July 2012
Embedding Innovation to Drive Growth
This report is solely for the use of Client personnel. No part of it may be circulated,
quoted, or reproduced for distribution outside the Client organization without prior
written approval from IBM. This material was used by IBM during an oral presentation;
it is not a complete record of the discussion.
© 2011 IBM Corporation
Outline
Understanding the Growth - Global
Innovation as an Enabler of Growth
Enabling Innovation
IBM’s Approach to Innovation
Appendix
2
© 2011 IBM Corporation
Successful organizations grow faster than their competitors and
convert their growth into value, outperforming their peers
Revenue & Total Shareholder Return* Growth
S&P Global 1200, 2001 to 2010
60%
“Prudent Managers”
“Successful Growers”
(No of Companies Qualified :339 Companies)
((No of Companies Qualified : 204 Companies)
10 year annualized TSR (%)
40%
20%
-60%
-40%
-20%
0% 0%
20%
40%
60%
-20%
Median CAGR: 7.3%
Median TSR : 5.5%
-40%
“Unsuccessful Growers”
“Shrinkers”
((No of Companies Qualified :345 Companies)
((No of Companies Qualified :193 Companies)
-60%
10 year CAGR (%)
3
* Total Investment Return (TSR) is calculated by Datastream as follows for all industries:
(Market Price Year End + Dividends Per Share + Special Dividend -Quarter 1 + Special Dividend-Quarter 2 + Special Dividend-Quarter 3 + Special Dividend-Quarter
4) / IBM Corporation
© 2011
Last Year's Market Price-Year End - 1) *100.
When it comes to growth, an organization’s neighborhood does
not necessarily dictate its destiny
Industry
Geography
Company size
Resilience
4
Strong performers outgrow their industry by wide margins: Top performers in
the slow-growth financial markets and insurance industry outpaced median growth
rates for the high-growth Education and Pharma/Life Sciences industries.
Amongst the top 10 sub sectors, Steel has emerged as the highest growth sector
while Industrial Machinery has lowest median growth rate
Strong performers outgrow their geography by wide margins: Top growers in
the slow-growth Japanese market outperformed the median growth rates in other
high-growth Asian markets
Revenue growth is not a function of company size: Size is not a constraint.
Larger companies can grow revenue as fast as smaller companies. TSR tends to
diminish as company size increases, but successful growers overcome this
tendency, and grow both revenue and TSR irrespective of company size
Successful growers may not report growth of revenue each year above
median but have the resilience to bounce back and deliver superior growth
over a longer period: No one succeeds all the time. What distinguishes
successful growers is not perfection, but the courage and conviction to recover
from imperfections
© 2011 IBM Corporation
Innovation as an Enabler of Growth
The ability to manage fundamental change is key to growth history shows that failure rates are extremely high
S&P 500 in 1957 (year 1 for the index)
S&P 500 in 2010 (year 54 for the index)
Of the 500 S&P companies in 1957, only 14%
remain on the 2010 S&P 500 list
Source: S&P Guide 2010 and S&P Library for 1957 data
5
© 2011 IBM Corporation
Innovation as an Enabler of Growth
Companies must meet growth expectations …but that is easier
said than done
Organic
Organic methods
provide necessary but
incremental growth
 Gains are often hardwon and therefore not
always profitable
