Title:

The CFO Strategist: Driving Innovation for Profitable Growth

Geoff Tuff Principal Monitor Deloitte Deloitte Consulting LLP

Innovation is one of the last remaining sources of growth that can create nonlinear economic returns

WHY  ARE  WE  TALKING  ABOUT  INNOVATION?  

Innova&on  appears  to  be    a  universal  impera-ve  

For  most  companies,  ignoring  innova-on  is    no  longer  an  op-on  

But  very  few  succeed  at  it;  in  fact,  most  fail  

This  is  partly  because  the  wrong  people  are  involved  

Innovation is often frustrating WHY  ARE  WE  TALKING  ABOUT  INNOVATION?  

Low returns poor discipline

high risk

(You’d  think  CFOs  would  be  in  the  loop,  but  they’re  not)  

Roles CFOs play regarding where to focus innovation efforts WHY  ARE  WE  TALKING  ABOUT  INNOVATION?  

lead  defini&on/process  

0%                                            25%                                          50%                                          75%                                        100%  

implement  decisions  

provide  info/analysis  

voice  in  decisions  

Deloitte CFO Signals Survey, 3rd quarter 2013

Roles CFOs play regarding where to focus innovation efforts WHY  ARE  WE  TALKING  ABOUT  INNOVATION?  

Which  industries  to  enter/exit  

Which  customers/  markets  to  serve  

How  to  compete  

How  to  create  value  

Which  businesses    to  grow/shrink  

Which  businesses    to  acquire/divest  

Which  measures  to    track  most  closely  

Where  to  focus  cost  reduc&on  efforts  

Where  to  focus    innova&on  efforts  

Where  to  focus  new  capability  investments  

0%                      25%                  50%                      75%                  100%  

Implement  decisions  

Lead  defini&on/process  

Provide  info/analysis  

Voice  in  decisions  

Deloi9e  CFO  Signals  Survey,  3rd  quarter  2013  

It’s time to change the way we think and talk about innovation WHY  ARE  WE  TALKING  ABOUT  INNOVATION?  

creating Which  is  different    than  inven&on  

To  our  market    or  to  the  world  

Economic  value    for  our  customers    and  for  ourselves  

Innovation new value

innovation

high cost (or high risk)

It’s time to change the way we think and talk about innovation WHY  ARE  WE  TALKING  ABOUT  INNOVATION?  

1. To  earn  superior  results,  manage  innova@on  efforts  as  a  porDolio  and  engage  in  analy&cs  

3. Innova@on  almost    never  fails  due  to  lack  of  crea@vity    and  almost  always    fails  due  to  lack  of  discipline  

2. Look  beyond    product  innova@on    to  impact  other  elements  of  your  business  system    

We’ll cover three themes today related to how CFOs can play a more central role in the innovation system

WHY  ARE  WE  TALKING  ABOUT  INNOVATION?  

Successful innovators manage a portfolio of initiatives across ambitions...

INNOVATION  AS  PORTFOLIO  

WHE

RE  TO  PLA

Y  (M

ARKETS  &  CUSTOMER

S)  

See  the  May  2012  issue  of  Harvard  Business  Review  for  “Innova&on  for  the  Risk  Averse”  by  Monitor  Innova&on  

EXISTING  

ADJACE

NT  

INCREMENTAL  

EXISTING  

NEW

     

NEW      

ADJACENT    Expanding  from  exis&ng  business  into  “new  to  the  company”  business  

CORE  Op&mizing  exis&ng  products  for  exis&ng  customers  

TRANSFORMATIONAL  Developing  breakthroughs    and  inven&ng  things  for    markets  that  don’t  yet  exist  

HOW  TO  WIN  (PRODUCTS  &  ASSETS)    

The best innovators are explicit about their activity and resources across different ambition levels…

INNOVATION  AS  PORTFOLIO  

70%  

ADJACENT  

TRANSFORMATIONAL  

CORE  20%  

10%  

Average  balanced  por_olio  

RETURN  ON  INVESTMENT  

70%  

20%  

10%  

Most companies have portfolios that are heavily core-weighted; trouble comes when they attempt to re-balance

INNOVATION  AS  PORTFOLIO  

Rebalancing  from  core  to  adjacent  and  transforma@onal  can  be  de-­‐risked  by:  

§  Seeing  the  future  more  clearly  

§  Understanding  market  needs  more  deeply  

§  Making  beaer  use  of  innova&on  examples  from  elsewhere  

§  Playing  beaer  with  others  

§  Developing  solu&ons  that  bring  the        whole  power  of  the  business    

Leapfrogging  and  gebng  directly  to  TRANSFORMATIONAL  

Really  stretching  ambi&on  from  CORE  into  far  ADJACENT    

Successful innovators innovate beyond products and integrate multiple types...

