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Jay Rao, Professor Babson College, “No existeix cap correlació entre la inversió que fa una companyia en R+D i les seves vendes”
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Innovation: Key to Organic Growth
Jay RaoProfessor
Babson
2
Setting Expectations
• I will not discuss every slide / bullet point.
• You will receive all presentations in digital format
• I am not an expert in any one industry
• You have to be ready for……
3
One proposed solution
4
Today’s Agenda
• Are firms good at innovation?
• What mistakes do firms make when it comes to innovation?
• Stepping into the future: Predictive vs. Emergent Strategies
• Creating a Culture of Innovation
• Developing Innovation Capabilities – The Journey
5
Innovation: Key to Organic Growth
The structure of a mature industry
Source: Moore
35%
35%
10%
10%
4%3% 3%
GORILLA
MONKEY
CHIMP
All Firms Die!
9
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
1900 1910 1920 1930 1940 1950 19600
10
20
30
40
50
60
70
80
90
49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
Number of Firms in the U.S. Picture Tube Producers
Num
ber
of
Firm
s
Years (1949 to 1970)
Entry
Exit
Total
Number of Firms in the U.S. Typewriter Industry
Num
ber
of
Firm
s
Years (1874 to 1936)
Entry
Exit
Total
Entry
Exit
Total
50% of U.S. products in all-steel closed body
80% of U.S. products in all-steel closed body
Source: Mastering the Dynamics of Innovation, Uttberback
Number of Firms in the U.S. Automobile Industry
Num
ber
of
Firm
s
Years (1900 to 1960)
Kodak Moments…
1975 Invents first digital camera, but does not bring to market. Fears cannibalizing film. Has 95% market share in U.S. film.
1984 Declines to sponsor LA Olympics. Low cost Fuji wins contract.
1994 Introduces QuickTake digital camera. Sold through Apple
1997 Fuji has 17% market share of U.S. film
2005 Kodak ranks #1 in U.S. digital camera sales $5.7 B. But, loses $60 on every camera sold. Severe undercutting by Asian low cost manufacturers and several new entrants.
2006 Kodak outsources manufacturing of digital cameras to Asia. Outsources first time in its history.
2007 #4 in U.S. digital camera sales.
2010 #5 in U.S. with 7% market share
2012 Files for bankruptcy
Music
14
Which company should have owned the iPod space?
SONY
2004Jukebox – SonicStageConnect – Music Store
At its peak: 2.5 million songs from all labels,but Windows only
2008Kills Connect
17 | BAP | 2007 | ©
Acer
Toshiba
Dell
HP
Lenovo
Apple
Asus
RIM Blackberry
Nokia Symbian
Palm (HP)
Apple iPhone
Google Android
19 | BAP | 2007 | ©
Abbott is among the companies paving the way for the newest generation of stents, ones that dissolve away after their product life runs its course. In January, Abbott received approval in Europe for its bio-absorbable drug-eluting stent, called Absorb. The company plans a limited distribution on the continent later this year. By contrast, J&J encountered problems developing a follow-up to its Cypher stent, called Nevo. Last October, the company said it was suspending patient enrollment in a study of the stent due to a problem with the catheter that surgeons use to deliver the device. Nevo was based on technology that J&J bought as part of a $1.4 billion takeover of Conor MedSystems in 2007.
Industry leadership does not last
• Typewriters• Manual Electric Word Processors PCs
• Computers• Mainframe Minicomputers PCs
• Hard Disk Drives• 14” 8” 5 ¼” 3 ½”
Leadership in Retail Services didn’t last either
• General Purpose
• Bookstores
• Toys
• Electronics
Corporate mortality is very high!
Source: Fortune, S&P, and others
The average life span of a Multinational Fortune 500 firm is around 45 years
1/3rd of the Fortune 500 listed in 1970, had disappeared by 1983 – acquired, merged or broken to pieces.
Out of the top Fortune 25 in 2010, only 18 remained from the year 2000 and only 6 from the year 1980.