 Successes are easily
copied making gains
short-lived
 Already more than
accounted for in stock
valuations
Acquisitions
Acquisitions have
historically failed to
create value
 Gains are elusive at best
 Takeovers have
destroyed more than
$200 billion in
shareholder value in the
US over the past 20
years*
Innovation
Innovation is the best
opportunity for
sustainable growth
 Gains are more
profitable and longer
lasting
-Sustainable
advantage
-Differentiation
-Pricing power
*Source: The National Bureau of Economic Research
6
© 2011 IBM Corporation
Innovation as an Enabler of Growth
Innovation is not ‘incrementalism’ and must create value
Innovation is
“new ideas that
add value”
Incrementalism
is innovation’s
worst enemy”
- Nicholas Negroponte,
MIT Media Lab
Source: IBM Research
7
 “new ideas” refers to the issue of novelty or originality,
whether it be ideas extrapolated from other circumstances,
industries or contexts
 “add value” refers to the necessity for innovation to benefit
people, whether they be customers, shareholders, employees
or society as a whole; innovation that does not add value is
generally futile
 Change that does not add value is not considered innovation
within IBM’s definition
 For IBM, innovation is not:
- Change that does not benefit anyone: this often constitutes
change for the sake of change which can be costly and can
dilute value
- Adopting leading practice: this is often good for business but
is generally directed toward avoiding loss of value to more
sophisticated competitors, instead of capturing new value
- Value creation that does not comprise the application of new
ideas: this can be good for the business, but falls within a
context of incremental, ‘business as usual’
© 2011 IBM Corporation
Innovation as an Enabler of Growth : Bloomberg Businessweek Survey
Being perceived as an innovation leader does not always
translate into leadership in shareholder returns
Bloomberg Businessweek 25 Most Innovative
Companies
Top 5 BW
Business Executive Rank, 2010
Rank
8
Company
Revenue
Growth*
Margin
Growth*
Bloomberg Businessweek 25 Most Innovative
Companies
Re-ranked by Shareholder Equity Growth, 2010
TSR **
Rank
1
2
3
Apple
Google
Microsoft
30%
30%
10%
62%
28%
3%
35.43%
10.42%
2.48%
4
5
6
7
8
IBM
Toyota Motor
Amazon.com
LG Electronics
BYD
25
5%
32%
8%
52%
11%
NA
38%
180%
57%
12.40%
-23.06%
50.60%
31.43%
113.25%
8
6
1
7
14
22
20
4
11
2
19
16
21
12
3
25
15
18
13
23
9
5
10
17
24
9
General Electric
-1%
-15%
-22.28%
10
11
12
Sony
Samsung Electronics
Intel
7%
9%
0%
NA
1%
-7%
-27.67%
10.57%
2.97%
13
Ford Motor
-10%
NA
-9.72%
14
15
16
Research in Motion
Volkswagen
Hewlett-Packard
64%
3%
8%
68%
-1%
10%
23.42%
-2.49%
8.50%
17
Tata Group
Not Listed
Not Listed
Not Listed
18
19
20
BMW
Coca-Cola
Nintendo
4%
9%
63%
-42%
8%
48%
-8.36%
8.69%
21.08%
21
22
23
24
25
Wal-Mart
Hyundai
Nokia
Virgin Group
Procter & Gamble
5%
5%
3%
Not Listed
5%
5%
26%
-39%
Not Listed
7%
6.95%
23.36%
-13.99%
Not Listed
0.43%
Source: Bloomberg Businessweek, BCG Research and Reuters. Businessweek, 2010. Financial Statement data for
each company for 2006-2009 from Businessweek.com
*
Revenue and operating margin growth is annualized based on 2006-2009 fiscal year earnings before
interest and taxes, as a percent of revenues as they were originally stated.
**
Stock returns are annualized, 12/31/06 to 12/31/09, and account for price appreciation and dividends.
