Highlights from EY’s exclusive retreat for corporate executives and disruptive entrepreneurs

Igniting growth through innovation

1Igniting growth through innovation |

A note from Uschi SchreiberGlobal Vice Chair — Markets and Chair of Global Accounts Committee

We are at a critical period in time. Innovation has quickly become an indispensable component in advancing development for enterprise of all phases.

We brought together leading minds and experts for two days in Silicon Valley. Our purpose was to home-in on how innovation deeply cuts through fundamentals like disruptive technology, entrepreneurship, agility, activation and transformation.

What came across very strongly in our discussions is that there are three components required for companies to opt into and maintain an innovation edge.

First, leaders must employ a sense of urgency when determining the pace of disruptive change in their business. While adapting to the market, we simply don’t have the luxury of waiting until everyone understands the benefits and consequences.

Next, companies of all phases need to support the power of entrepreneurship. This means incubating risk, activating new ideas and accepting some forms of failure.

Finally, it’s about having visibility of your external network. Not least identifying the latest strategies to deploy, but above all envisaging the possibilities of your own broader ecosystem in the distant future.

The contents of this publication are a reflection of this sentiment and strategy. I hope you will use this to become a part of this great conversation.

Best regards,

Uschi Schreiber

2 | Igniting growth through innovation

Is your current innovation strategy doing enough to ignite growth in a changing economy?On 27 and 28 April 2015, corporate executives and start-up CEOs from across industries and geographies joined EY at the Ritz-Carlton at Half Moon Bay in California.

During this exclusive retreat, participants enjoyed a collaborative exchange of ideas about whether their current innovation strategy is doing enough to ignite growth in a rapidly transforming world and how they can use innovation to take their companies to the next level.

Key takeaways• Disruptive trends create an urgency to act now. A number of global megatrends — digital, resourceful planet and the

future of work, to name a few — are moving and changing every industry faster than anyone thought possible. For startups and corporate executives alike, the challenge — and opportunity — is to find a way to keep pace with whatever change is happening in the market. To delay is to die. Organizations need to act now to survive and thrive in today’s environment.

• Purpose is critical. Innovation can come alive only when it is about something, when it has a purpose. By using purpose as the animating force to motivate change, organizations benefit from greater innovation, leadership alignment and employee engagement.

• An entrepreneurial mindset makes innovation everyone’s job. Whether it’s a small startup or a large corporation, entrepreneurship and entrepreneurial behavior are key factors for success. This kind of approach encourages risk-taking and the ability to fail fast and often on the road to success. It also creates a culture where innovation is woven into the fabric of the organization and becomes everyone’s job.

• Collaborating with ecosystems increases the odds of success. Organizations looking to develop a robust innovation strategy have to rely on more than internal resources. External ecosystems, while at times challenging to build and manage successfully, provide organizations with an understanding of the environment and the ability to draw upon strengths that complement their own.

Uschi Schreiber discusses key takeaways from the Igniting growth through innovation retreat

#EYInnovate

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Disruptive megatrends are redefining corporate strategy and driving today’s innovation.

Digital future

Digital technologies are making it possible for employees to work at places and times of their own choosing

Digitization and automation will replace jobs, but will create

new jobs requiring new skills

Digital technologies are enabling the substitution of virtual products for physical products, as well as the proliferation of sharing physical assets

Sustainability has become an increasingly important factor in attracting and managing talent

Online, social and mobile are changing how people access

information and engage with enterprises

The digital revolution is improving efficiencies in extracting, processing and utilizing resources

Digital is disrupting traditional industries and blurring industry boundaries

By strategically exploiting vast amounts of data, smart cities can make buildings more efficient, reduce waste, and make better use of renewable energy

Digital technologies allow for companies to become “network orchestrators”

rather than owners of human capital

Disruptive megatrends are redefining corporate strategy and driving today’s innovation.

Resourceful planet meets digital future

Resourceful planet meets future of work

Digital future meets future of work

Social media drives enterprises to be more transparent and adopt a

customer-centric focus, providing more power to the customer

Business entities will optimize deployment

of assets (people, equipment,

information) by sharing or renting

them through an online liquid marketplace

Future of work

Resourceful planet

Digital future

Resourcefulplanet

Future of work

4 | Igniting growth through innovation

When we talk about innovation, what exactly do we mean? It’s used so often and in so many different contexts that it eventually becomes meaningless. For example, when we talk about innovation are we including invention, creativity, entrepreneurship, digital fluency and/or design thinking?