Average life expectancy of all firms, regardless of size, in Japan and much of Europe, is only 12.5 years
Only 16% of firms listedon the 1957 S&P 500 remained on the 2007 list
Of the top 500 firms in the U.S. in 1980, only 202 had survived by the year 2000.
The firms on the original 1920s U.S. S&P 90 list stayed there for an average of 65 years. By 1998, the average tenure of a firm on the expanded S&P 500 was 10 years.
Only 5% of EU firms created from scratch since 1980 made it to the 1000 biggest EU firms by market cap. The equivalent number in U.S. in 22%.
Average Age of Global 1000 since 1980
Source: Factset, 2011
Average Age of Global 1000 since 1990
Source: Factset, 2011
Global 1000Percentage of Survivors Year to Year
18 years
12 years
14 years
12 years
Source: Factset, 2011
Global 1000 by country
Source: Factset, 2011
New Entrants into the Global 1000
Source: Factset, 2011
“Every organization – not just business – needs one core competence: …..”
- Peter Drucker
Innovation(in Innovation & Entrepreneurship, 1985)
Some empirical findings about Innovations…
Sources: Innosight; Amar Bhide; Barton
75% of all new products launched by established firms fail to make profit. Most are yanked/killed without shaping & developing them
More than 90% of allInnovations that weresuccessful started off inthe wrong direction
Given more money & time,firms are known to pursuethe wrong strategies for alonger period of time.
Most new innovations are started with access to no credit in good times and in bad
Most of the great businesses today started without a lot of VC funding or any bank lending until 5-6 years after they were up and running
31
, 2005
32
2010 Data of Spend vs. Performance
2008 McKinsey Study Highlights
Unanimous agreement (94%) that people and corporate culture are the most important drivers of innovation
Overall dissatisfaction with dismal outcomes
ofInnovation programs
CEOs and Executives are frustrated with their
efforts to jumpstart Innovation initiatives
Mimicking and Benchmarking bestpractices have been
ineffective
Resources and Processes that are applied are either
underutilized or not achieving scale to have a financial impact
Source: Leadership and Innovation, The McKinsey Quarterly, 2008 no. 1
Source: Booz Allen Hamilton Global Innovation 1000
Why is it so hard? Why are firms struggling?
What is Innovation?
Innovation = Left + Right
Error #1
38
Scissor orEastern Cut-off
Straddle
Western Roll
Fosbury Flop
Radical Innovation
Process
Burton
(1920)
Original Fluid
(1936)
Current Fluid
(1940)
Raw Materials (gallons)
396 238 170
Capital (1939 $) 3.6 0.82 0.52
Labor (man hours)
1.61 0.09 0.02
Energy (million BTUs)
8.4 3.2 1.1
Inputs
Source: Mastering the Dynamics of Innovation, Uttberback
Performance Gains in Petroleum Cracking(inputs per 100 gallons of gasoline)
Innovation = Radical + Incremental
Time
Performance
RADICAL - unknown(Continuous
Experimentation)
INCREMENTAL - known(Continuous Improvement)
DO NOTHINGError #2
Innovation: New to the Industry
Source: Michelle Rogan, INSEAD, 2009
EXPLOIT
SAME OLD CATCH UP
New to Firm?
Newto
Industry?
No
Yes
No Yes
CREATE
Error #3
Innovation: Is a Choice & Overvalued
Source: Oded Shenkar
Error #4
We are our words!
I + D + i
Error #5
i = I + D
Innovation is a Discipline.
Unconscious Incompetence
Conscious Incompetence
Conscious Competence
Unconscious Competence
Knowledge
Practice
Discipline
Error #6
Innovation = Long + Long
• Alice: – Would you tell me, please, which
way I ought to go from here? • Cheshire Cat:
– "That depends a good deal on where you want to get to.”
• Alice:– "I don't much care where…”
• Cheshire Cat: – "Then it doesn't matter which
way you go.”• Alice:
– “…so long as I get somewhere.”• Cheshire Cat:
– “Oh, you’re sure to do that, if you only walk long enough.”
46 Source: Prof. Thornberry
Lewis Carroll’s Alice in Wonderland
Error #7
Questions & Issues
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