***
Shareholder Equity CAGR based on 2006-2009 fiscal years. Tata Group and Virgin Group removed
due to lack of financial data
Company
BYD
Amazon.com
Apple
LG Electronics
Research in Motion
Hyundai
Nintendo
IBM
Samsung Electronics
Google
Coca-Cola
Hewlett-Packard
Wal-Mart
Intel
Microsoft
Procter & Gamble
Volkswagen
BMW
Ford Motor
Nokia
General Electric
Toyota Motor
Sony
Tata Group
Virgin Group
TSR***
113.25%
50.50%
35.43%
31.43%
23.42%
23.36%
21.08%
12.40%
10.57%
10.42%
8.69%
8.50%
6.95%
2.97%
2.48%
0.43%
-2.49%
-8.36%
-9.72%
-13.99%
-22.28%
-23.06%
-27.67%
Not Listed
Not Listed
Innovation should translate into “Value”
for customers and shareholders
© 2011 IBM Corporation
Innovation as an Enabler of Growth : Types of Innovation
Companies pursue three main types of innovation
Innovation is
“new ideas
that add value”
Product,
service
and/or
market
innovation
Innovation around specific
products, services, markets,
segments or other go-to-market
activities
Operational
innovation
Innovation that improves the
effectiveness and efficiency of
core processes and functions
Business
model
innovation
Innovation in the structure
and/or financial model of the
business
“Innovation occurs
at the intersection
of invention and
insight. It’s about
application of
inventions to solve
problems”
- Sam J. Palmisano, Former IBM
CEO and Co-Chair of the National
Innovation Initiative
9
© 2011 IBM Corporation
Innovation as an Enabler of Growth : Innovation Examples
A few examples of innovation across industries
Product,
service and/or
market
innovation
Operational
innovation
P2P Free VoIP Application
 VoIP product/service by
Skype allows to offer
cheap, customizable
telephonic services over
the Internet
Cross - docking
 Goods trucked to a
distribution center from
suppliers are immediately
transferred to trucks bound
for stores—without ever
being placed into storage.
Business model
innovation
Direct to Customer Model
 Dell redefined the PC value chain
and industry model by using a
direct to customer sales model
 Customization of the PC could be
done on the web and the same
would be delivered to the customer
custom made
10
iPhone
 The user interface is built
around the device's multitouch screen, including a
virtual keyboard rather
than a physical one
Toyota Production
System
 TPS is comprised of
two pillars, Just-inTime and jidoka
Revenue Model
 Gillette innovated the pricing
model by giving away razors
and making money on the
blades
CEP Bank
 To transfer fund to
non-bank account
holder, go online,
type in your cell
phone number,
their cell phone
number and the $
amount
Shared Services & Establishing COEs
 Movement to shared services of
end-to-end processes that cut
horizontally across functional
areas
 Examples such as reporting,
risk analysis, components of
underwriting and claims etc.
Peer to Peer Lending
 Peer-to-Peer
Lending disintermediated
established banks
to promote lending
between
individuals
© 2011 IBM Corporation
Innovation as an Enabler of Growth : Product, Service / Go-to-market Innovation
Product / service / go-to-market innovation brings to life new
ways to solve the customer's problem
Product /
service /
market
innovation
Operational
innovation
Traditional
Products
New
Business
model
innovation
Product & Service
Innovation
Diversification
 Enter new product
categories
 Build services around
products
 Innovate faster/better
 Extend into new products
and new markets
simultaneously
Customer Intimacy &
Market Penetration
New Markets &
Channels
 Increase customer loyalty
 Improve price realization
 Gain wallet share
 Attract new customers
 Refresh products/services
 Extend into new customer
segments
 Enter new geographic/
global markets
 Enter new channels
 Increase geographic depth
Traditional
New
Markets
11
© 2011 IBM Corporation
Innovation as an Enabler of Growth : Operational Innovation
Operational innovations drive growth, boost profitability, set new
standards and redefine how an enterprise competes….
Product /
service /
market
innovation
Operational
innovation
Business
model
innovation
Operations
Innovation
Focuses on innovation
applied to core business
operations, business
processes and
supporting Information
Technology to improve
effectiveness, efficiency,
and quality.
