Keynote

Strategic Innovation: Building new growth businesses

EPDA Annual ConferenceMay 18th, 2007 Michael Moeller Beratergruppe Neuwaldegg, Vienna

Apple Inc.Formerly known as Apple Computer Inc.

Since 1976 Computersoperating systems software

iPod Since November 2001 over 100 million units sold Sales Qu I, 2007: $ 3.4 billion iTunes Store over 2.5 billion songs, 50 million TV shows , 1.3 million movies sold Worlds largest catalog: over five million songs Sales Qu I, 2007: $ 634 Mill.EPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 2

TchiboEvery week a new world

Since 1949 in the coffee business 1958 first time No. 1 in German market with Gold Mocca

Besides coffee, Tchibo nowadays sells clothing, technology, travel, financial services and mobile phone services

EPDA Keynote Strategic Innovation [email protected]

May 18th, 2007 Page 3

Juraxx: discount lawyersbeing different

Brass plate and closed doors Necessary to make an appointment Pricing not transparent Often highly specialised

Founded in 2003 Nationwide 30 shops and more than 100 attorneys, esp. in the city centres No appointment needed Online advice Pricing list displayed in shop window



Options for growthGrowth

Organic growth

Growth through Mergers & Acquisitions

Growth within the boundaries of the proven business concept

Strategic Innovation(new business concept)

Same or increased market share in growing markets

Increased market share in mature markets (product or process innovation)EPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 5

Research on longterm corporate success shows: Survival becomes more and more difficultContinuance in S&P 500 in years1)90 More than half of todays S&P-500 companies will disappear by 2020 The speed of change will further increase

45 30 22 15

1935

1955

1975

1995

2005

Turbulent development of markets, technologies and other environments will generate growth opportunities but also threaten established businesses

Source: Salomo et al.: Autonomie 2003, Foster/Kaplan: Schpfen und Zerstren, 2002



Why is strategic innovation important?Fast, non-linear change is the characteristic of todays markets

New, digital technologies transform the service sector Nanotechnologies and genetic engineering revolutionize pharmaceuticals and semiconductor industry Media, telecommunications and IT converge Globalisation of trade networks and infrastructures transform emerging economies like India and China into economic powerhouses Empowerment of the consumer

What about the plastics industry?EPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 7

Innovation is a top-priority again

Source: 2006 Business Week / BCG 2006 Senior Executive Innovation Survey



Forms of innovation

Product innovation New products and services, line extensions

Market innovation New target groups: new Market segments, new regions

Process innovation Redesign of business processes

Technological innovation New technologies in service delivery



Forms of innovation

Product innovation New products and services, line extensions

Market innovation New target groups: new Market segments, new regions

Process innovation Redesign of business processes

Technological innovation New technologies in service delivery

Strategic Innovation= new, untested business concepts Radical new conceptualization of business models Exploration, experimental strategiesEPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 10

The three dimensions of a business What Business are we in?

The definition of the business is an

What need?Which problem is solved? Function for the client

organization's biggest mental model(Costas Markides)

Who?For whom is it solved? Markets, target groups

How?How is it solved? Value architecture, Business Model

Strategic Innovation means testing unproven, and significantly different answers to at least one of the three fundamental questions of strategy: Who is your customer? What is the value you offer to the customer? How do you deliver that value?EPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 11

Similar: Govnindarajan/Trimble 2005, Markides 1997

The Nespresso Case (1)

Coffee system developed by Swiss food giant Nestl Coffee portioned in aluminum capsules prepared in specialized coffee machines Simplified handling, short preparation timeStrategic Innovation Part 1 1970 86 1970 invention by Nestl R&D 1976 patented 1986 Market launch in French-speaking part of Switzerland and Italy as a complete system/solution, consisting of capsules and coffee machines for offices Nespresso flopped !EPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 12

The Nespresso Case (2)

Strategic Innovation Part 2 1988/89 NEW WHAT: Selling coffee (capsules) NEW WHO: Households instead of offices NEW HOW: OEM-Partners that manufacture, market and service the coffee machines Machines sold via premium retailers Focus on the production of the coffee capsules Direct sales of capsules via Nespresso Club (Mail order, boutique shops)

Outcome: Turnover CHF 580 millions 2 billion capsules per year 2,2 million club members 25% CAGR since 1988 Market presence in 48 countries 9 OEM partnersMay 18th, 2007 Page 13


Sources and fields of Strategic InnovationWhat

What

New needs Through shift of customer preferences or demographic changes Create through marketing tactics

Existing client preferences Gaining importance of becoming "hot" Neglected by competitors

Who

How

Who

Emerging customer segments Through a shift of client preferences or demographic changes Through fragmentation of a mass market Through creative resegmentation of the existing client base

Existing customer segments Neglected by competitors Exploding all of a sudden

HowSource: Markides 1997

New forms of manufacturing, distribution, sales or service delivery (often enabled by new technologies)EPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 14

Established companies experience difficultiesThe most common barriers to innovation

Lack of resources Lack of implementation

Complacency

Core competencies resulting in core rigidities No innovation agenda

Inadequate incentive system Impatience

Short-term orientation or focus on daily business

Rigid structures and processes Vested interests and politicking

Rejection of new findings that could question the current assessment of reality Blind trust in recipes of the past

Exaggerated self-esteem of management-team

Accustomed beliefs, habits and norms

Fear to harm profitable core businessEPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 15

Three levers for strategic innovation

Strategic exploration

Effective management of phases

Change the modus operandi



What need?