EY defines agile innovation as “the art of making hard things easy and creating new viable business offerings faster.” In an era of rapid, disruptive change, defining and understanding innovation is becoming a strategic imperative for organizations.

Similarly, John Kao, Chairman at the Institute for Large Scale Innovation and keynote speaker for EY’s Igniting growth through innovation retreat, defined innovation as “a set of capabilities that enable the continuous realization of a desired future.”

David Jensen, EY, discusses the changing role of innovation

Bringing innovation to innovation

John went on to say that no amount of magical thinking is going to substitute for hard work. The key is to develop a strategy that invests in the right kind of capabilities based on your business objectives. Once you know your capabilities, you build on them, practicing day in and day out and making them the enablers of your business.

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EY’s 9 principles to activate agile innovation

Iterate andwork

incrementally

Make the casefor being agile

Cultivate anagile culture of

experimentation

Think simple,act fast

Identifyright teamDetermine

the appropriateframework

for eachcollaboration

Maintain open,and frequent

communication

Adapt processesand break rulesas necessary

Define andmeasuresuccess

Rules

2

9

4

3

56

7

8

1

Nineprinciplesof agile

innovation

6 | Igniting growth through innovation

Disruptive trends create an urgency to act now

There was a time when an organization’s innovation cycle could be measured in years. Today, it can be measured in weeks. And organizations large and small are struggling to keep up. According to Constellation Research, digital disruption has destroyed 52% of Fortune 500 companies since 2000. As one of EY’s Igniting growth through innovation keynote speakers, Horace Dediu said: “You may not have time to turn around the ship or even launch lifeboats” before change is upon you. In fact, when cycle times are so short, many organizations will be disrupted before they’ve even had time to schedule a meeting.

So what is causing this disruption? Based on recent research, EY sees six global megatrends that are impacting everyone. For the Igniting growth through innovation summit we focused on three: 1) digital future, 2) resourceful planet and 3) future of work. These megatrends are making past practices obsolete, redefining corporate strategies and driving innovation. The one thread that runs through all of these trends is digital technology and data.

These megatrends create opportunities for businesses to scale rapidly while developing more intimate customer relationships. It also allows them to use resources more efficiently and to deploy their talent in more dynamic and flexible ways.

Yet, for all of the opportunities, these megatrends also pose significant challenges. Leaders need to understand these forces and determine how to keep pace with inevitable and rapidly accelerating change. Standing still is not an option. Companies must innovate if they want to survive and grow.

1. Digital future

In the 20th century we lived through the Age of Manufacturing, the Age of Distribution and the Age of Information. Since the dawn of the 21st century, we’ve been living in the Age of Experience. As the pace and proliferation of digital technology accelerates, EY believes that we are quickly moving into a new age — the Age of Innovation.

Innovation has long existed, but we see a new emphasis, a new need to put innovation at the center of the business. Organizations need to be constantly asking how they are creating opportunities, incubating ideas and ultimately activating them. The art of innovation comes from activation — how an organization leverages analytics, data and technology to exploit opportunities that they are carving out.

Digital will affect companies in all sectors. Those that hesitate may be disrupted before they are capable of adapting.

“ When cycle times are so short, you may not have time to even set up a meeting before a startup has disrupted you.”

Horace Dediu, Senior Fellow at the Clayton Christensen Institute for Disruptive Innovation and founder of Asymco.com

“ Television took 13 years to reach 50 million users. Facebook took only 3.5 years, and it can now take as few as 35 days for a successful app or technology company to reach the same peak. This is a huge change.”

David Jensen, Global Innovation and Digital Strategy Leader, EY

“ If you don’t see innovation as something that is part and parcel of your organization, you will become roadkill.”

David Jensen, Global Innovation and Digital Strategy Leader, EY

Read the buzz created about the disruptive trends driving innovation fireside chat on Storify.

David Jensen on the digital future

Learn more about the six megatrends EY thinks will define our future.