 Core operations
 Go-to-Market /
Customer facing
processes
 Procurement / Suppliers
/ Logistics
 Product / Service
Development
 General / Administrative
(G&A) processes
12
Collaboration and Partnering
 Collaboration has become an essential underpinning of innovation for
business/enterprise and operations improvements
 World class collaboration is no longer informal, unstructured, or localized,
but rather aggressively driven by a strategy, encouraged by corporate
culture, enabled by a technology-based infrastructure, is cross functional,
and extends beyond the organization
 For example, P&G has focused supply chain efforts on developing deeper
relationships with major retailers and distributors, and they have begun
initiatives to consolidate manufacturing in order to increase flexibility
Intersection of Business Insight and Technology
 Dramatic and differentiating innovation occurs not when technology is
simply applied as an enabler or support mechanism, but rather when
technological capabilities and business/enterprise opportunities are highly
integrated early in the envisioning stage of improvement lifecycles
 Operational improvements, which have the potential to truly differentiate
an organization, result from creating an operational environment that is
not only efficient, but also has the ability to “sense and respond” to
ongoing dynamic business/enterprise drivers, and to also provide key
data mining capabilities to identify ongoing improvement opportunities
© 2011 IBM Corporation
Innovation as an Enabler of Growth : Business Model Innovation
…But enterprises that have a greater focus on Business Model
Innovation tend to outperform their peers over time
More than two thirds of the CEO’s interviewed have indicated towards having a strong BMI focus
Product /
service /
market
innovation
CEOs report that out-performing
businesses tend to have a greater focus
on business model innovation
Operational
innovation
Business
model
innovation
100%
6%
Shareholder value can be enhanced
significantly for out-performing firms engaged
in business model innovation
5%
80%
Prod / svc / mkt
4%
Operational
Business model
60%
3%
40%
2%
1%
20%
0%
0%
Underperformers
Outperformers
Focus of innovation efforts
Under-performers and out-performers
compared to peers
Source: IBM CEO Study
13
-1%
Products/services
/markets
Operations
Business model
Median operating margin growth in excess of
peers by businesses engaged in type of
innovation, 5 year CAGR
By focusing on business model innovation,
companies are more likely to become out-performers
© 2011 IBM Corporation
Innovation as an Enabler of Growth : Business Model Innovation
Business Model Innovation is focused around 3 areas, with
Enterprise Model Innovation gaining more focus with the CEO’s
Business Model Innovation
Industry
Model Innovation
14
Changing the way your
industry works or
changing your value
chain
Revenue
Model Innovation
Changing your value
proposition or the way
you price for products
or services
Enterprise
Model Innovation
Changing what you do
and where you
collaborate
 Changed the value chain
in the home furnishings
 It pushed final construction
back to the customer to
facilitate ‘ready to sell’
packaging
 Movie rental costs and
late return fees were high
 Moved from rental to a
subscription revenue
basis
 illycaffé has partnered with
various other companies
along its value chain, such
as manufacturers of
coffeemakers and others, to
improve the overall coffeedrinking experience
© 2011 IBM Corporation
Enabling Innovation : Innovation Archetypes
Innovation models (Archetypes) are a unique mix of cultural and
operational traits that represent how the companies innovate
An IBM research study of 174 organizations across 24 countries and a broad set of industries, identified four
unique innovation models (or archetypes) that represent how companies innovate
Innovation Archetypes
Marketplace of
Ideas
The Visionary
Leader
Innovation through
Rigor
Innovation through
Collaboration
A company’s innovation culture and archetype needs to
be fully understood to embed innovation
15
© 2011 IBM Corporation
Source: IBM Innovation Archetype research and analysis
Enabling Innovation : Innovation Framework implications across Archetypes
The nature of an organization, its innovation archetype, will
determine how innovation structures are embedded
Overview
Characteristics
Archetype
Archetype
Marketplace of
ideas
Visionary
leader
Innovation through
rigor
Innovation through
collaboration
 Employees are charged with
creating new ideas, shopping
them around to gain support,
and implementing them rapidly
to test feasibility and market
acceptance. It is an environment
that is somewhat chaotic by
design
 This archetype revolves around a
senior executive who
understands the future better
than customers may, motivates
employees to zealously pursue
that vision, and keeps generating
ideas that are unexpected and
profound
 Companies create processes
designed to produce results
systematically. Strategically, they
pay relatively high levels of
attention to the landscape in
which the innovation is to take
effect. Tactically, they focus on
project execution, seeking
efficient and fast implementation
 Companies that team with
outside firms to evaluate a wide
range of opportunities, rapidly
select the ones to trial, and
frequently implement the idea
through these partners
