Chemicals Innovation Workshop

Version SB7

Innovation

Concepts and Case Studies

June, 2001

Contents

Defining Innovation

Company Case Studies

Key Learnings - Capabilities, Self-Assessment, Issues

Bibliography

© 2001 Accenture All Rights Reserved


Focus on innovation

“ A key area of focus for CEOs will be to ensure that corporations have the right sort of connections with the right people and organisations ...

CEOs should concentrate on helping their people to act entrepreneurially, make the most of their talents and ensure that they work together to achieve the corporation’s common purpose ”

Source: Accenture ‘The connected Corporation, 2001’ www.accenture.com/theconnectedcorporation



Innovation has a range of meanings and applications

Definitions of innovation



A successfully commercialised invention



A learning process where knowledge is enhanced and applied



The solution of problems through discovery and creation



The successful production, assimilation and exploitation of novelty



A new or different solution to a new or existing problem



Device + Marketing



Systematic entrepreneurship



The process of turning an idea into income - commercialising invention



The search for, discovery experimentation, development, imitation and adoption of new products, new processes and new organisational set-ups

 The effort to create purposeful, focused change in an enterprise’s economic or social potential

Source: Bob Mills, Department of Technology, University of Waikato NZ, April 1999 http://www.techednz.org.nz/proceedings/bob/sld037.shtml

Drucker (1986) “Innovation and entrepreneurship”; Frater, P., Stuart, G., Rose D. and Andrews, G.



Innovation requires the convergence of a range of factors



For new ideas to succeed, a business must concentrate on achieving a successful innovation process as well as expecting a successful product



Innovation isn’t an intellectual concept - it’s a practical way of fostering new ideas and taking them through to market swiftly, efficiently and costeffectively to capture commercial opportunities

 “ It takes an average 3,000 raw ideas to generate one winning product ”,

Industrial Research Institute, Washington DC

 “ It takes 11 serious ideas or concepts to generate one successful new product ”, RG Cooper, McMaster University

 “

Some innovations result from a flash of genius. Most result from a conscious, purposeful search for innovative opportunities found only in a few situations”,

Professor P. Drucker, HBR

Source: Accenture analysis; Bob Mills, Department of Technology, University of Waikato NZ, April 1999 http://www.techednz.org.nz/proceedings/bob/sld037.shtml




Innovation impacts all functional units

Innovation concerns everyone in the company:

Technology based innovation

Services based innovation

– Product performance (e.g. Fuel cell, WAP mobiles, digital camera, common rail gasoline)

– Manufacturing process (e.g. Eastman Catalyst producing high performance hexene copolymers)

– Combining separate products/services (System integrators,Trillium: cleaning+security + property management + investment)

– Change way of delivery (e.g. Premiere, Dell, JIT)

Logistics based innovation

Marketing based innovation

– Image (e.g. Viag Interkom, Smart/MCC,

Yellow-Strom)

– Communication (e.g. Internet)



The challenge is to maximise the return on innovation by managing the underlying processes

Imagine

Develop

Sell

• A Product

• A Service



Innovation is not only imagination but also:



developing the idea to a product/service



that adds value for the customer and



that leads to a competitive advantage



Innovation Management aims to maximize the return on innovation by:



creativity, increasing the number of valuable ideas



focus through identifying and funding the right ideas



efficiency by accelerating the development and launch of products/services and



maximizing the efficiency of the underlying processes



Sources of innovation fall into two distinct categories

Four sources of opportunity exist within a company or industry

Three exist outside a company’s social & intellectual environment



Unexpected occurrences



Incongruities



Process needs



Industry & market changes



Demographic changes



Changes in perception



New knowledge

Source: Professor Peter F. Drucker, Innovation and Entrepreneurship: Practice and Principles; Harvard Business Review: Innovation, 1991



In all cases, the outcome is the creation of something new and transformational

Examples of innovative inventions



The unexpected



The incongruity



Process needs



Changes in industry or market structure



Demographics



Changes in perception

Du Pont’s Nylon, G.D. Searle’s NutraSweet,

Alexander Fleming’s penicillin

Alcon Industries’ cataract enzyme, Ro-Ro container ships

AT&T’s automatic switchboard, Mergenthaler’s Linotype,

Ochs, Pulitzer and Randolph Hearst’s modern advertising

Nokia’s mobile phones, investment banking, the car

BUPA’s healthcare insurance, Japan’s robotics industry,

Club Mediterranee’s travel & resort business

Pfizer’s Viagra, organic food



New knowledge J.P.Morgan’s commercial banking, Douglas & Boeing’s commercial aircraft, the computer

Source: Bob Mills, Department of Technology, University of Waikato NZ, April 1999 http://www.techednz.org.nz/proceedings/bob/sld037.shtml




Unexpected occurrences



May arise from unexpected failures unexpected successes are such productive sources of innovation opportunities because most businesses dismiss them, disregard them and even resent them. Managers may even comment that “ It shouldn’t have happened ”



Corporate reporting systems further ingrain this reaction by drawing attention away from unanticipated possibilities - target shortfalls appearing on the first page of a monthly or quarterly report highlight inadequacies and suppress the recognition of new opportunities



Genuinely entrepreneurial businesses have two summary pages – one outlining problem areas, the other outlining opportunities – and managers spend equal time on both

EXAMPLES

 Du Pont’s Nylon

DuPont researchers first invented nylon 66 polymer in the 1930s. Nylon was an instant market and financial success when it became available in May of 1940 - production of $9 million sold out with a 33% profit - and became Du Pont's must celebrated product.

 IBM’s modern accounting machine

IBM’s Univac machine was originally designed in

1930s for banks but sold only to libraries which had money to buy the product. Fifteen years later, when business required a machine that could do payroll, Univac was redesigned Univac - within five years IBM had become the market leader in the computer industry.