Businesses are failing to use

of customer data now generated

80%

7Igniting growth through innovation |

2. Resourceful planet

In addition to digital and data, we are witnessing fundamental changes in the very material basis of our society and how we use resources. Our current system is extremely inefficient and wasteful.

However, that is changing. There is a resource revolution underway that can exponentially increase the productivity of the assets we use. This is driven largely by substituting digital goods for physical goods, the ability to remotely operate and repair assets and the ability to share assets.

Organizations have an opportunity to use new technologies and new resource materials to help change the system — not to replace or displace people, but to help them be more productive and efficient at what they do.

From an energy perspective, innovation in renewables has brought the cost down from approximately 22 times the price of grid power when it was first introduced in the 1970s to as low as five cents per kilowatt hour today. In some cases, renewable energy is the cheapest form of power — well below the price of coal and nuclear energies. As renewable innovations continue, the cost of solar may drop to two cents or even one cent per kilowatt hour by the end of the next decade. Efficiency gains in from renewable energy over this period may therefore reduce the cost of power to an almost negligible price.

3. Future of work

The digital disruption is having a huge impact on how we work. The days of working in a fixed place for a fixed number of hours is over for employees within many organizations. Organizations need to transition to an environment where work is task-based instead of role-based and flexible enough to allow people to perform the tasks where and when it is most appropriate for them. They also need to move away from scheduling and planning in favor of real-time coordination. This aligns both with the advances in communications and technologies and the preferences and habits of younger generations entering the workforce.

This, of course, will require a different means of measuring worker productivity and value. It will also mean that organizations will have to look for talent differently, focusing on skills rather than credentials. Most importantly, it will require using values and meaning to engage discretionary workers.

We are in an age where iconic companies will be those that leverage intelligence. They will figure out how to use intelligence to create value. This will require a leadership style that is very different from what has made leaders so successful for the past 100 years.

“In transportation, new business models are disrupting various parts of the system. Google has autonomous cars. Uber offers car sharing. Tesla is mastering the electric car. And just about every car comes with connectivity. We need to bring this all together into a single autonomous, connected, electrified and shared system (ACES). This may not happen in six months, but it will happen in our lifetime — and it will fundamentally change transportation as we know it.”

Stefan Heck, Consulting Professor, Precourt Institute for Energy, Stanford University

“ The only way that value gets added to most of the work today is because someone wants to add it. It is discretionary. People need to feel engaged and excited. The new money is meaning. Finding ways to infuse your organization with meaning and values, to make that part of what work is all about, is going to be absolutely essential.”

Tammy Erickson, Executive Fellow, Organizational Behavior, London Business School

Stefan Heck on the resourceful planet Tammy Erickson on the future of work

of Fortune 100 companies have clean energy objectives

of the American workforce can be classified as “freelancers”60%

34%

8 | Igniting growth through innovation

Purpose is critical

Just as innovation has many different meanings, so too does purpose. EY defines purpose as an aspirational reason for being that is grounded in humanity. It inspires action for an organization and its stakeholders and provides benefits to society. A purpose-led company has articulated and activated purpose in such a way that allows it to harness the creativity, knowledge and skills of its people and ecosystem to innovate and transform all elements of its business. This drives greater customer value and experiences, can help attract innovative talent, and allows organizations to develop and position their products and services more effectively.

Valerie Keller, EY Beacon Institute, on using a common language of purpose to drive innovation

John Kao, Institute for Large Scale Innovation, on the connection of innovation and purpose

Tammy Erickson, London Business School, on meaning being the new money

“ At [my company], the key to our innovation is really a well-articulated vision that comes down right from the top and gets all way down where employees and staff. This is critical — when your front-line employees don’t really understand the purpose or mission of the company, they’re really not able to contribute.”

Fortune 100 company executive

“ In our company, we define and instill purpose through the work that we do. We actually recruit based on the fact that we make a difference in people’s lives and in organizations. People seek us out because of the work that we do.”

Startup CEO

0%

5%

7%

11%

20%

25%

32%

In the research and design phase

I do not believe that purpose will drive innovations in my operations

In our metrics and reward systems

In defining our values

In how we develop and position our services and products

In the way we hire and manage talent

In creating customer value/experience

Where do you think purpose can drive innovation in your business?(% of attendees responding)

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3 Purpose is viewed as a driver of innovation and transformation

But

and

Purpose-Led TransformationPurpose-Led Transformation is a new approach EY offers to driving strategic transformation, innovation and growth. We define purpose as an organization’s clear reason for being that serves to set strategic vision and decision-making. A strong purpose focuses the business strategy on delivering value and meaning for customers, employees and other stakeholders.

