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Perspectives on InnovationASME IAB Meeting
October 4, 2006
- 2
Innovation is the fundamental driver of growth and profitability
Competitiveness will continue to be based on a company's ability to innovate -There is no more important capability a company can develop to improve performance and to fuel growth …
… sustained growth and profitability cannot be achieved through cost cutting alone
Truly standout innovators have developed capabilities to consistently target superior new products and bring them to market with speed and efficiency
The challenge is to select, build, and deploy this differentiating set of innovation capabilities
Yet, senior executives are often uncertain of the answers to key questions about their innovation strategy and capabilities
- 3
Senior executives recognize the importance of innovation to their objectives
65%
27%
6%
2%
0%
0% 20% 40% 60% 80%
Importance Of Innovation To Strategic Objectives
Percentage of Respondents
Self-Assessed Strength Of Own Versus Competitor Capabilities
Critical
Relatively Unimportant
Somewhat Advantaged
Versus Competitors
40%
A Source Of Significant
Competitive Advantage
20%
About On Par With Competitors
20%
Somewhat Disadvantaged
Versus Competitors
20%
Significantly Disadvantaged Versus Competitors 0%
- 4
In aggregate, companies’ top innovation priorities are on product leadership
Increase Partnering (Suppliers / Others)
Increase Use Of Product Platforms
Improve Product Quality (Defects)
Increase Engineering Efficiency
Improve Product Quality (Customer Value)
Develop Products Faster
Establish / Maintain Technology Leadership
Reduce Product Cost
Introduce More New Products
Relative Importance of Innovation Objectives
CriticalRelatively Unimportant
Inc
reas
ing
Im
po
rta
nce
- 5
The performance bar is being set very high
0% 10% 20% 30%
Improved Quality(Customer Value)
Improved Quality(Defects/Cost)
Reduced Time To Market
Reduced DevelopmentCost
Reduced Product Cost
Percentage Improvement
Target Performance Improvement(Average Horizon Is 2.2 Years)
- 6
However, executives are only marginally satisfied with current improvement initiatives
Introduce More New Products
Reduce Product Cost
Establish / Maintain Technology Leadership
Develop Products Faster
Improve Product Quality (Customer Value)
Increase Engineering Efficiency
Improve Product Quality (Defects)
Increase Use Of Product Platforms
Increase Partnering (Suppliers / Others)
Level of Satisfaction
Satisfaction With Current Innovation Initiatives
Highly Dissatisfied
Highly Satisfied
Inc
reas
ing
Im
po
rta
nce
- 7
Spending more money on R&D is not the answer …
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
0 1 2 3 4 5 6 7
Indexed R&D-to-Sales Ratio
Sales Growth %
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
0 1 2 3 4 5 6 7
Indexed R&D-to-Sales Ratio
Sales Growth %
Top Global R&D Investors Correlation Between Return and R&D Spend
Analyses found no correlation between R&D spending and:
• Sales growth• Profitability growth• Gross profit• Operating profit• Net profit• Market cap growth• Total shareholder return
- 8
Superior performance is linked to superior capabilities in innovation value stream activities
KeyCapabilityQuestions
• How to grow/defend existing markets and customers?
• How to extend into new markets?
• How to Leverage market/technology disruptions?
• How to create differentiation and avoid “me too” products?
• How to identify unmet/ emerging customer trends/ needs?
• How to balance variety and complexity?
• How to maximize ROInnovation – first to market with best ideas
• How to maintain focus and alignment with strategy?
• How to avoid high WIP and low throughput?
• How to the market window to maximize economic value
• How to rapidly respond to competitor moves or market shifts?
• How to deliver products & services on-time, at target cost and performance with high initial quality?