 Ford’s Mustang and Thunderbird cars

High profile failure of Ford’s Edsel car caused company to refocus on consumer trend towards

‘life-style’ cars resulting in highly successful launch of the Mustang and Thunderbird. The move gave Ford a distinct personality and reestablished it as an industry leader to compete with GM.

Source: Accenture analysis; Professor Peter F. Drucker, Innovation and

Entrepreneurship: Practice and Principles; Harvard Business Review: Innovation, 1991



Incongruities



An incongruity within the logic or rhythm of a process is only one possibility out of which innovation opportunities may arise



Another sources is incongruity between economic realities – whenever an industry has a steadily growing market but falling profit margins an incongruity exists – e.g. the steel industries of developed countries faced this between

1950-1970 and devised the innovative response of mini-mills



An incongruity between expectations and results can also open up possibilities for innovation



Sometimes all it requires is a shift in viewpoint or a look at how existing ideas or technologies in other industries can be applied to your industry




EXAMPLES

 Alcon Industries’ cataract enzyme

Alcon exploited an incongruity in medical technology by adding preservative to a longstanding enzyme giving it shelf life. Surgeons conducting cataract operations immediately switched to using the new compound which dissolved the ligament, replacing the old method of cutting it. The medical innovation gave Alcon an instant, worldwide product monopoly.



Roll-on/Roll-off container ships

An incongruity between the shipping industry’s assumptions and realities led to a shift in managers’ understanding - that real costs came from not doing work (sitting idle in port) rather than doing work (being at sea), an old concept that railroads and truckers had been using for 30 years. This shift in viewpoint turned ocean shipping into one of the major growth industries of the last 20-30 years.


Process Needs



Opportunities arising from process needs fill a gap in the market that is logical and immediately adoptable but for one reason or another hadn’t been thought of before



Innovations that arise to fill a process need often only require the adaptation of an existing technology



Even apparently minor inventions emerging from process need opportunities can have major uses



The adaptation of the reflector used on American highways since 1930s for use on winding Japanese roads enables traffic to move smoothly and with a minimum of accidents

EXAMPLES

 AT&T’s automatic switchboard

In 1909, a statistician projected two curves 15 years out – telephone traffic and American population. Viewed together, they showed that by

1920, every US female would have to work as a switchboard operator. Within two years, AT&T had developed and installed the automatic switchboard.

 Mergenthaler’s Linotype

The 1890s invention of the linotype made it possible to produce a newspaper quickly and in large volume.

 Ochs, Pulitzer & Randolph Hearst’s modern advertising

This social innovation invented by the three US publishers made it possible for them to distribute news practically free of charge, with the profit derived from marketing.





Industry & market changes



Industry structures can change overnight, creating tremendous opportunity for innovation



When an industry grows quickly, its structure changes. Established companies, concentrating on defending what they already have, tend not to counter-attack when a newcomer challenges them



When market of industry structures change, traditional industry leaders repeatedly neglect the fastest growing market segments



New opportunities rarely fit the way the industry has always approached the market, defined it, or organised to serve it. As a result, innovators have a good chance of being left alone for a long time




EXAMPLES

 Nokia’s mobile phones

Recent deregulation in the telecoms industry and technological innovation led to Finnish paper manufacturer Nokia switching to producing mobile telephones the meet the growing need for mobile communications

– as a result, Nokia is now the market leader in mobile communications technology. Similarly, the need for swift telecoms transmission enabled Sprint to dominate the US marketplace.



Donaldson, Lufkin & Jenrette

Brokerage firm DL&J was founded in 1961 by three HBS graduates who realised the structure of the financial industry was changing as institutional investors became dominant. With little capital or connections, the three founded DL&J which became a leader in the move to negotiated commissions and a leading performer on Wall

Street.


Demographic changes



Of the outside sources of innovation opportunity, demographic changes are the most reliable because they have known lead times. Yet, because policymakers often neglect demographics, those who watch them and exploit them can reap great rewards



Managers have long known that demographics matter but they have always believed that population statistics change slowly though the opposite has been the case in the past century



The innovation opportunities that changes in the number of people and their age distribution, education, occupations and geographic location make possible are among the most rewarding and least risky of entrepreneurial pursuits




EXAMPLES



BUPA healthcare insurance during the last 10-15 years, independent surgical and psychiatric clinics, emergency centres and

HMOs have opened throughout developing countries in response to the growing need for private healthcare facilities . Healthcare insurers like BUPA have emerged to serve the booming market for private healthcare insurance driven by an ageing population and the demise of publiclyfunded healthcare system.

 Club Mediterranee’s travel & resort business

By 1970, emergence of large numbers of affluent and educated young adults in Europe and US sought new and exotic holidays capturing the

‘hangout’ of their teen years. Club Med developed a new concept in holidays that filled the gap and drove record profits from ‘lifestyle’ holidays.

 Japan’s robotics industry

In 1970s, Japanese recognised the emerging baby bust and education explosion would result in fewer blue-collar workers in manufacturing by

1990s. The Japanese now have a 10-year lead in robotics.


Changes in perception



Seeing things in a different way opens up significant innovation opportunities – ‘the glass is half full’ or ‘the glass is half empty’ concept



A change in perception does not alter facts. It changes their meaning and often happens very quickly an may appear to be the result of a ‘domino effect’



Economics do not necessarily dictate such a change; in fact, they may be irrelevant



What determines whether people see a glass as half-full or half-empty is mood rather than fact and change in mood often defies quantification



But it is not exotic or intangible. It is concrete. It can be defined. It can be tested. And it can be exploited for innovation opportunity




EXAMPLES

 Pfizer’s Viagra

Increasing preoccupation with health issues and

‘lifestyle’ issues lead Pfizer to focus R&D on developing a new drug which could conquer male inadequacy in the bedroom. The drug was developed as an OTC product and has become one of Pfizer’s best-selling products and enabled the company to become a market leader in the developed world.



