© 2006 IBM Corporation New Opportunities for Business and Societal Innovation

© 2006 IBM Corporation

New Opportunities for Business and Societal Innovation

2 © 2006 IBM Corporation

Innovation—on every leader’s agenda

Innovation in the 21st century: • Open

• Collaborative

•Multi-disciplinary

• Global

Key factors driving change:• The dynamics of a flattening world

• The emergence of new capabilities

• The evolution of information technology

• The march of commoditization

• The massive shift in demographics

• The unpredictability and impact of change


Source: March 2005 McKinsey Quarterly survey of 9,345 global executives

Ability to manage increasing regulation costs

Ability to allocate capital

Ability to manage a global organization

Ability to allocate the best talent

Ability to innovate

Commanding the Attention of Global Executives

“CEOs today have to drive growth while cutting costs. The only answer: innovation.” - Sam Palmisano, Chairman and CEO, IBM

% of respondents


Leaders feel pressure—but also see opportunity

costreduction

CEOs say they must achieve...

IBM Institute for Business Values (IBV) CEO Study 2004, multiple answers permittedIBV CEO Study 2006, top answer shown

and they want to innovate their...

Products/Services/MarketsOperationsBusiness Models

revenue growth

riskmanagement

asset utilization

ProductsServicesMarkets

42%

Business Models

28%

Operations

30%

20% 40% 60% 80% 100%0%


IBM Institute for Business Value, CEO Study 2006

CEOs: Top sources of new ideas and innovation

Collaboration sparks innovation

Academia

Associations

Business partners

Competitors

Think-tanks

Consultants

Customers directly

Employees

Labs and/or other institutions

Internal R&D

Internal Sales & Service Units

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%


The Global Innovation Outlook: Overview

IBM opens its business and technology forecasting processes for the first time

• Series of dynamic, free-form brainstorm sessions around key issues and opportunities related to innovation

• Draws together broad ecosystem of experts from business, academia, government, citizens’ groups, partners, etc.

• Insights shared openly and opportunities pursued collaboratively

Launched in 2004 with three primary focus areas• Healthcare, Government, Work/Life

• Resulting initiatives: integrated healthcare records; IP reform; global skills forecasting; BCS innovation offerings

Greatly expanded in 2005-06• Participation increases by 50% to almost 180 external partners

• Brazil and India added as Deep Dive locations

• Increased focus on developing new markets and capitalizing on business opportunities


•15 “deep dives” •248 thought leaders •178 organizations •33 countries •4 continents

GIO 2.0 by the numbers

Deep dive host cities.


GIO 2.0 Focus Areas

The Future of the Enterprise• Including designing the 21st century

corporation; managing global talent and skills; alternate R&D/innovation models; “global” small businesses

Transportation and Mobility• Including mega-urban centers and smart

traffic management; “connected” vehicles; customs, ports and border control

Environment and Energy• Including eco-efficient technologies;

economic impact of access to clean water supplies; predictive environmental impact services


Horizontal themes emerged

The power of networks• Organizing principle for innovation is increasingly the

endeavor (and no longer built around hierarchies)• “Trust” and “reputation capital” provide new standard

of accountability for virtual networks and partners

Line of sight• Essential to harness wealth of data from distributed sources• Clearer understanding of the consequences of actions

results in smarter decisions and outcomes• Risk acceptance correlates to likelihood vs. consequences

Flipping the equation• Opportunities for innovation in unexpected places?• Decomposition, not composition• Divergence, not convergence• Disaggregation, not aggregation


The Future of the Enterprise: Discussion Points

The very definition of the “enterprise” is being challenged• New organizational structures emerging:

- IBM has 329,000 full-time employees in more than 160 countries around the world

- By contrast, Wikipedia has global reach with 2 full-time employees (and 360,000+ registered contributors)

- More than 725,000 Americans make a living selling through eBay (none are employees)

• Are networks of specialized entities with complementary interests (as opposed to a static organizations) the new definition of “enterprise”?

• Increasingly, activities driven by a common set of interests, goals or values are providing the glue between individuals or entities

• As a result, management focus might shift to orchestration and facilitation

• Small and highly specialized businesses will increasingly compete globally and disrupt existing business models

Innovation isn’t a department, it’s a culture• Leading organizations find ways to ingrain innovation into every aspect of their operations

- Employees must be motivated to reject the status quo—and to tempt failure

- Organizational silos must be rejected and the skill, talent and creativity of people from different teams and different organizations around the world are tapped into

- Can R&D be managed as part of an innovation supply chain, rather than as a discrete organization?

• Notions of “intellectual property” are shifting to ones of “intellectual capital”


The Future of the Enterprise: Wild Card

Is your next CEO playing games? Next-generation leaders must thrive in environments that are

massively distributed and virtual in nature—just like those in massive multiplayer online role-playing games (MMORPGs)

MMORPGs have high levels of complexity and uncertainty and lack formal hierarchies—yet powerful leaders emerge to set direction and shape behaviors, sometimes for millions of people

As a result, “players” adopt different roles and responsibilities, and then get things done collaboratively

The most active and productive areas of many MMORPGs are often those created and embellished by the players themselves, not those provided the original game designers

DISCUSSION POINT:One popular game, Worlds of Warcraft, has more than 6 million paying customers who average 2.4 hours a day collaborating on game activities. That equals more than 102 million hours of activity per week. By comparison, if every one of IBM’s 329,000 employees worked 10 hours per day, it would still take them more than six weeks to approach the same level. Do these games suggest entirely new models for corporations to quickly and effectively source work?


