What is Innovation and how to capture it for your business?

Nils Tarnow

Presentation to LAV-Young Professionals

February, 25, 2021

Agenda

2

Why innovate?

How to innovate?

Agenda

3

Why innovate?

How to innovate?

What is Innovation?

4

it’s new

it’s not new

it does not create value

it creates value

Innovationcreativity

improvementwaste of time

Why innovate?

5

"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change."

Charles Darwin

Why now?

6

2nd Industrial Revolution(1870 -1914)

• Electricity• Mass production• Light bulb• Telephone

• Combustion engine

1st Industrial Revolution(1760 -1840)

• Steam engine• Advances in the steel

and textile industry

3rd Industrial Revolution(1980 - today)

• Digitalization• Computer• Internet• Robotics

• Mobil phone• Biotechnology

4th Industrial Revolution(2000 - today)

• Connectivity• Artificial Intelligence (AI)• Internet of things (IoT)• Smart phone

• Block chain /Cryptocurrencies

Breakthrough innovations driven by technology surge at a unprecendented rate

7

0,1 212

47

163

2005 2010 2015 2020 2025

15

15

30

75

2005 2010 2015 2020 2025

Data volume created by the worldZettabytes (zb = 1021 Bytes)

Number of connected devices (IoT)Billions

The necessary volume to store all speech ever spoken is 42 zB

Three principle sources of breakthrough/disruptive technologies

8

Digital

BiotechnologyMaterialsExamples:Bio synthetics GenomicsDNA Editing

Examples:Artificial IntelligenceSensors/ IoTBlockchain / Crypto currencies

ExamplesEnergy-/Information-Storage 3D PrintingNano technology

Companies do not necessarily need to develop new technology, but monitor its evolution, evaluate its potential and learn tom use it

9

Quantum computingVolumetric Displays

Brain-Computer Interface

Conversational UserInterfaces

Enterprise Taxonomy and Ontology Managment

Software-DefinedSecurity

InventionPeak of

expectation Disillusion Rising maturity Plateau of productivity

Expectation

Time

Virtual Reality

Augmented Reality

Cognitive Expert Advisors

Commercial UAVs (Drones)

BlockchainCognitive Computing

Nanotube ElectronicsAutonomus Vehicles

Machine LearningDeep Learning

Connected home

Smart Dust

4D PrintingArtificial GeneralIntelligence

NeuromorphicHardwareDeep

ReinforcementLearning

Human Augmentation

5GServeless Pass

Digital twin

Smart WorkspaceAugmented Data Discovery

Edge ComputingSmart Robot

IoT Plataform

Virtual Assistants

Ciclo de Gartner para Tecnologias Digitais Emergentes, 2018

Time to adoptionLess than 2 years2 to 5 years5 to 10 yearsmore than 10 years

10

old world new worldAssets • Owner uses assets (Wal-Mart)

• Focus on products • Economies of scale as principal

source of competitive advantage

• Companies and consumers control assets through platforms without being their owner (Uber, Airbnb, Alibaba, Spotify, Car2go)

• Digital manufacturing allows to produce small quantities at low costs (3D printing)

Information • Compromise between “richness and reach”(libraries, schools , shops)

• Unlimited, immediate and direct access (distant learning, virtual assistance, Big data, Big data, Cloud, sensors, analytics)

Computation • Scarce and expensive resource • Used for routine automation

• Ubiquitous , approaching zero costs• Substituting intelligent labor (Watson)

Crowds • Closed communities • Intermediaries (banks, agents)

• Open communities (R&D financing)• Direct interactions/transactions (Bitcoin)

Digital technologies create structural change in the economy and will impact every business in the future

Agenda

11

Why innovate?

How to innovate?

Companies, by nature, are not good innovators

12

Companies:• Generate and enforce rules• Prefer the status quo• Minimize risks

Innovations: • Break rules• Challenge the status quo• Assume taking risks

Results: • 2nd industrial revolution: Electrification caused a mass extinction of industrial companies in the early 20th century• 3rd and 4th industrial revolution: 52% of companies in the S&P 500 in the year 2000 do no longer exist

Examples: • Nokia did not believe ion the smartphone • Kodak did not believe in digital photography • Blockbuster did not believe in Netflix

The strategic environment for innovation is different from those of established businesses and require a different approaches

13

Predictability of the

environment

high

low

low high

1. analyze

2. plan

3. execute

1. envision

2. build

3. persist

Classic

Adaptative

Visionary

Malleable

1. experiment

3. scale 2. select

1. engage

3. evolve 2. orchestrate

“Be big!” “Be the first!”