Organic food production

Increasing concerns over food production, quality, animal welfare and the environment has led to an explosion in the requirement for ‘pure’ food produced by sustainable, natural means.

Compounded by scares over diseases (BSE, foot & mouth), consumers are switching to organicallyproduced produce. The retail value of organic food in the UK rose from £100 million in 1993 to £350 million in 1998. It is estimated that by 2002 organic food will account for 7-8% of the total food market with a retail value of £1 billion. UK supermarkets like Sainsbury’s, Waitrose and Tesco UK supermarkets experienced a 35-40% increase in demand for organic food in February 2001 alone.


New knowledge



Often market dependent, knowledge-based innovations differ from others in the lead time they take to come to market – there is often a protracted span between the emergence of new knowledge & its distillation into usable technology plus another long period before it appears in the market & products, processes or services



Innovation of this sort usually demands a combination of knowledge – a need for convergence among different kinds of knowledge explain the peculiar rhythm of knowledge-based innovation



During a long gestation period, there is much talk and little action. When all the elements suddenly converge, there is tremendous activity. Success requires careful analysis of the various kinds of knowledge needed to make an innovation possible




EXAMPLES

 J.P.Morgan and Deutsche Bank’s commercial banking

In the 1930s, J.P.Morgan and Georg Siemens combined the French theory of entrepreneurial banking and the English theory of commercial banking to create the first successful modern banks. Ten years later, Shibusawa Eiichi adopted

Siemens’ concept and laid the foundation for

Japan’s modern economy.

 Boeing & Douglas’s commercial aircraft

Both stole a march on De Havilland by recognising what the market needed

– configuration (the right size & payload for the routes on which a jet would give an airline the greatest advantage) and financing of such expensive planes. Boeing and Douglas now dominate the commercial jet aircraft industry.



The computer

Required the combination of six strands of knowledge

– binary arithmetic, Charles

Babbage’s calculating machine, Herman

Hollerith’s punch card, the audion tube, symbolic logic, and the concepts of programming and feedback developed during WWI.


That’s the theory – now for the practice



How do you encourage innovation within the daily constraints of the job?



How do you clear enough space in the day for inspiration?



How can you encourage your managers to employ creative thinking?



How do you communicate the ideas you have to others?



How do you ensure that a framework encourages but does not stifle innovation?



What mechanisms are in place to take an idea from inception to maturity?



How do you get buy-in from others to develop your great idea?



More importantly, once you have a good idea, how do you commercialise the innovation?



…



Principles of successful innovation



Analyse the sources of all new opportunities

These will have different importance at different times depending on the context

– new knowledge may be of little relevance to someone innovating a social instrument to satisfy a need that changing demographics or tax laws have created. Think laterally and with vision.



Be aware of everything and everyone around you

Innovation is both conceptual and perceptual

– go out and look, ask and listen. Successful innovators use both the right and left sides of the brain. They look at figures and people. They work out analytically what the innovation has to be to satisfy an opportunity. They look at potential users to study their expectations, their values and their needs.



Focus on simple and specific areas

To be effective, an innovation has to be simple and focused. It should do only one thing otherwise it confuses people.

Even the innovation that creates new users and new markets should be directed toward a specific clear and carefully designed application. Effective innovations start small. They try to do one specific thing and are based around a simple notion. They are not grandiose. By contrast, grandiose ideas for things that will ‘revolutionise an industry’ are unlikely to work.



Aim for transformational innovations

The successful innovation aims from the beginning to become the standard setter, to determine the direction of a new technology or a new industry, to create the business that is

– and remains – ahead of the pack. If an innovation does not aim at leadership from the beginning, it is unlikely to be innovative enough.



Be systematic and persistent

Innovation is work rather than genius. It requires knowledge. It often requires ingenuity. And it requires focus.

Innovators rarely work in more than one area

– an innovator in financial areas is unlikely to embark on innovations in health care. Most of all, innovation requires hard, focused, purposeful work - if diligence, persistence and commitment are lacking, talent, ingenuity and knowledge are to no avail.



Principles of successful commercialisation



Be willing to invest (or not invest) in good ideas

Make the call

– is the idea worth investing in or not? If not, ditch it fast and redirect funds to other more worthwhile ventures. If it is viable, then make sure funding isn’t stifled and hard to come by otherwise you may miss the opportunity. Then fund R&D for as long as it takes

– in some cases, 10 years may not be too long. A good product is worth the wait and may payback the initial investment tenfold.



Drive it through

Patent office libraries are packed full with good ideas that lacked a sponsor. You have got to be willing to push, push, push to get an innovation to come to fruition. This takes effort, money, time, energy, cooperation, vision … qualities that may be lacking in a company with multiple products and work streams. The ability to focus on the right innovation and not be dissuaded by other demands will be the deciding factor that enables commercialisation.



Ensure marketing acumen supports the idea

It is not enough to be technologically savvy, you also need to have an effective sales and marketing force to drive the idea through to commercialisation. A good idea will be shelved unless it can be properly marketed to the right audience. Decision criteria for the project evaluation have to be defined aligned to the business strategy and the organization.



Be disciplined

Leading innovators apply the basic principles for improving quality to the total commercialisation process

– they define priorities, set measurable goals & benchmarks, build cross-functional & organisational skills, break functional barriers, promote active management and underline the value of coordination.



Monitor and measure success

Key Performance Indicators (KPIs) are a pragmatic way to measure return on innovation (eg. cash flow of new products in % of innovation cost, revenues from new products in % of total, increase of market share, scrap due to design flaws, customer satisfaction index) and process excellence (eg. number of ideas/project, number of patents or copyrights per time period, % closed projects, speed of development, time to market, cost of development).