Identify New Markets and Growth PlatformsIdentify New Markets and Growth Platforms
Generate Ideas for Differentiated
Products & Services
Generate Ideas for Differentiated
Products & Services
Prioritize Opportunities to Maximize Return
Prioritize Opportunities to Maximize Return
Fast and Effective Development &
Commercialization
Fast and Effective Development &
Commercialization
INNOVATION VALUE STREAM
- 9
Some Useful Guidelines for Effective Innovation Metrics
MeaningfulMeaningful
Balanced Across Multiple Dimensions
Balanced Across Multiple Dimensions
Accurate and RepeatableAccurate and Repeatable
Partially Suited for Benchmarking
Partially Suited for Benchmarking
Few in NumberFew in Number
Metrics should be tied to the overall business objectives and lead managers to clear actions based on their results
Metrics should able to be consistently and repeatably collected with existing systems
“Benchmark-able” for internal and external comparisons
Focus on the most critical few metrics – data availability often leads to metrics overload
Balanced by level (strategic vs executional, leading vs. lagging, current vs historical)
- 10
Frequently Used Measures – all have their limitations
Source: APQC Benchamarks
MOST FREQUENTLY USED INNOVATION METRICS
- 11
Example Balanced Scorecard
R&D as % of Sales
Patent Filings
# of areas with Tech. Leadership
Leading Outcomes
Str
ate
gic
Po
rtfo
lio
Ex
ec
uti
on
al
Profits from new products/New Product R&D
Cost reduction/CR R&D spend
Value creation/R&D spend
Portfolio balance (balance vs risk, etc.)
Portfolio alignment (investment vs strategic objectives)
% of Gate Criteria Completed
% Open Requirements In-Process Sched. &
Budget SLIP Staffing %
Time-to-market Customer Satisfaction Warranty/quality
Claims
EXAMPLE INNOVATION SCORECARD
Measures tailored to objectives: e.g. growth/share in targeted markets, geographies, etc.
Overall measures of R&D effectiveness at creating value“What’s the return on our innovation investment?”
Alignment of development projects and spending with company strategic objectives“Are we working on the right things?”
Performance of project execution in terms of time, cost, quality and value“Are we delivering products/services on time at a quality and cost customers will pay for?
- 12
Our service offering helps clients improve performance all along the Innovation Value Stream
GG Innovation
ServiceOffering:
Identify New Markets and Growth PlatformsIdentify New Markets and Growth Platforms
Generate Ideas for Differentiated
Products & Services
Generate Ideas for Differentiated
Products & Services
Prioritize Opportunities to Maximize Return
Prioritize Opportunities to Maximize Return
Fast and Effective Development &
Commercialization
Fast and Effective Development &
Commercialization
INNOVATION STRATEGYINNOVATION STRATEGY
PROFITABLE INNOVATIONPROFITABLE INNOVATION
FAST INNOVATIONFAST INNOVATION
INNOVATION VALUE STREAM
Unique, Market-Based Approach to Identifying Growth Opportunities
Proprietary Methods for Optimizing Portfolio Value and Business Complexity
Proven Tools to Maximize Development Performance
Build and Embed New
Client Capabilities
Collaborative Working
Relationship
Combine Strategy with
Implementation
- 13
About George Group
Since 1986, George Group has been accelerating the pace of improvement for a diverse and growing list of global clients. Our goal is to help our clients create rapid and sustained improvements in shareholder value and customer satisfaction.
Fully integrated Lean Six Sigma corporate deployment Our deep Value Based Management knowledge provides us with a clear framework to connect
from the CEO's highest value creation priorities to Lean Six Sigma project selection, definition, and execution. No other firm provides this combination.
Our global reach is unmatched. We have established a reputation for excellence in complex, global engagements providing services in 54 countries and a methodology available in 13 languages.
Strategic consulting Our engagement teams bring deep expertise in assessing customer needs and value creation of
the product/service portfolio. Our project teams are not composed of new consultants, but seasoned, experienced experts who understand both the strategic and operational side of the solution.
Conquering Complexity: Our unique approach is the only true method that provides a quantitative understanding of what complexity is costing your organization and rapidly drive execution that gets results. Our complexity diagnostic brings together the critical elements of strategy, shareholder value, voice of customer, deep process knowledge and a patented analytical method to provide a completely unique, fresh point of view on the problem.
Fast Innovation: We offer a systematic, analytical, repeatable approach to: accelerating cycle-time to-launch and improving quality & market acceptance, building a robust pipeline of truly differentiated products/services, and creating deep & enduring capability in client organizations. Our process oriented view covers the entire new product/service value chain from early business development through full scale production.