the four pillars_of_innovation
DESCRIPTION
pdf of presentation about the four pillars of innovation:1) Business Model Innovation2) Process Innovation3) Product/Service Innovation4) Innovation CultureThis includes methods and tools used in this categories.TRANSCRIPT
The Four Pillars of
Innovation
Joel M. Vardy
Vardy & Associates, LLC
Jan 27, 2012
Confidential/Proprietary Vardy & Associates LLC
THE FOUR PILLARS of INNOVATION
Business Model Innovation: “When the game gets tough, change the game”
Radical vs. Incremental (semi-radical) Innovations
The Role of Business Transformation
Business Model Diagnostics (Value Assessment/Creation)
Process Innovation: “the method & language of doing things differently…making innovation work”
New & Exciting Developments
Product/Service Innovation: “The artifacts of Innovation – the ultimate output”
Technology & Design
New Channels, Customer Service Concepts
Innovation Culture: “the art of collaboration...changing organizational DNA to achieve sustained innovation”
How to Ensure Success
How to Maintain It
Confidential/Proprietary Vardy & Associates LLC
“Innovation is the specific instrument of entrepreneurship. The act that endows resources
with a new capacity to create wealth”
Peter Drucker
“Innovation distinguishes between a leader and a follower”
Steve Jobs
“Without tradition, art is a flock of sheep without a shepherd. Without innovation, it is a corpse”
Winston Churchill
Innovation: Famous Quotes
Confidential/Proprietary Vardy & Associates LLC
Why do previously strong Corporations face
Higher Risks Today?
Corporate
Strategy
Direction
Business
Unit
Direction
Demand
Volatility Stronger
New Players
Shifting
Global Markets Closing Global
Skills
Differences
Supply
Volatility Corporate
Strategy
Direction
Business
Unit
Alignment
Demand
Volatility Stronger
New Players
Shifting
Global Markets Closing Global
Skills
Differences
Supply
Volatility
Corporate
Tactical
Countermeasures
Periods of High Volatility can Destroy Business Value in
Some Sectors allowing New Value Creation in Others…
Confidential/Proprietary Vardy & Associates LLC
Key Concept #1
Radical vs. Semi-Radical Innovations
Continuous Improvement
• Total Quality Management
• SPC/SQC
Semi-Radical Improvements
Existing Work Processes
• As-Is Process
Innovation
Business Transformation
• Reforming - Strategic new Vision
• Restructuring - Work Flow redesign
• Revitalization - Linking Technology
• Renewal - Changing Behavior
RADICAL Improvements
(FMEA can be applied here)
• First order changes are not enough
• Bus. Trans. required to create dramatic (radical/breakthrough) improvements
0
1
2
Confidential/Proprietary Vardy & Associates LLC
Balancing Creativity and Commercialism – Managing
the Paradox
CREATIVITY PROCESSES VALUE CREATION PROCESSES
Innovation
- Out-of-Box thinking
- Raw and refined ideas
- Experimentation
- Ambiguity/Uncertainty
- Research
- Intuition
- Surprise
- Courage
- Find the right things
- Ask questions and explore
the unknown innovation
- Seize opportunities
- Visualize the future and
consider all options
- Include incremental and
radical innovations
- In-the-box thinking
- Engineering/Manufacturing
- Precision
- Well-calculated trade-offs
- Buying/Selling of ideas
- Do things right
- Answer question and
verify solutions
- Avoid major risks
- Find the right things
- Get the product into
the marketplace
- Bias for incremental
Source: “Making
Innovation Work”
Davila, Epstein, Shelton
Blue
Ocean
Disruptive
Innovations Foresighting
Ecosystems
Scenario
Planning
Innovation
Mgt
Program
Mgt
Portfolio
Mgt.