Contents




Bibliography


Case Studies

Certain companies are leading the field in terms of innovation

Innovation Capability Rating – Top Performers, 2001

Nokia

Henkel

ST Microelectronics

Oracle

IBM

Renault

Schering AG

Siemens

GE

Pharmacia

HP

GlaxoWellcome

Ericsson

Lucent

Scale of 0 - 100

Exceptional (>80)

World Class (65-79)

66 68 70 72 74 76 78 80

Source: ‘Measuring the Competitive Fitness of Global Firms 2001’, Professor Jean-Claude Larreche, INSEAD

82








Of the 309 companies surveyed, 14 were judged to be World Class and one was judged Exceptional in terms of their innovative capabilities

Findings are based on answers to the following question on innovation -

“

How effective is the acquisition, development and implementation of new ideas in all facets of the firm’s operations?”

The survey is based on information collected on 309 of the largest

American and European global firms from eight sectors:

- computer and electronics

- automobiles and automotive

- process industries

- financial services

- consumers goods

- pharmaceuticals & healthcare

- other services

- other sectors

We can use case studies to interpret how leading corporations approach innovation

Case Studies


Case Studies

Nokia – from paper to phones

“Nokia is a perfect example of a company that has been able to get all three parts (human, structural and social) working together in a consistent fashion. They have been able to create a heady blend of all three elements that brings a true sense of belonging and ownership to the firm”

Rolf Heuppi and Patricia

Seemann, ‘Social Capital’,

November 2000


Nokia – mobile phone manufacturer



R&D centres in 15 countries on four continents - invested $2.2 billion in R&D in 2000 (8.5% of net sales), up from $1.5 billion in

1999 (8.9% of net sales)



Every third Nokia employee works in research & development



More than 60,000 employees worldwide



Locations in 50 countries



Head office located in Espoo, Finland



Mobile phones sold in 130 countries



Nokia's GSM technology has been sold to 100 operators worldwide



Nokia has delivered well over 50 GPRS networks to leading operators in Europe, the US and Asia



By the end of year 2000 Nokia has been chosen as a 3G supplier by a total of 13 operators in Asia, the US and Europe



Nokia sold 128.4 million mobile phones in 2000, and strengthened its market leadership, leading to a total global market share of approximately 32% for the full year 2000

Source: www.nokia.com

Case Studies

Nokia – success through vision

Transformational approach to product development



Nokia has evolved dramatically since beginning as a paper manufacturer in 1865, growing first into a conglomerate encompassing industries ranging from paper to chemicals & rubber, and streamlining in the 1990s into a dynamic telecoms company. The groundwork for this shift was laid in the 1960s, when Nokia's electronics department was researching radio transmission. In the decades that followed, Nokia's mobile phones and telecoms infrastructure products reached international markets and by the 1990s, Nokia was established as a global leader in digital communication technologies. Nokia is careful to maintain this position by preempting consumer needs with targeted products and services.

Visionary individuals encouraged

 Nokia’s prevailing spirit is that anything is possible and everything should be tried once. The ability to maintain this culture and encourage workforce participation in developing new initiatives has helped keep Nokia a recognised leader in innovation for growth.

 The company’s innovative attitude is best illustrated by Nokia’s move into telecoms - the idea of Björn Westerlund who realised the future potential of semiconductor technology so maintained good relations with universities and colleges and was open-minded enough to hire visionaries - scientists, inventors and apprentices – whose innovative research he supported. Kurt Wikstedt, the head of Electronics, took the blueprints created by these visionaries and

‘squeezed out’ products that would respond to the needs of the market. Wikstedt himself had a clear vision of the future of electronic communication, calling himself ‘digitally crazed’.

Continuous exploitation of market opportunities



Since entering the telecoms market, Nokia has faced competition from established international competitors. Yet in a relatively short time, Nokia has earned global success – this is largely due to management’s ability to recognize and exploit opportunities created by continuous technological & market change. Nokia's history shows that the right decisions made at the right time breed success and the company remains confident that this vision and the courage to create new opportunities will help them achieve goals in the new communications era .

Source: ‘Social Capital: Securing Competitive Advantage in the New Economy’, Rolf Heuppi and Patricia Seemann http://www.business-minds.com/article.asp?item=69 ; www.nokia.com


Case Studies

Nokia – outperforming peer group

500

450

400

350

300

250

200

150

100

50

0

Nokia share price performance versus sector and underlying market indices (January 1999 – July 2001)

NOK1V Equity

HEX Index

BEUTELE Index

NOK1V – Nokia listing

HEX - Helsinki Stock Exchange

BEUTELE - Bloomberg telecom Equipment European Industrials Index

Source: Bloomberg (share prices); Stern Stewart (MVA); Accenture analysis


NOTE: PROVISIONAL DATA ONLY

$ millions MVA

Nokia

Nextel Comms

US Cellular

Telesp Cel Pa

160,682

35,854

6,410

3,609

Advanced Info

Telesystem In

2,626

2,620

Industry MVA* 59,607

* Wireless telecoms industry average

Note: Market Value Added measures the excess of market value of equity over book/historical value of equity. A high MVA indicates that the market expects strong future performance.

Case Studies

L’Oreal – from research to marketing

“The future belongs to modern, powerful businesses capable of facing up to the many technological, scientific and ecological challenges of the coming years. That is how we are getting ready for the future at L'Oréal”

JeanFrançois Grollier, VP for

L’Oreal R&D, 4 July 1997

L’Oreal – global cosmetics company



Number one in world cosmetics



A workforce of 48,222 with 76% of personnel based in France



3% of consolidated sales invested in cosmetics and dermatology research, 85% of consolidated sales registered outside France



At the leading edge of Internet technology - 15% of new managers hired through the Internet



Over 3,000 new formulas generated each year, over 110 original molecules produced by L'Oreal research, over 420 patents applied for worldwide



46 factories worldwide - L'Oreal Research collaborates with research units in some twenty countries worldwide in advanced scientific fields



Sales of consolidated cosmetics have nearly tripled in 10 years

(excluding Synthelabo) – in 2000, consolidated cosmetics sales reached $10.8 billion



Over $1.6 billion invested in research in the past 10 years.