 Innovation strategy is built into
the business strategy
 Vision of the organization and
innovation vision are intertwined
 Well-stated innovation
goals for individuals
 Formal project management
 Environment that
allow experimentation
 Employees recruited for
creativity and passion
 Decentralized internal
collaborative approach for idea
stage gating
 Decentralized virtual team
responsible for idea
development and execution
 Formal structural unit for
driving innovation culture
 Innovation strategy is around
the entire business and
prescriptive for employees
 Innovation vision driven through
top leadership
 Fast implementation of select
innovation ideas
 Portfolio maps and strategic
plans to link executive vision to
daily activities
 Few inter-dependencies with
outside parties
 Adept at the teamwork necessary
to execute leaders’ plans
 Centralized decision making for
innovation stage gating
 Centralized monolithic
structure for executing
innovation vision
 Innovation strategy is around
specific focus areas of innovation
 Innovation vision is practical,
tactical and pragmatic
 Fewer innovation ideas, with
strong formal vetting process
 Strong focus on crossfunctional teams for execution
 Diffused product lines; little
control for a small set of visionary
individuals
 Small groups dedicated
to problem-solving
 Strong team culture
 Robust process around
innovation lifecycle
 Established R&D at business
unit level
 Strong idea execution
capabilities
 Innovation strategy is explicit
around the ecosystem partners
 Innovation vision is somewhat
well defined to ecosystem
partners who work towards a
common goal
 Robust stage gating and
implementation mechanism
 Frequent pilots and trials,
involving partners and
customers
 Understanding of customer
needs and partner participation
 Employee are empowered to
make deals with outside vendors
 Organization structured
around innovation ecosystem
(e.g. vendor joint innovation labs,
open innovation, etc)
16
© 2011 IBM Corporation
Source: IBM Innovation Archetype research and analysis
Envisioning itself as “The Innovation Company of the 21st Century”
IBM made innovation pervasive . . .
17
© 2011 IBM Corporation
. . . By developing a philosophy and operating approach . . .
IBM Philosophy
 Innovation is at the intersection of technological invention and business insight leading to the
creation of differentiated products and services for our clients
 IBMers at all levels are responsible and accountable for innovation
 We innovate in everything we do (through markets, offerings, business / enterprise models,
operations, and enablers)
Idea Generation, Development and Funding
 Ideas are generated, filtered, tested, and refined at the individual, team, and unit levels
 Development of these ideas is either funded by IBM organizations or in collaboration with
external partners
 The outputs are innovative products, services, technologies, and new business models that
create competitive advantage
18
© 2011 IBM Corporation
. . . Seeing every IBMer as an innovator . . .
Innovation Accountability and Responsibility in IBM
Innovation
Responsibility
Corporate
 Strategy
 Marketing
 Finance
 Human Resources
 Communications
 Legal
All
levels
Ginni Rometty
IBM CEO
Enterprise-wide
 Sales & Distribution
 Corporate Technology
and Manufacturing
 Integrated Supply Chain
Innovation
Accountability
Lower
center
of
gravity
Global Services
Systems and
Technology Group
Software
Employees
Employees
Employees
 Ginni Rommetty champions and advocates IBM innovation
 There is no single executive reporting to the CEO with innovation accountability
 Innovation is part of every business unit’s strategic focus and every employee’s responsibility
 We are lowering the center of gravity – shifting our resources and decisions closer to the client
19
© 2011 IBM Corporation
And establishing innovative programs for idea generation and
innovation management that are models for our client work
Institute for
Business Value
ThinkPlace
Global Technology Outlook
RESEARCH SERVICES
& “FIRST OF A KIND”
20
© 2011 IBM Corporation
Innovation as an Enabler of Growth
In summary, innovation creates value by operating at the
intersection of invention and opportunity and can be managed
•
Successful innovation creates sustainable growth for organizations
•
There are core capabilities and processes that are common to all successful innovators
•
Successful innovators have clear archetypes that represent how they innovate …
1. Marketplace of Ideas
2. Visionary Leadership
3. Innovation through Rigor
4. Innovation through Collaboration
•
… and regardless of how they innovate, they all focus on:
1. Senior Management involvement in innovation
2. High client satisfaction & use of client ideas
3. Ways to leverage internal — and external — ideas
4. Use of staged processes to track innovations and pilot before launch
5. Effective use of cross functional teams
21
© 2011 IBM Corporation
Outline
Understanding the Growth
Innovation as an Enabler of Growth
Enabling Innovation
Starting the Innovation Journey
Appendix
22
© 2011 IBM Corporation
Enabling Innovation : Innovation Framework
There are structures (activities, processes, enablers, linkages,
etc.) that promote effective innovation within an organization
Strategy
Business Strategy
 Overall objectives of the business as
defined by corporate vision, mission etc.