TEN  TYPES  OF  INNOVATION  

     

Network  Connec&ons    with  others  to  create  value    

Process  Signature    or  superior  methods  for  doing  your  work  

Product  System  Complementary    products  and  services  

Channel  How  your  offerings    are  delivered  to  customers  and  users  

Customer  Engagement  Dis&nc&ve  interac&ons    you  foster  

Profit  Model  The  way  in  which    you  make  money  

Structure  Alignment    of  your  talent  and  assets  

Product    Performance  Dis&nguishing  features  and  func&onality  

Service  Support  and  enhancements    that  surround    your  offerings  

Brand  Representa&on    of  your  offerings  and  business  

2007   2008   2009   2010   2011  

Stock  Price  (in

dexed  to  100)  

The top innovators outperform the S&P 500 . . .

TEN  TYPES  OF  INNOVATION  

5-­‐Year  Indexed  Stock  Price  Returns  of  the  Top  Innovators  vs.  S&P  500  

200  

0  

150  

100  

50  

All  “top  innovators”  138  companies  

S&P  500  

3–4  Types  of  Innova@on  59  companies  

5+  Types  of  Innova@on  45  companies  

S&P  500  

1–2  Types  of  Innova@on  34  companies  

2007   2008   2009   2010   2011  

Stock  Price  (in

dexed  to  100)  

. . . and integrating more types of innovation delivers superior financial returns

TEN  TYPES  OF  INNOVATION  

5-­‐Year  Indexed  Stock  Price  Returns  of  the  Top  Innovators  vs.  S&P  500  

200  

0  

150  

100  

50  

Reforming fashion design without designers TEN  TYPES  OF  INNOVATION  

Threadless  A  community-­‐based  t-­‐shirt  company    with  an  ongoing,  open  call  for  design  submissions  

6  TYPES:  

Redefining the value chain to provide high-quality housing to the low-income segment

TEN  TYPES  OF  INNOVATION  

Patrimonio  Hoy  by  Cemex  Servicing  low-­‐income,  rural  homebuilders  in  Mexico  

6  TYPES:  

The Ten Types of Innovation—exploded and explored

TEN  TYPES  OF  INNOVATION  

Premium  

Cost  Leadership  

Scaled  Transac&ons  

Microtransac&ons  

Forced  Scarcity  

Subscrip&on  

Membership  

Installed  Base  

Switchboard  

Auc&on  

User-­‐Defined  

Freemium  

Flexible  Pricing  

Float  

Financing  

Ad-­‐Supported  

Licensing  

Metered  Use  

Bundled  Pricing  

Disaggregate  Pricing  

Risk  Sharing  

 

Merger/Acquisi&on  

Consolida&on  

Open  Innova&on  

Secondary  Markets  

Supply  Chain      

       Integra&on  

Complementary    

         Partnering  

Alliances  

Franchising  

Coope&&on  

Collabora&on  

 

Organiza&onal    

         Design  

Incen&ve  Systems  

IT  Integra&on  

Competency  Center  

Outsourcing  

Corporate    

         University  

Decentralized  

Management  

Knowledge  

Management  

Asset  

Standardiza&on  

 

Process    

         Standardiza&on  

Localiza&on  

Process  Efficiency  

Flexible    

         Manufacturing  

Process  Automa&on  

Crowdsourcing  

On-­‐Demand    

         Produc&on  

Lean  Produc&on  

Logis&cs  Systems  

Strategic  Design  

Intellectual  Property  

User  Generated  

Predic&ve  Analy&cs  

 

