over
The Power of Iteration
 The Elevator Pitch

 Succinct and vivid communication is powerful

 What must our audience recall about our message
 If your audience doesn’t “get it”, it’s YOUR fault
 A crisp elevator pitch must exude value
 Crafting the Elevator Pitch

 People relate to stories, metaphors, humor

 Tell a vivid story, it will stick in people’s minds
 Be quantitative
 If you don’t have real numbers, use SWAG

 Don’t compound ignorance with ambiguity

 A good close must accomplish something

 Both the message and delivery must be practiced and
improved by suggestions from others
 Crafting the Pitch

 Hook: to get their interest

 Core: your NABC value proposition
 Close: action to get to the next step
 Assignment

 Create a value proposition and new elevator pitch

 Based on NABC framework

 What important customer Need are we addressing?

 Slide 1

 What unique Approach are we using?

 Slide 2

 What Benefits will the customer realize?

 Slide 3

 Close: Summarize and ask for next steps

 Slide 4
 Discussion

HOW CAN WE LEVERAGE OUR UNIQUE

CAPACITY TO ACCELERATE CLIENT VALUE
IN THE AGE OF INNOVATION?