Transportation and Mobility: Discussion PointsMass urbanization, mass congestion

• Mass urbanization is creating a new breed of “mega-city”: by 2010, 59 cities will have populations of five million or more, up nearly 50% since 2001

• Inadequate planning and transportation infrastructure is increasing congestion and creating horrific logistical challenges for these emerging mega-cities, especially in booming regions of Asia and Latin America

• There’s a direct correlation between mobility and market growth—it expands access to goods, fosters business investment and attracts higher-caliber workforces

• Cities and regions that pursue systemic, integrated solutions across all transportation modes will be best positioned for long-term economic advancement

It’s time to shape up shipping• The backbone of the world’s global supply chain—the shipping industry—still relies heavily

on antiquated processes and techniques

- There are no common, global (or even regional) standards, customs policies or even naming conventions for the world’s major ports

- The average container ship generates 40,000 paper documents per trip

- On an average day, 30 container ships are at sea waiting to dock at the Port of Los Angeles; the average cost of sitting at anchor per day: $50,000; average number of days to dock, unload cargo and return to sea: 7

• Delays and inefficiency at the world’s ports could reignite regional manufacturing and trade hubs

• Virtual borders—located well in-land and aided by advanced technology—could emerge to alleviate port congestion


Transportation and Mobility: Wild Card

Will your car simply become one big server on wheels?• Rather than remaining relatively simple mechanical machines, vehicles

of all types are increasingly complex mobile information technology devices

• The new Airbus 380 contains more than one billion lines of code• GM predicts the average car will have 100 million lines of code by

2010;• Windows XP, by comparison, has about 40 million lines of code.

• Advanced technology will fundamentally change the relationships between drivers, passengers, manufacturers and third-party service providers• Advances in in-vehicle services and applications will be accelerated by

the adoption of common development platforms will accelerate • Reliability and security of these new “mobile IT devices” is an area of

huge concern—and opportunity

DISCUSSION POINT:It doesn’t take much imagination to consider possibilities for in-vehicle content delivery: e-mail, driving directions or web surfing. But the real opportunity for innovation might be tapping into these connected vehicles to deliver and entirely new breed of services built around information and technology. What new applications, services and industries can you envision emerging around “the connected vehicle?”


Environment and Energy: Discussion PointsProduct lifecycle management—burden or opportunity?

• Rapid performance improvements, “planned obsolescence” and the constant flow of new models and features has created what some call a “disposable society”

• Upwards to 50 million tons of electronic and electrical waste is generated globally every year

• In the U.S., 50 million computers are disposed of every year

• Japan will have discarded 610 million cell phones by the year 2010

• As a result, environmental concerns will place ever-increasing pressure on manufacturers, governments and consumers alike to address the back-end of a product’s lifecycle

• Responding to these pressures might create opportunities for new and more consistent revenue streams—in particular, by shifting product-driven business models to services-driven ones

Seeing is behaving?• Companies can create competitive advantage through voluntary “eco-friendly”initiatives that get ahead

of government regulations and restrictions

• Common, verifiable approaches to disclosing product contents might encourage smarter, more informed purchase decisions—and drive manufacturing innovations that minimize environmental damage

• Substantial savings—financial and ecological alike—can be realized when companies have access to immediate data about what’s being consumed across their plants and facilities


Environment and Energy: Wild Card

From trash to treasure?• Some natural resources are now more plentiful (and easier to retrieve)

in landfills vs. the earth- Every six million tons of electrical and electronic equipment waste

includes an estimated 2.4 million tons of ferrous metal, 1.2 million tons of plastic, 652,000 tons of copper, 36,000 tons of aluminum and 336,000 tons of glass

- Up to 100 tons of earth dirt and rock must be moved to retrieve one ounce of gold from the ground; one metric ton of electronic scrap contains more gold than 17 tons of gold ore

- The amount of aluminum in North America’s landfills alone outweighs the amount of ore remaining in the earth.

• Advanced data mining and frequency modeling could identify the “richest” landfills—and then they could mined for reusable precious metals• Some emerging nations have little electronic waste as networks of

enterprising scavengers breakdown products and recycle parts before disposal

DISCUSSION POINT: “Reverse supply chains” are a concept gaining traction as companies find unexpected ways to reduce costs by reusing old parts. But what about reverse supply networks? Could your company find new efficiencies—and revenue streams—by creating networks with other companies, and sending used components and manufacturing by products back and forth?


Observations from the GIO Process

Tremendous value in bringing together diverse perspectives and expertise around common issues

• Understanding regional differences and global commonalities essential for lasting innovation

• “The GIO has shown me how profitable it is to bring minds from different cultures together and think holistically about mega-challenges that we face.” Uma Chowdry, VP, Research and Development, DuPont

Near-term pressures cloud long-term thinking• Even in the most free-form setting, participants found it difficult to

think beyond the next 12-18 months

• General consensus: “quarter-to-quarter” mentalities are the single greatest inhibitor of innovation

Solving the toughest problems will require greater collaboration across business, government and academia

• Right now, there’s the will but entrenched barriers to the way


Documents

© 2006 IBM Corporation New Opportunities for Business and Societal Innovation