“Be fast!” “Be an o orchestrator”

Typical environment for innovation

Malleability of the environment

Companies should develop a dynamic portfolio of innovation initiatives and manage them like a venture capital firm

14

Ideas(innovation cell)

Business plan Businessbuild

Revenue and profit target

CEO/CIO/Board

Select Select

Scale up

experiment

Select Select

15

Is it real?

Is it worthit?

Is the Market size realistic?

Can the product real be made?

Is the product competitive?

Is our company competitive?

Does the value creation potential justify the risk?

Is the initiative compatible with our strategy ?

Can wewin?

As long as there are no reliable financial performance estimates initiatives can beevaluated through three perspectives

16

Prod

uct/

tech

nolo

gy

The same as the existing

Similar tothe existing

Different from the existing

The same asthe existing

Similar to the existing

Different from the existing

Target market

Value potential

X% probability of failure

20-40%

40-60%

60-80%

80-100%

The portfolio should be balanced in risk and size of the initiatives

17

CIO

How to organize? –Structual elements that can help

Innovation Cells:

• Interdisciplinary teams that work on an initiative as if it were a Start-up within the company. Every cell with an entrepreneurial leader that knows how to communicate and to build relations.

• Working below or parallel to the existing organizational structure, depending on the necessary level of protection, however, not isolated from the resources and competencies of the company.

Chief Innovation Officer:

• Owns the innovation portfolio

• Identifies trends and opportunities for the existing businesses, e.g. in external Start-ups

• Facilitates the incubation process

• Reports to the CEO or Supervisory Board

18

People – behind every innovation there are individuals committed to the systematic search for new

19

M&A, Private Equity

Venture Capital/Corp. VC

Aceleradora

Incubadora

Co-Working

person à company Proof of Concept

Company 1st CustomerProof of Value

Company Many customers Business Model

ConsolidatedBusiness Model

Type of company

Mat

urity

of th

e com

pany

+

-person

Break-even

In addition to internal initiatives, companies should leverage external sources of innovation

20

1013

22

3432

38

2012 2013 2014 2015 2016 2017

CAGR 30%

Global investment in corporate venture capital has been increasing steadily

Example of a Start-up map: 338 Start-ups in the Agro Business in Brazil

21

Upstream On the farm Downstream

22

Innovation cells

Own Startups

Other Startups/ VC activities/

Incubators

2

3

Control and management of the Startups

Existing Businesses

New Businesses

1 New products and servicesPartnerships

What Boards can do

Investments in technologies of interest

• Mandate that executives deal with disruptive technologies

• Put the innovation portfolio on the board agenda

• Pay attention to talents

• Have a CIO, when necessary reporting directly to the board

• Dedicate resources to be invested in Startups or external innovation

• Have board members that are “literate” in innovation and new technologies

It is important that the supervisory board also puts innovation on the agenda

23

Identification of relevant technologiesand an approach for their adoption

Develop a plan for transformation

Implementation of the transformation plan

2 31Discover DeliverDesign

How does a typical project for Innovation look like?

Analyze the status quo with respect to innovation in the organization

Identify and prioritize disruptive Technologies of Business models that offer opportunities or pose threats to the existing businesses ( “Triage”)

Map relevant start ups for your business

Define a portfolio of innovation initiatives:• Prioritized technologies and/or

business models • Objectives, timelines

Define possible changes in management and governance to manage the innovation portfolio:• Leaders, talent• Structures, processes

Implement structural changes ( e.g. creation of the position of CIO, participation in incubators, etc.)

Start the internal initiatives and possibly acquire start-up of interest

Exercise the governance of innovation at the highest executive level and in the supervisory board

24

Conclusions

The supervisory board can be a catalyzer for innovation, bringing attention to the subject and dedicating resources.

All businesses will be transformed by new, disruptive Technologies. The only question is, when and how?

To innovate the company does not to be a technology leader, but explore the possibilities that new technologies offer.

In order to become more innovative, it may make sense to jump-start the process with a project to triage opportunities and create an initial portfolio of innovation initiatives.

25

nils@valorion.com