Superior  Product  

Ease  of  Use  

Engaging    

         Func&onality  

Safety  

Feature  Aggrega&on  

Added  Func&onality  

Performance    

         Simplifica&on  

Environmental    

         Sensi&vity  

Conserva&on  

Customiza&on  

Focus  

Styling  

 

Complements  

Extensions/Plug-­‐ins  

Product  Bundling  

Modular  Systems  

Product/Service    

         Pla_orms  

Integrated  Offering  

 

Try  Before  You  Buy  

Guarantee  

Loyalty  Programs  

Added  Value  

Concierge  

Total  Experience    

         Management  

Supplementary    

         Service  

Superior  Service  

Personalized  Service  

User  Communi&es/

Support  Systems  

Lease  or  Loan  

Self-­‐Service  

 

Diversifica&on  

Flagship  Store  

Go  Direct  

Non-­‐Tradi&onal    

         Channels  

Pop-­‐up  Presence  

Indirect  Distribu&on  

Mul&-­‐Level    

         Marke&ng  

Cross-­‐selling  

On-­‐Demand  

Context  Specific                    

Experience  Center

 

Co-­‐Branding  

Brand  Leverage  

Private  Label  

Brand  Extension  

Component    

         Branding  

Transparency  

Values  Alignment  

Cer&fica&on  

 

Experience    

         Automa&on  

Experience    

         Simplifica&on  

Cura&on  

Experience  Enabling  

Mastery  

Autonomy  and    

         Authority  

Community  and    

         Belonging  

Personaliza&on  

Whimsy  and  

Personality  

Status  and  

Recogni&on    

Zipcar as a general model …. THE  TEN  TYPES  OF  INNOVATION  

Allows people to rent cars by the day or the hour; gas and insurance included

7  TYPES:  

…for “collaborative consumption” TEN  TYPES  OF  INNOVATION  

+   +  

7  TYPES  using  8  TACTICS:  

The Ten Types of Innovation and Innovation Ambition

TEN  TYPES  OF  INNOVATION  

As  you  increase  in  your  level  of  ambi&on,  you  need  to  be  more  disrup&ve  to  exis&ng  business  models  and  need  to  think  about  layering  in  more  and  more  innova&on  types    

FOR  TRANSFORMATIONAL  INNOVATION  You  will  need  coordinated  innova&on  across  mul&ple  (4+),  interdependent  types.      

FOR  ADJACENT  INNOVATION  You’ll  need  innova&on  within  mul&ple  types  (3-­‐4)  around  a  new  market  offer.      

FOR  CORE  INNOVATION  For  innova&on  in  the  core,  you  will  be  innova&ng  within  independent  innova&on  types  around  exis&ng  offers  aimed  at  current  customers.      

Also, different levels of innovation ambition require different people, motivational factors, and support systems

SUBSTITUTING  DISCIPLINE  FOR  CREATIVITY  

To  achieve  transforma&on—to  do  different  things—an  organiza&on  has  to  do  things  differently.  

Core  and  adjacent  innova&on  can  generally  be  managed  by  the  exis&ng  business  structures  within  an  organiza&on.  Transforma@onal  innova&on,  however,  needs  separate  leadership  and  procedures.    

These  different  levels  of  innova&on  ambi&on  require  differen&a&on  in  four  key  areas  of  management:  

1.  Approach 2.  Organization 3.  Resources and competencies 4.  Metrics and incentives

CORE  and  ADJACENT  

TRANSFORMATIONAL  

CFOs can and should accelerate the company’s journey into innovation

WHAT’S  NEXT?  

§  Understand  where  innova&on  efforts  are  today  

§  Align  por_olio  choices  with  agreed  innova&on  ambi&on  

§  Ensure  the  por_olio  is  appropriately  resourced  

§  Create  a  smart  metric  system  and  valua&on  methodology  that  reflects  the  ambi&on  mix  

§  Almost  always  aim  for  fewer,  bolder  ini&a&ves  

§  Become  a  strategic  partner  to  other  func&ons  

 

 

Become an integrated part of the process WHAT’S  NEXT?  

Commercial Operations Strategy CFO R&D Commercial Operations Strategy R&D

Innovation

Be something other than the person who says no.

WHAT’S  NEXT?  

Above all, be a catalyst for change and lead!