Number of researchers employed has risen by 50% in past 50 years to 2,564 in 2000

Source: www.loreal.com


Case Studies

L’Oreal – anticipating consumer values

Significant investment in R&D



Since it was founded in 1907 by the chemist Eugene Schueller, the L'Oreal Group has continued to invest in cosmetic research with one clear aim: to improve the quality and efficacy of its products through scientific innovation.

 L’Oreal’s founding principles are research and innovation. Laboratories in France, the US and Japan employ researchers from over 30 disciplines - chemistry, biology, medicine, physics, toxicology, etc. Research findings are published in numerous international scientific journals, adding to the debate.



In 2000 the Group devoted 3% of its turnover to research. The research budget has tripled in the past ten years, and in half a century the number of researchers has increased 25fold. This investment, coupled with L'Oréal's considerable scientific expertise in all departments, is what gives the Group its innovative edge.

Longstanding sales & marketing

 L’Oreal’s R&D activities are supported by strong marketing and distribution channels (hair salons, perfumeries, hyper and supermarkets, health/beauty outlets and direct mail) which enable products to be delivered to all consumer types.



The company places a significant emphasis on communications , “ the key work in L’Oreal’s history ”. When advertising was in its infancy, L’Oreal commissioned promotional posters from graphic artists like Colin, Loupot, Savignac to publicise the company’s products. In 1933, the company launched a magazine and radio campaign and in 1950 branched out into film advertising. Product marketing continues supported with significant investment – in L’Oreal’s view, it is not sufficient for an excellent product to be brought to market, it must also be heavily promoted to capture the share of consumer buying power

Innovations focused on developing lifestyle products

 L’Oreal assesses demographic trends and invests time and money years ahead in developing products which will meet anticipated consumer needs. Recent innovations include:



Mexoryl SX – a highly-effective UVA enzyme launched in 1993 after seven years of research;



Aminexil

– a molecule which effectively combats hair loss launched in 1996 after 10 years of research;



Reconstructed skin – the first lab for cellular cultures was inaugurated in 1968 and by 1989, L'Oréal was able to announced that all products were free of animal testing;



Sensory analysis

– in operation since 1987, this company standard enables L’Oreal to test & develop new products against a ‘benchmarked’ set of criteria.


Case Studies

L’Oreal - outperforming peer group

400

350

300

250

200

150

100

50

0

L’Oreal share price performance versus sector and underlying market indices (November 1996 – May 2001)

OR FP Equity

CAC Index

SPCOMS Index

OR FP – L’Oreal listing

CAC - Paris Stock Exchange

SP COMS – S&P’s cosmetics index




$ millions

L’Oreal

Gillette

Estee Lauder

Avon Products

Fancl Corp

Clarins

Industry MVA*

MVA

39,508

29,727

10,641

7,477

2,552

1,641

104,432

* Personal products industry average


Case Studies

Skandia – from life insurance to savings

“Skandia's passion is to be an innovation company.

Therefore, we embraced the

Internet at an early stage in an effort to strengthen communication with our shareholders, customers and others wanting to know more about Skandia. In the future, too, we will strive to be at the forefront in adopting technological achievements”

Lars-Eric Petersson, Skandia

President and CEO, 2000

Annual Report


Skandia – financial services company



Sweden's leading exporter of services with more than 20 offices outside the Nordic countries



Established in 1855 to become Sweden's largest insurer. Now handle financial services in the US since 1900, in Latin

America for over 40 years, and in Japan for 30 years



Over 5,600 employees, some 80,000 shareholders and $18.2 billion (SEK 198 billion) in annual premium income



Growth during the past 140 years has been built on solid finances, flexibility and continuous adaptation to the demands and needs of the customers. Insurance remains at the heart of

Skandia's business



Strong emphasis on knowledge capture with intellectual capital being considered in company valuation – links with academic institutions seek to develop and refine approach to innovation

Source: www.skandia.com

Case Studies

Skandia – emphasis on knowledge

Intellectual capital an expression of innovation



Recently transformed from being a Swedish life insurance company covering property & casualty insurance to become a global savings company across 20+ countries. Expansion has been rapid & entirely organic. Driven by demographics and specifically the anticipated growth in service sector and challenges of information retrieval posed b the Internet which Skandia believes provides “ a whole new set of opportunities to meet these demands

”. As a result, the company now specialises in “ knowledge-intensive production ”.



Aim is to make Skandia an innovative business community within society at large – “ Our innovative power will determine how well we accomplish this goal ”. Established Skandia Future Centres to explore innovation plus the webbased forum Intellectual Capital Community “ to contribute to the development of the theory and practice to better understand the new prerequisites in a global and knowledge-intensive economy. In the web-forum there is an ongoing dialogue on the IC-related categories missionary, visualizing, leadership, technology, capitalizing and futurizing

”.

Emphasis on knowledge capture



Regards knowledge as the primary wealth creating resource requiring companies to develop new work methods, competencies and processes based on their knowledge, many of which are invisible to traditional accounting methods and systems but the innovative source of the company's future value.



Believes that one of the components that makes up Intellectual Capital is Innovation Capital – the explicit, packaged result of innovation in the form of protected commercial rights, intellectual property and other intangible assets and values. Believes the critical success factor is the number of new ideas and their implementation classified in two ways

- those that use a unique concept to capture a position in a mature market (eg. Skandia Banken); those that grow organically by recycling systemised concepts in new markets (eg. Skandia Assurance & Financial Services).