Imagination Concept to Reality
- In-the-box thinking
- Engineering/Manufacturing
- Precision
- Well-calculated trade-offs
- Buying/Selling of ideas
- Do things right
- Answer question and
verify solutions
- Avoid major risks
- Find the right things
- Get the product into
the marketplace
- Bias for incremental
- Out-of-Box thinking
- Raw and refined ideas
- Experimentation
- Ambiguity/Uncertainty
- Research
- Intuition
- Surprise
- Courage
- Find the right things
- Ask questions and explore
the unknown innovation
- Seize opportunities
- Visualize the future and
consider all options
- Include incremental and
radical innovations
Confidential/Proprietary Vardy & Associates LLC
Business Model Innovation
First Pillar of Innovation
“When the game gets tough, change the game”
Confidential/Proprietary Vardy & Associates LLC
The Human Brain & Innovation – Making the ‘Connections’ in a land of Complexity and Uncertainty
“The brain appears to be naturally configured for innovation to work and to have new ideas because its job is to use information about the world and innovate by modeling new ways in which the state of the world out there might be put together”
James Burke Science historian, author and television writer/producer
Confidential/Proprietary Vardy & Associates LLC
1. Visualize to Understand It
2. Model to Simulate It
3. Measure to Improve It
Business Models: Molding the Process --
Another Key Innovation Concept
Visualize
Model Measure
Understand
Simulate
Improve
Confidential/Proprietary Vardy & Associates LLC
Manufacturing
(Operations)
Business Models: Striking the appropriate Balance
between 4 Key Ideas/Metrics
Innovation
Excellence
Commercialization
Excellence
Operational
Excellence
Service
Excellence
Front Office
(external)
Back Office
(internal)
Key High
Level Metric:
Order to
Deliver Time
Key High
Level Metric:
Source-to-Make Time
Key High
Level Metric:
Time to Scale
Key High
Level Metric:
Time-to-Market
Business
Model
Confidential/Proprietary Vardy & Associates LLC
Business Models: Sample Innovation Value Prop. Tree
Primary Influences
KPI TREE
Drivers
Return
On Inno.
Net Oper.
Profit
Net Oper.
Margins
Variable
Costs
Revenue
Working
Capital Inno.
Process
Innovation
Improvement 1
Process
Innovation
Improvement 2.
Product
Innovation
Lost
Orders
(-)
Expedite
Overtime
Supply
Inno. Imp.
Logistics Inno.
Rework/
Wide Spec
Other
Manufacturing
Inno. Improvement
Production
(x)
Inv.
Holding
Other
(-)
Bus. Forecast
Accuracy
On Time
Delivery
Customer
Service Levels
Fixed
Costs
(/)
Measured KPI’s
for analysis
Confidential/Proprietary Vardy & Associates LLC
Process Innovation
Second Pillar of Innovation
“the method & language of doing things differently…making innovation work”
Confidential/Proprietary Vardy & Associates LLC
Process: The Innovation Process
Stage Gate Stage Gate
Gathering
the ideas
Filtering
the ideas Supporting
ideas
Bringing ideas
to the market
Putting ideas through the selection Process
• any number of ideation processes to gather ideas
• market and financial gate criteria required
• strong commercialization infrastructure critical to profitable
execution as well as talented project managers
Source: MCE Management
Centre Europe
Confidential/Proprietary Vardy & Associates LLC
Process: Accelerating the Innovation Process
Existing
revenue
Time Existing
Development
Costs
$ $ Time to
Market
30-50%
increase
through accelerated
and more sustained
revenue
10-40% less through
time compression and greater
efficiencies
Four Key Elements to Achieve these Results:
1. Time-to-Market
2. Internal Integration
3. Collaboration
4. IT enablement Source: IBM Global Business
Services analysis. 2006
Confidential/Proprietary Vardy & Associates LLC
Process: Key Factors in Driving Innovation --
Complexity, Uncertainty and Change
Complexity Maturing market (SKU proliferation starts to address different segments).
Needs to be embraced rather than feared.
Process complexity can be reduced while embracing product/service complexity.
Uncertainty Byproduct of higher levels of complexity
Market volatility
Needs to be managed and minimized
Change Constant
It cannot nor should it be eliminated
It actually represents new opportunities, frequently exploited by new startups.
Confidential/Proprietary Vardy & Associates LLC
Process: Transforming typical Execution-type
processes to more Planning-driven ones
To-Be
?
80/20 (Planning/Executing)
Front-End Loading (Collaborative)
20/80 (Planning/Executing)
Back-End Loading (‘Churning’)
As-Is
?
Confidential/Proprietary Vardy & Associates LLC
Process: Decision Process Workshops get the
Critical Organizational Buy-in
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Product/Service Innovation
Third Pillar of Innovation
“The artifacts of Innovation – the ultimate output”
Confidential/Proprietary Vardy & Associates LLC
People
50%* Knowledge of
how to measure
& incent people
Process 30%*
Process
of running a
superior
business
Product/Service: Key Concept for Innovation-Driven
Programs: Factoring People, Process & Technology
Technology – though accounting for only 20% of project success factors is the most confusing due to
rapid changes. Key to either accelerating or enabling possible people & process factors.