Lever 1: Strategic exploration What Business do we want to be in?Who? How?Offerings: Develop innovative new products or services, e.g. iPod/iTunes Platform: Use common components to create derivative offerings, e.g. Merchandising, Disney animated movies Solutions: Create offerings that solve end-to-end customer problems, e.g. SAP, UPS Supply Chain Solutions Brand: Leverage a brand into new domains, e.g. Virgin, Easy Group, Tchibo Emergent needs: Discover unmet needs or identify underserved customer segments, e.g. Low-cost airlines

What

Who

Emerging segments: Discover emerging customer segments, e.g. Green Energy, Green Investing Underserved segments: Explore existing customer segments, neglected by competitors or exploding all of a sudden, e.g. Nespresso

How

Customer Experience: Redesign customer interactions, e.g. Dell, convenience shopping Value Capture: Create new revenue streams and models, Online Advertising, Pay-per-view Processes: Reengineer business processes, e.g. Toyota Production System, GE Six Sigma Organization: Change function or activity scope of the firm, e.g. Adidas, Cisco networked virtual organization Supply Chain: Redesign sourcing and fulfillment, e.g. Covisint, Cisco Distribution: Create new channels or points of presence, e.g. music CD sales in Starbucks coffee stores Networking: Create network-centric intelligent and integrated offerings, e.g. Otis Remote Elevator Monitoring serviceEPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 17

Source (apated): Sawhney/Wolcott/Arroniz: The 12 different ways for companies to innovate, in: MIT Sloan Management Review, Spring 2006, p. 75 - 81

Lever 1: Strategic exploration What value do we want to create? Strategy canvasHigh Southwest

Average airlines

Car Transport

Low Price Meals Lounges Seating class choices Hub connectivity Friendly service Speed

Frequent point-topoint departures

Quelle: Kim, W. Chan: Blue Ocean Strategy, Boston 2005, S. 38



Lever 2: Effective management of innovation phases

Idea

Concept

Launch

Growth

Profit


Lever 2: Effective management of innovation phases The organizational dilemma Idea Concept Launch Growth Profit

Creativity Think outside the box! Explore the new and unknown Anticipate future client needs Allow and support emergence Give freedom and enable flexibility Allow unstructured communication

Efficiency Innovation Incubation Concept Testing Selection and launch Quick learning cycles and adaptation ImplementationEPDA Keynote Strategic Innovation [email protected]

Stick to core competencies! Use what you know Satisfy current customer needs Planning Ask for commitment Compulsory processes and structures


Lever 2: Effective management of innovation phases From opening to closing interventionsIdea Concept Launch Growth ProfitExecutionImplementation Breading Incubation phase 80/20-concepts Business Plan Experiments, loose controlling, evaluation of lessons learned According to plan Maximize efficiency Continuous improvement Continuous optimization of efficiency Controlling

Search forStrategic Innovation

Selection, launch Market experiments Steering increasingly more pushy

People management Organizational level Steering/ management

Opening interventions


Closing interventions

Lever 3: Change the modus operandi


Lever 3: Change the modus operandi Approaches Direct attention Cross-link differently

Break the rules!

Provide freedom and space

Adapt decision-making processes

Go beyond boundariesMay 18th, 2007 Page 23


Lever 3: Change the modus operandi Direct attention to new combinations of Who/What/HowAgenda setting: put SI/growth first Increase strategic alertness and ambition

Develop scenariosFuturelabs, marketplaces of the future alternative combinations of who/what/how

Focused search fields:Up- and downstream usage Complementary services Similar industries Functional vs. emotional positioning

Learning journeys better than best practiceEPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 24

Lever 3: Change the modus operandi Cross-link differently: people, stakeholders, unitsInformal, inspiring conversations Client Parliaments Newsletter with competitive outlooks

Fluid reallocation and utilization of capital and other resourcesMobility of people and knowledge, job rotation

Modular structuresUse internal training programs Mentoring Fast Lane: direct access to topmanagement for top ideasEPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 25

Lever 3: Change the modus operandi Provide freedom and space Manage and develop relationship CoreCo NewCo actively Fuzzy and elastic structures (e.g. adhocracy, entrepreneurial organization) Innovative space/time budget Venture teams and funds

Parallel organizations, think tanks Product champions Experiments, milestone funding Pilots with suppliers, clients Caring meritocracyEPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 26

Lever 3: Change the modus operandi Go beyond boundariesAssess your organizations patterns, modus operandi and mental model Strengthen generative capabilities: learning, knowledge, strategy making Get rid of innovation constraints even if they are best practice Broaden strategic focus: business ecosystem (instead of individual firm) Observe clients while using your product Chart strategy canvas and expand it/test new profiles



Lever 3: Change the modus operandi Adapt decision-making processes to phasesOpen strategy making processesOpen and profound internal dialogue Joint responsibility Incentive systems stimulating innovation and mobility Innovation funnel, milestone financing Sponsors and stewards: power, expertise, process Decentralization of decision making Internal markets for resources & capital Idea management

Business plan contestEPDA Keynote Strategic Innovation [email protected] May 18th, 2007 Page 28

Lever 3: Change the modus operandi Break the rules!Cannibalize yourself (before others do) Portfolio of strategic experiments Involve unconventional thinkers in strategy making Allow and value non-conformity CEO leadership style: first among others



EPDA arrows! ...Can Hey! They`re lighting theirKeynote Strategic Innovation they do , that? May 18 2007th

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