Innovation
Agenda
Innovation
Management
& Governance
Innovation Enablers
23
Innovation Agenda
 Overall direction, life-stage, mix, characteristics
and value proposition around innovation
Innovation Management & Governance
 Structures, processes, policies,
frameworks and tools used to manage
innovation
Innovation Enablers
 Elements that enable execution
of the overall innovation
process
© 2011 IBM Corporation
Enabling Innovation : Innovation Framework
Innovation Agenda sets the overall direction for innovation and
maintains alignment with business strategy
Element
Business
Strategy
Innovation Agenda
Innovation
Strategy
Innovation
Mix
Innovation
Model
Definition
Knowledge
Management
Innovation
Organization
Management
Business
Value
Analysis
Innovation
Strategy
 Selecting the desired innovation lifecycle stage
(i.e. pioneer, leader, disruptor, consolidator,
follower)
Vision
 Establishing the organization’s overall direction
regarding Innovation and ensuring alignment
with defined business strategy
Vision
Innovation
Mix
Value
Proposition
Innovation
Model
Definition
Innovation Management & Governance
Portfolio
Management
Objectives
Risk/Benefit
Evaluation
Incentives
and Rewards
Project
Management
Value
Proposition
Communications
 Defining the desired mix of innovation (i.e.
business model, products and services,
segments and markets, operations, channels)
 Defining the fundamental innovation model
characteristics (i.e. formal vs. adaptive;
specialized vs. disseminated; open to external
ideas vs. closed; integrated in LOB vs.
segregated in separate organization)
 Determining and communicating the value
proposition desired from innovation
Innovation Enablers
Talent
24
Culture
Internal
Collaboration
External
Collaboration
Tools &
Frameworks
Infrastructure
© 2011 IBM Corporation
Enabling Innovation : Innovation Framework
Innovation Management and Governance aligns the structure,
process, framework and tool to manage innovation
Business
Strategy
Innovation Agenda
Innovation
Strategy
Innovation
Mix
Vision
Innovation
Model
Definition
Value
Proposition
Innovation Management & Governance
Portfolio
Management
Knowledge
Management
Innovation
Organization
Management
Business
Value
Analysis
Risk/Benefit
Evaluation
Incentives
and Rewards
Project
Management
Communications
Innovation Enablers
Talent
25
Culture
Internal
Collaboration
External
Collaboration
Tools &
Frameworks
Element
Objectives
Portfolio
Management
 Tracking, monitoring and analyzing the portfolio
of innovation projects from inception to
completion
Innovation
Organization
Management
 Managing resources within the innovation
organization
Risk/Benefit
Evaluation
 Developing criteria and benchmarks to evaluate
risks associated with the innovation portfolio
Project
Management
 Managing and reporting on individual projects
against timeline and budget
Knowledge
Management
 Collecting, organizing, storing and distributing
corporate innovation knowledge
Business
Value
Analysis
 Developing, tracking and reporting individual
and organizational KPIs to asses the business
value of innovation
Incentives
and Rewards
 Creating mechanisms to reward individual and
team performance
Communications
 Systematic internal and external
communications around innovation
Infrastructure
© 2011 IBM Corporation
Enabling Innovation : Innovation Framework
Innovation Enablers provide the necessary support for
execution of the overall innovation process
Element
Business
Strategy
Innovation Agenda
Innovation
Strategy
Innovation
Mix
Knowledge
Management
Innovation
Organization
Management
Business
Value
Analysis
 People assets assigned to innovation, and
through the company
Culture
 Organization personality and innovation
archetype as defined by assumptions, values,
norms, behaviors
Internal
Collaboration
 Amount of collaboration (both horizontally and
vertically) within the organization across various
LOBs and divisions
External
Collaboration
 Amount of collaboration between the
organization and other external businesses,
institutions and/or people
Value
Proposition
Innovation Management & Governance
Portfolio
Management
Talent
Vision
Innovation
Model
Definition
Risk/Benefit
Evaluation
Incentives
and Rewards
Project
Management
Tools &
Frameworks
Communications
Objectives
Infrastructure
 Methods and tools to support the various
phases of the innovation cycle
 Systems, environments and internal IT
processes in place to support development and