*Audited Project
Success Factors Technology
20%*
Enablement
of People &
Processes
‘Formula-Raw Materials’ ‘Procedure’
‘Catalyst’ Accelerator
Enabler
Confidential/Proprietary Vardy & Associates LLC
Product/Service: Exploiting New and Traditional
Innovation Tools & Concepts
Innovation strength
Inn
ova
tio
n fi
eld
att
ract
iven
ess
IF 2
IF 3
IF 6
IF 4
IF 5
Low Middle High
Low
M
iddl
e H
igh
IF 1) 1
Innovation Fields/Strategy
1.1 1.3
1.41.5
2.1
2.2
2.3
2.4
2.5
3.13.2
4.1 4.2
4.35.1
5.2
5.3
6.1 6.2
6.3
7.1 7.2
7.3
1.2
0
1
2
3
0 1 2 3
Improvement potential
Str
ate
gic
im
po
rta
nc
e
Project Portfolio Selection
Creating a balanced portfolio of product/service projects
that maximizes return on innovation and mitigate risks
Confidential/Proprietary Vardy & Associates LLC
Innovation Culture
Fourth Pillar of Innovation
“the art of collaboration...changing organizational DNA to achieve sustained innovation”
Confidential/Proprietary Vardy & Associates LLC
Culture: The Innovation Culture Continuum
Foundation Advanced Breakthrough
Hierarchical Command & Control
Departmental Silos Self-directed Virtual Teams
Management
Transactional and Aggregated
Integration across the Enterprise
Learning & Service Delivery Architecture
Information
Cost and Risk Reduction
Productivity Improvement
Collaborative Improvement
Operations
Product Segmented but still Product Based
Customer’s Individual Needs and Values
Customers
Growth Growth and Performance
Innovation Strategy
Source: Ivey Business Journal
Jan/Feb 2006
“There is no guarantee that an innovation culture leads to innovation
but it certainly is a prerequisite.”
Confidential/Proprietary Vardy & Associates LLC
Culture: New Game Changing Strategies
-- Managing Uncertainty using Collaboration to
Val
ue
Internal
Scope
I
Functional
Collaboration
II
Integrated Internal
Collaboration
Level Of
Information
Systems
Integration
Low
High
III Integrated
External
Collaboration
IV
Integrated
Ecosystem
Highly Evolved
Incorporating both
Co-marketing and
Co-development
Across the ecosystem
Level Of
Decision
Systems
Integration
Low
High
Source: Cayuga Partners
External
Scope
Confidential/Proprietary Vardy & Associates LLC
Culture: The Innovators
2006 2007
Apple Apple
Google Google
Sony Toyota*
3M YouTube*
Microsoft Microsoft
JetBlue Starbucks
Starbucks Motorola
BMW Samsung*
Motorola Nike*
Target Sony
Top 10 - Most Innovative Companies
* New to list in 2007
Source: futurethink article:
2007 Innovation Tracker
The Shift from Creativity to Value
Leadership
Ideas
Strategy
Company
Personal
Strategist
Methodologist
Facilitator
2010 2011
Facebook Apple
Amazon Twitter
Apple Facebook
Google Nissan*
Huawei Groupon*
First Solar Google
PG&G Dawning* Information
Industry
Novartis Netflix
Walmart Zynga*
HP Epocrates*
Source: fastcompany.com
The Shift to Social Tech.
* New to list in 2011
Traits of the
top 10
Confidential/Proprietary Vardy & Associates LLC
1.1 1.3
1.41.5
2.1
2.2
2.3
2.4
2.5
3.13.2
4.1 4.2
4.35.1
5.2
5.3
6.1 6.2
6.3
7.1 7.2
7.3
1.2
0
1
2
3
0 1 2 3
Improvement potential
Str
ate
gic
im
po
rta
nce
Implementation of radical innovation
Return On
Innovation
Operating Profit
Inno. Imp.
Working Capital
Inno. Imp.
Process Inno. Imp. 1
Process Inno. Imp. 2
Cost
Inno.
Imp.
Revenue Inno. Imp.