Skandia has been developing IC management practices since 1991 and have created a number of tools to visualize and report IC – Skandia Value Scheme (showing the building blocks that makes up Skandia’s IC), Skandia Navigator

(a future-oriented business planning model) and Dolphin (a PC-based business control software package).

Incentivised workforce



Attach a premium to competence, initiative and drive – “ We want employees who develop, who are stimulated by their work, and who take responsibility … Our leaders think and act with business savvy ”.


Case Studies

Skandia - outperforming peer group

450

400

350

300

250

200

150

100

50

0

Skandia share price performance versus sector and underlying market indices (January 1999 – July 2001)

SDIA SS Equity

SAX Index

BEUINSU Index

SDIA SS – Skandia listing

SAX - Stockholm Stock Exchange

BEUINSU - Bloomberg European Insurance Index




$ millions

MVA

Skandia

Citigroup

American Express

Morgan Stanley

Hutchison

Goldman Sachs

Industry MVA*

48,469

112,964

64,483

60,171

47,423

30,561

483,298

* Diversified financial services industry average


Case Studies

Symyx Technologies – pioneering R&D

“ New materials fuel innovation with the potential to transform products, companies and even industries. Symyx has pioneered revoluntionary technologies to increase the pace of materials innovation, by dramatically increasing the rate of experimentation ”

Symyx Technologies, 2000

Annual Report

Symyx – technology discovery



A pioneer of high-speed technologies for the discovery of new materials for customers in the life sciences, chemical, and electronics industries.



Produce a range of proprietary technologies include instruments, software and methods, fundamentally change materials discovery by accelerating the process in a cost-effective manner



Able to generate hundreds to thousands of unique materials at a time and screen those materials rapidly and automatically for desired properties Symyx’s approach is 100 times faster than traditional research methods and reduces the cost per experiment to as low as 1% of traditional research methods



Conduct 20,000-50,000 experiments per year (500-1,000/yr traditionally), have cut the cost per experiment to $10-25 ($500-

1,000/experiment traditionally) and the timeline to discovery to

0.5-2 years (usually several years traditionally).



Have screened over 1 million different materials and identified ten development candidates to date



Intellectual property surged to 15 issued patents & 210 applications on file



Revenue grew to $43 million, an increase of over 40% from 1999 with a net loss of under $1 million

Source: www.synmyx.com


Case Studies

Symyx Technologies – collaboration in action

Revolutionising R&D



Five year old Symyx is revolutionising the way new materials are discovered in the life sciences, electronics and chemical industries. By adopting a ‘combinatorial approach’ to discovering materials (involving collaborative research and early-stage licensing agreements with corporate partners), Symyx has dramatically increased the number of experiments it conducts, cut the cost of R&D and reduced product discovery timelines -

“

Our proprietary technologies fundamentally change the way new materials are discovered by enabling us to conduct thousands of experiments at once. This high-speed research greatly increases the pace of new materials discovery and innovation

”

.



Through product R&D collaborations with 20 companies – including Ciba Specialty Chemicals, Dow Chemical,

ExxonMobil Chemical, ICI, Unilever, BASF, Bayer, Eveready and Energizer – Symyx diversifies products & customers

& maximises the opportunity to commercialise innovations. Partners provide funding for R&D efforts, commercialize materials, and pay royalties on commercial sales the arrangement cuts Symyx’s R&D costs, minimises risk, accelerates speed to market & provides a steady revenue flow. The strategic relationships help discover materials that require sizeable investment in product development & manufacturing & extensive marketing efforts enabling

Symyx to operate free of high opex & capex traditionally associated with R&D in new technology.



Under a research & licencing collaboration with Ciba, Symyx applies its proprietary chemical synthesis, screening and informatics platforms to perform hundreds to thousands of experiments a day, compared to the traditional approach of only 1-2 experiments per day. This significantly increases the probability of success, reduces time to market, and increases the cost-effectiveness of new materials discovery & process development.

Focus on Tools, Sales & Marketing



R&D enables Symyx to develop sophisticated tools from which to generate hundreds to thousands of materials at a time, screen those materials rapidly and automatically for desired properties - Dow Chemical recently adopted the first Symyx Discovery Tools(TM) polyolefins system which performs up to 100 experiments a day. Symyx receives payment for the instruments plus fees for intellectual property and software licenses over the next three years.



Alongside R&D, Symyx funds significant Sales & Marketing programmes to rapidly bring products to market. Symyx recently signed a worldwide S&M capability in the US, Europe and Japan to enable greater access to chemical & pharmaceutical clients. " This proximity should make us better prepared to add value to their strategic needs through our collaborative research, materials licensing, and tools businesses ”, Steve Goldby, Symyx chairman and CEO.


Case Studies

Symyx Technologies - outperforming peer group

600

500

400

300

200

100

0

Symyx Technologies share price performance versus sector and underlying market indices (November 1999 – July 2001)

SMMX US Equity

CIND Index

SCHMS Index

SMMX US – Symyx Technologies listing

CIND – Nasdaq Industrial Index

SCHMS – S&P Speciality Chemical Index




$ millions MVA

Symyx Tech

Shin-Etsu Che

PPG Industrie

Rohm & Haas

Ecolab

International

Industry MVA*

122,667

8,514

6,918

4,839

4,253

2,819

41,341

* Global speciality chemical industry MVA average


Case Studies

Pfizer – pioneering innovation in R&d

“ The pursuit of innovation is basic to Pfizer’s culture. It shapes our strategy, defines our purpose, and governs every facet of our operations —from the R&D that leads to pharmaceutical breakthroughs, to the transfer of knowledge to patients and providers, to the way we respond to the changing marketplace”

Pfizer, 2000


Pfizer – global pharmaceutical company



The market leader in cardio-vascular, genito-urinary, systemic anti-infectives research & marketing with over 100 foreign subsidiaries, manufacturing facilities in 31 countries & products sold in nearly 150 countries.