testing of innovations
Innovation Enablers
Talent
26
Culture
Internal
Collaboration
External
Collaboration
Tools &
Frameworks
Infrastructure
© 2011 IBM Corporation
Enabling Innovation : Innovation Cycle
This Innovation Framework is supported by the Innovation Cycle
which is a formal approach to developing innovation initiatives
INNOVATION CYCLE
1 Assessment of experience
Identify and assess innovation
capabilities, structures,
processes, assets, tools,
methods and innovation
archetype (less comprehensive
after first completed)
6 Realization
Execute, release or implement
the idea
Assessment of the organization
and innovation experience
Realization
of ideas
through
execution
Development
of selected
ideas
5 Development
Refine selected ideas through
additional research, compliance
assessment, clear business
model articulation, full business
case development, etc.
Sensing &
Envisioning
of inputs into the
innovation process
Ideation
around
identified
areas
Evaluation
of ideas
identified
2 Sensing and Envisioning
Obtain inputs into, and scope the
innovation effort through
activities which may include
trends analysis, scenario
envisioning, area identification
and selection
3 Ideation
Leverage various techniques
and tools to conceive ideas
around the innovation areas
4 Evaluation
Prioritize and select a set of high
value ideas for each defined
innovation area for future
investment and development
The Innovation Cycle is a formal
timeline and engine to drive and
capture innovative ideas and initiatives
IBM’s Innovation framework coupled with the Innovation
Cycle creates a strong tool to embed innovation
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© 2011 IBM Corporation
Appendix : Innovation Archetype Examples
The marketplace of ideas: case studies
 Follows three horizons approach (i.e. 70/20/10) for managing innovation portfolio (70% of time for
regular job, 20% of time for job related innovation, 10% of time is open for any ideas)
 Employees’ contribution to innovation is linked to their performance results
 Formal communication platforms are in place to enable internal collaboration (e.g. Google Projects,
Google Ideas, Google Caribou, Moma inside Google)
 Product requirements are kept as simple as possible so that features may evolve as users provide
feedback
 15% of employee’s time is devoted to generation or development of new ideas
 Promotes a culture of ‘small company within a big company" by creating small autonomous business
units and product divisions
 Internal venture capital is available to support new ideas
 ‘Innovator’ (a collaborative tool) supports communication between internal and external teams, and
tracking of ideas
 Everyone from vice presidents to clerks are encouraged to come up with new ideas. All ideas are
taken seriously, considered and often acted upon
 Enables people to make their own decisions about store operations, including product mix and instore displays
 Corporate office sets execution guidelines around ‘what to do’. Employees makes decisions around
‘how to do’
 Employees are given autonomy, including the ability to allow customers to taste products
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© 2011 IBM Corporation
Appendix : Innovation Archetype Examples
Visionary leader: case studies
 CEO formally defines the innovation vision to drive innovation across organization
 Every new product launch is driven by strategic decisions made by centralized team. Strategic
decisions carve a new path for new product launch
 Formal teams are in place for development and execution, but these teams are scattered and not
aware of end to end development and execution activities
 Follows a formal process to drive innovation during idea development and execution phases
 Fung Hon-chu, who led Hong Kong’s Li & Fung Company, developed the “global sourcing
solutions” business model whereby his company coordinated the design and production process for
orders placed by American and European companies
 Li & Fung relies on its partners to help solve problems, not just fulfill orders
 Business units are given substantial autonomy in operating their divisions
 Group’s leadership nurtures entrepreneurial behavior in the divisions so that division staff can be
creative in meeting customer needs
 It is CEO’s goal to first give direction, and then let sr. management team take control of the situation
there after.