KPI Improvement/Monitoring
Innovation strength
Inn
ova
tio
n fi
eld
att
ract
iven
ess
IF 2
IF 3
IF 6
IF 4
IF 5
Low Middle High
Low
M
iddl
e H
igh
IF 1) 1
Innovation Fields/Strategy
Inputs>Processes>Outputs>
Outcomes
KPI Development
Innovation Management Tools
Communications Plan
Readiness Assessment
- Level of External Collaboration (Structures)
- Management Support
- Demand/SKU Complexity
(no. of SKU’s & nodes)
- Tools
1st
Quartile
2nd
Quartile
3rd
Quartile
4th
Quartil
e
- Infrastructure (ERP)
Technology
- Level of Internal Collaboration (Structures)
Process
- Financial and Competitive Focus
- Strategic Clarity
People
Assess Status Strategize Operationalize Externalize Align
Organization & Behavior
Tools
Quantifying the Gap (Using Key Performance Indicators - KPIs)
Inventory Management: Current Value Unit
Marginal Value
($/unit)
Supply Chain
Improvement
Potential (%)
Raw Materials 10,000 1,000.00$ 50%
WIP 10,000 1,200.00$ 20%
Finished Product 10,000 1,400.00$ 25%
Spare Parts/Other 10,000 1,600.00$ 30%
Inventory Carrying Cost 15% % of COGS
Finished Product Management: Current Value Unit
Supply Chain
Improvement
Potential (%)
On-Time Delivery to Cust. Request Date %
On-Time Delivery to Firm Commit Date %
$/Occurrence
Expediting 500 Qty/month 1,000$ 90%
Minimum Value
($/unit) Unit
Maximum
Value ($/unit)
Supply Chain
Improvement
Potential (%)
Range of Transportation Costs 2.00$ 3.00$ 10%
Average Qty. of Product Transported Yearly 10,000,000
Process, Cross-Functional Measures: Current Value Unit
Marginal Value
($/unit)
Supply Chain
Improvement
Potential (%)
Average forecast accuracy %
Order fill rate 80% % 15%
Orders lost 50% %
Planning process cycle time 5 4,000$ 90%
- Qty. of planning occurences per year 52 Occurences
Scheduling process cycle time 6 1,000$ 90%
- Qty. of scheduling occurences per year 365 Occurences
Source-to-make cycle time 365 Days 30%
New product time-to-market 365 Days 30%
Manufacturing-Related Measures
Current Value Unit
Marginal Value
($/unit)
Supply Chain
Improvement
Potential (%)
Total Nominal Yearly Capacity: 10,000,000 100.00$ 1.0%
In Process Rework per Year 40,000 30$ 50%
Variable Cost per unit produced 20.00$ $/unit 5.0%
Selling Price per unit produced 150.00$ $/unit
Total qty of units produced per year 10,000,000
Total number of orders per year 100,000 orders/year
Average revenue per order 150.00$ $/order
Number of setups and changeovers
during a month 70 Qty/month 1,500$ 50%
Qualitative Assessment
Quantitative Assessment
6
5
4
3
1
2
Ab
ilit
y
Corporate culture
Qualification & skills
Technology
Budget
Innovation core process
Strategy
Patents & standards
Capabilities Assessment
Collaboration Maturity
Reward/Recognition
Map: As -Is
Title
Input A
Input B
Input C
Process
Step A
Process
Step C
Process
Step B
Process
Unit E
Process
Step D Output
C
Estimated Range of Innovation Benefits
Minimum (M$) Most Likely (M$) Optimistic (M$)
Non-Recurring Working Capital Benefits 13.2$ 18.9$ 24.6$
Recurring COGS Benefits 18.3$ 26.2$ 34.0$
Recurring Revenue Enhancing Benefits 26.3$ 37.5$ 48.8$
TOTAL (M$): 57.8$ 82.6$ 107.3$
Map: To - Be
Title
Input A
Input B
Input C
Process
Step A
Process
Step C
Process
Step B
Process
Unit E
Process
Step D Output
C
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Summary: The 4 Innovation Pillars
Business Model Innovation
Business Model Diagnostics entering new era
Convergence of Disparate Data Opportunity for new markets creation
Ability to better exploit existing markets
New Diagnostic Tools and Skills geared to Data-rich environments
Process Innovation
Changes in Collaboration Practices are changing Decision Making Making it more timely and effective
Sharing of all Strategies and Tactics between trading partners
Product/Service Innovation
Product life-cycles are ever accelerating
Service opportunities are creating unique differentiators
Innovation Culture
A new breed of cross functional and cross cultural talent is needed to drive growth for the future
Capable of non-linear thinking
Able to be equal parts Strategist, Methodologist and Facilitator