• Generated $20.5 billion in sales in 2000 of which $1.7 billion spent on R&D (19.6% of sales)

• A total of 91 potential products in the pipeline up to 2005 with continuing increase in the use of alliances and external innovation in R&D – of the 62 R&D alliances & deals established in last decade, 47 were in discovery, 4 in pre-clinical and remaining 11 in phase I, II or III

• Pfizer has made greater use of alliances and external innovation in R&D - Use of external innovation by companies – 54% of marketed products originated internally and 46% externally. 67% of R&D products originated internally and 33% externally.

• Significant expenditure in sales & marketing - US expenditure rose 62.7% from Jan-June 1998 with total promotional expenditure Jan-June 1999 totaling $67 million. US salesforce of 5,400 in 1998

Source: www.cibasc.com

Case Studies

Pfizer – targeting consumer needs

Strong growth performance



Pfizer is a diversified, research-based healthcare company with global operations. Its activities are divided between three business sections: pharmaceuticals, consumer healthcare & animal health. The company divested its medical technology interests in 1998. Research is now focused on genito-urinary and sexual health, arthritis and inflammation, CNS disorders, cardiovascular diseases and metabolic diseases, including diabetes.



During the past six years, Pfizer sales have grown at well over the rate of the rest of the industry with the company's performance strong across all product lines. Pfizer expects compound annual growth of 16% in revenues and 20% in income from 1999-2002. The company has a total of 91 potential products in the pipeline up to 2005.

Emphasis on partnerships



Pfizer has continuously innovated in several key areas over the last 10 years and has focused on key markets and products. Through innovations in licensing and co- marketing and co-promotions deals it has maximised use of its sales force and accumulated excellent products in key therapeutic categories. For example, Pfizer co-promotes two successful products with their discoverers - Lipitor, with Warner-Lambert for the treatment of elevated cholesterol & triglyceride levels in the blood; and Celebrex with G.D. Searle, for the treatment of arthritis & pain. The Pfizer/Warner-

Lambert strategic combination in particular promises 43% return on equity, annual EPS growth of 24% through 2002.



Pfizer successfully took over Warner-Lambert a co-marketing partner for the best selling drug Lipitor, before it fell in the hands of a competitor, AHP. When most companies were acquiring and merging with Biotech outfits, Pfizer was pioneering JVs & alliances to secure access to new technologies & products without increasing overheads.

Innovations linked to consumer needs



Pfizer embraced e-enablement & implemented organisational change before it become widespread in the industry –

E-ordering of Pfizer products represents some $6 billion worth of business annually; EC volumes in 1998 averaged more than 2,000 documents per day with Pfizer supporting 14 different EDI transactions.



Pfizer has targeted consumer needs to pioneer successful products – its most successful innovation to date has been

Viagra, named joint winner of the Prix Galien 2000 medical award for scientific excellence & innovation – “ The research programme that produced Viagra dates back to 1985 and is a remarkable story of innovation, teamwork & commitment. Each compound that reaches the market represents an investment of approximately $300 million in

R&D and takes between 10-15 years from the start of a project to regulatory approval for use

” Dr Gill Samuels,

Pfizer’s Senior Director of Science Policy & Scientific Affairs.


Case Studies

Pfizer - outperforming peer group

400

350

300

250

200

150

100

50

0

Pfizer share price performance versus sector and underlying market indices (January 1997 – July 2001)

PFE US Equity

NYA Index

SPPRMC Index

PFE US – Pfizer listing

NYA – New York Stock Exchange

SPPRMC – S&P Pharma Index




$ millions MVA

Pfizer

Merck

Bristol-Myers

Johnson &

Johnson

Eli Lilly

Schering-Plou

113,097

143,001

115,411

107,564

63,520

56,139

Industry MVA* 876,989

* Pharmaceuticals industry average


Contents




Bibliography


Key Learnings - Capabilities

Companies known for innovation share and excel in certain key traits

1.

Mindset : They foster an atmosphere which encourages innovation, trust and a continuous and rapid communication between business units – specifically between

R&D and Sales & Marketing (eg. Nokia, L’Oreal, Skandia)

2.

People : They encourage entrepreneurship from employees at all levels of the organisation, creating an atmosphere of collective responsibility in which employees can be inspired and deliver against a defined set of criteria; emphasis on creating genuine value rather than just meeting targets (eg. Enron)

3.

Processes : They have put in place dynamic, vision- and solution-based processes linked to multiple strategies. The decision-making process is transparent and efficient

– bottlenecks are swiftly ironed out. The ultimate aim is always to commercialise successful products rather than indulge in research per se (eg. Ciba, Pfizer)

4.

Technology : They facilitate networking throughout all levels of the organisation enabling the workforce to share knowledge, thus integrating the ‘front and back end’ of the business (eg. Enron, Skandia)

5.

External input : They forge links with external experts (eg. academics, partners) to enrich the debate and provide fresh perspectives to help deliver innovative solutions

(eg. Nokia, Ciba, Pfizer)



Each believes in the importance of integrated capabilities



Innovating firms commit significant resources to innovation, ranging from 7-8% of turnover in traditional industries to 12-15 % in high tech sectors.



Though R&D remains a key input to innovation, the emphasis is changing to a more complex mix of measures and instruments designed to reflect the fact that non-R&D aspects of both innovation and diffusion processes are increasingly important.



The composition of innovation expenditures varies, with between 10-25% made up of R&D, roughly 30% comprising non-R&D expenditures and between 40-60% comprising investment expenditures – don’t forget the importance of delivering the product to market.