 Managers are free to make decisions independently for growth and feel the same degree of
ownership and values that any other manager in the Virgin group would feel
 Radical innovation is governed through VML. BU’s are expected to execute the CEO’s vision and
has autonomy in execution
 Sr. leadership collective innovative thoughts and ideas are applied directly into business
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© 2011 IBM Corporation
Appendix : Innovation Archetype Examples
Innovation through rigor: case studies
 The firm succeeds through a mix of senior executive prioritization and team processes
 The company invests about 10 percent of its revenues in R&D – a very high figure for the industry –
and it devotes 15 percent of its R&D team to looking at needs and lifestyles more than 10 years from
now
 Output is rapidly prototyped and tested for usability
 The teams strive to break down stale cultural norms, and encourage junior members to challenge
senior staff
 Over 50% of its employees are engaged in research and development
 Decisions are made with input from several sources in the company
 Formal product R&D function is to deliver timely solutions for anticipated and actual customer needs
by developing innovations in technologies, products, solutions and services
 It has set up over 20 joint innovation centers with top operators to transform leading technologies into
a competitive edge for customers and achieve business success
 Chief Technology Office brings together the strongest forces within the company
 Innovation strategy incorporates elements such as technology strategy, resource optimization for
research and development, shaping the innovation process, and patent and standardization strategy,
whereby consistent and rigorous application holds the key to success
 Like technology planning, active patent management is also conducted in a strategic manner at
Siemens
 Structured consolidation of the innovative ability of numerous Siemens employees from diverse
disciplines and regions to be achieved through so-called Innovation Jams
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© 2011 IBM Corporation
Appendix : Innovation Archetype Examples
Innovation through collaboration: case studies
 More than 50 percent of product initiatives at Procter & Gamble involve significant collaboration with
outside innovators
 P&G's Connect+Develop open innovation strategy has established more than 1000 active
agreements with innovation partners
 The current structure is a network model that has P&G globally linked to external innovation assets to
accelerate innovation through identifying ready to go ideas and effectively leveraging people outside
of P&G’s base
 Collaboration with stores for innovation - Zara is in tune with its customers, who help it give shape to
the ideas, trends and tastes developing in the world
 A non-stop flow of information from stores conveys shoppers’ desires and demands, inspiring its
200-person strong creative team
 Recipe of centralization and integration - vertically integrated business model that spans design, justin-time production, marketing and sales, giving it more flexibility than its rivals to respond to
changeable fashion trends
 Technology-based local supply chain enables store managers to restock quickly and in smaller
batches
 Bharti created a highly specialized Telco business model by focusing only on its key differentiators –
marketing, sales and distribution and partnering for everything else
 The company deployed the technology and operates state-of-the art networks using the services of
its partners like Ericsson, Nokia and Siemens
 Bharti entered into a 10-year agreement with IBM to transform its processes and take on the
management of its IT Infrastructure. The agreement construct makes innovation all pervasive in the
entire Bharti organization
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© 2011 IBM Corporation