The ability to harness existing knowledge is a key factor for success



Successful innovators commercialise 2-3 times the number of new products and processes as their competitors of a comparable size, incorporate 2-3 times as many technologies in their products, bring their products to market in less than half the time, and compete in twice as many product & geographic markets.

Source: European Innovation Monitoring System http://www.cordis.lu/eims/src/eims-48.htm

, http://www.cordis.lu/eims/src/eims-1.htm



Critical success factors

 Assess what’s happening now and in the future

Determine what’s already working in the marketplace that you can improve on and expand - How can you segment your markets differently and gain a competitive advantage in the process? How does you business system compare with your competitors? … Look at how to create new segments or markets for the kind of products you can produce - segment a market beyond simple demographics, identify what each group really wants, create distinctive product performance features to suit .



Understand the competitive dynamics of your business

Assess where your business is at now and where it’s hoping to go. Undertake the assessment in a practical and pragmatic manner - Are you big enough? Technically strong enough? Good enough at marketing? … Use your industry knowledge to best advantage .



Be hardheaded about your strategy

Be tightly focused, decide where to direct your knowledge and efforts, set clear directions so creative people can channel their efforts towards viable goals don’t try to be all thing to all customers. Decide what competitive edge you’re seeking and focus on delivering against it.



Make sure your vision matches up to reality (both internal & external)

Ensure management is visionary, action-oriented, employ well-directed discipline, communicate with all necessary interested parties. Then employ an intelligent workforce and let them get thinking.



Integrate your capabilities

Communication and understanding between all parts of the business is crucial to commercialising innovations – it’s not enough to fund R&D if you don’t have a good process in place in which to market your great idea to targeted customers.



Measure your successes (and failures)

Measurement





























% sales from new products

% sales from new market

% sales from new applications

Cash flow of new products in % of innovation cost

Revenues from new products in % of total

Scrap due to design flaws

Customer satisfaction index

Number of ideas/project

Number of patents or copyrights per time period

% closed projects

Speed of development

Time to market

Cost of development

Cost of opportunities lost


Anticipated outcome

















Share Price Appreciation

Rise in Market Capitalisation

Rise in P/E

Improved SHV/RTS

Improved Economic Value Added

(EVA)

Increased Earnings Before Interest,

Tax and Depreciation (EBITDA)

Increased market share

….

Contents




Bibliography


Bibliography – Accenture sources



Various presentations - Herve Baratte, Tom Moldauer, Tommy Mann, Andy Dvorocsik et al



Innovation and Knowledge Capital Commercilization (1 June 2001, v2)



Innovation Management: Point of View (31 Jan 2001)



Organise an Efficient Idea Generation Process (24 Jan 2001, draft)



Innovative Questions (24 Jan 2001, draft)



The Connected Corporation (2001) www.accenture.com/theconnectedcorporation



Institute of Strategic Change – Thomas H. Davenport et al



Overview of the Art of Research Project (2 Mar 2001, AWO RN1 V2)



The Dynamics of eCommerce Networks (Feb 2001, ECN)



Data to Knowledge to Results: Case Studies in Building an Analytic Capability (June 2000)



Date to Knowledge to Results: The Results Context - Turning Raw Data into Gold (1999, Outlook)



Managing the Outcomes in the Data-to-Knowledge-to-Results Process (8 Nov 1999, DKR RN10)



Our Research Model (6 April 1999, DKR RN3); The Nature of the Problem (23 Mar 1999, DKR RN1)



The Future of Attention Technology (29 Jan 1999, AM RN5)


Bibliography – external sources

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

The Innovation Journal http://www.innovation.cc/index.html

Journal of Product Innovation Management http://www-east.elsevier.com/pim/Menu.html

Innovating.com http://www.innovating.com/

Management of Innovation and New Technology (MINT)* Research Centre http://mint.mcmaster.ca/

European Innovation Monitoring System http://www.cordis.lu/eims/src/eims-48.htm

, http://www.cordis.lu/eims/src/eims-1.htm

Knowledge Management http://www.destinationcrm.com/km/dcrm_km_index.asp

Technology & Innovation Management http://www.aom.pace.edu/tim/

Professor JeanClaude Larreche, INSEAD, ‘Measuring the Competitive Fitness of Global Firms 2001’ -

Ed Roberts, MIT and others, definitions of innovation http://www.innovation.cc/articles/definition.htm

Bob Mills, Department of Technology, University of Waikato NZ, April 1999 http://www.techednz.org.nz/proceedings/bob/sld037.shtml

Rolf Heuppi and Patricia Seemann, ‘Social Capital: Securing Competitive Advantage in the New Economy’ http://www.businessminds.com/article.asp?item=69

Professor Peter F. Drucker, ‘Innovation and entrepreneurship: Practice and Principles’, Harvard Business Review: Innovation, 1991

Frater, P., Stuart, G., Rose D. and Andrews, G. (1996)

Daniel Andriessen , Martine Frijlink , Rene Tissen, ‘Weightless Wealth - Find your Real Value in a Future of Intangible Assets’ http://www.business-minds.com/detail.asp?item=100000000013499

Rene Tissen , Daniel Andriessen , Frank Lekanne Deprez, Review for ‘ The Knowledge Dividend: Creating high-performance companies through value-based knowledge management ’ http://www.business-minds.com/detail.asp?item=100000000013335

Guide to the Business of Chemistry, American Chemical Council; www.cefic.com

Company case studies – www.nokia.com

, www.skandia.com

, www.loreal.com

, www.cibasc.com

, www.enron.com

, www.symyx.com

Harvard Business Review, various articles http://www.hbsp.harvard.edu/hbr/

McKinsey Quarterly, various articles http://mckinseyquarterly.com/

Gary Hamel, Strategos, various articles http://www.strategos.com/