EY believes that organizations can benefit from greater innovation, leadership alignment, employee engagement and follow-through when leveraging purpose as the ambition to motivate change. Recent EY-sponsored research from Oxford Saïd Business School and Harvard Business Review Analytics supports this perspective.

Of five initial transformation trends observed during Phase 1 of a joint research effort with Oxford Saïd, two stand out in terms of tying purpose to innovation:

1. Purpose can be a lever in driving innovation and transformation for growth.Pioneering senior leaders use a language that links firm innovation and renewal with contributing to addressing significant challenges — or providing for human well-being in ways that go beyond product lines and traditional competition.

2. There is an implementation gap: purpose is underleveraged to drive transformation.A broad cross-section of business professionals and thought leaders recognize the importance of integrated, humane purpose as a core decision-making lens driving core functions like strategy, business models and talent management. But they also report a gap between this recognition and the policy and practice in their organizations.

Our findings indicate that corporations are at various stages of a journey that explores or expands their institutional purpose — and then aligns strategy, business models and processes to execute.

At the organizational level, executives recognize the more immediate benefits, such as providing competitive differentiation and increasing consumer sales and loyalty. It is also recognized as a useful tool to build trust in the wider marketplace.

Embedded into the structure and operating model, institutional purpose may also enhance employee morale, attract talent, increase productivity and decrease attrition.

Importantly, these CEOs anticipate that a purpose-led transformation will enhance organizational agility (i.e., their capacity to adapt to an increasingly dynamic, uncertain and interdependent macro business environment) and do so in a way that engages employees, customers and stakeholders to drive sustainable growth.

Yet, even with the perceived benefits, a survey of Harvard Business Review readers indicates that purpose is being underleveraged by business today. Only 35% of survey respondents report feeling successful at innovation and continuous transformation, even though 84% believe that transformation efforts would be more successful if they were integrated with purpose.

feel they are successful at innovation and continuous transformation

believe their transformation efforts will be more successful if integrated with purpose

plan to leverage purpose in strategy development in the near future

35%

84% 55%

#EYInnovate

10 | Igniting growth through innovation

An entrepreneurial mindset makes innovation everyone’s job

Whether it’s a small startup or a large corporation, entrepreneurship and entrepreneurial behavior are key factors for success. This kind of approach encourages risk-taking and the ability to fail fast and often on the road to success. It also creates a culture where innovation is woven into the fabric of the organization and becomes everyone’s job.

However, organizations seeking to create an innovation culture may be slow to take action if they have an entrenched, risk-averse culture and siloed operations that reward those who protect their own turf.

Innovation is too important to be owned by one function. It needs to be embedded into every facet of the organization. This starts with clear sponsorship and support from the top and is reinforced through a strong narrative. At the same time, innovation can grow from the bottom up by empowering teams and individuals across the organization to share ideas and actively participate in innovation based on their passions.

With an entrepreneurial mindset and an innovation culture, organizations can create a bias for action, a willingness to take risks and an acceptance that failing fast and using lessons learned can propel organizations to success. Putting a positive spin on failure and repositioning it as learning can create the right conditions for reaching the desired outcome.

EY’s Maria Pinelli on whether a large company can embrace failure

“ My advice to large corporations is to make your teams lean and ensure their goals are clearly defined. Shrink innovation teams down to Amazon-style ‘two pizza teams,’ make them as autonomous as possible, and ensure they iterate quickly the way a startup would. Basically, have a startup mentality.”

Doug Renert, Partner and Founder of Tandem

“ Let’s stop using the word ‘failure’ and start using the word ‘learning.’”

Startup CEO

Five ways to improve innovation performanceStartups are often entrepreneurial by nature. Large corporations are not. So what can large organizations borrow from startups to improve their innovation performance? Here are five things identified during one of our breakout discussions:

1. Infuse a sense of urgency — a live-or-die mentality — into efforts to find the next big idea.

2. Identify problems and then focus innovation on solving these problems. Innovation adds little value unless it addresses problems.

3. Teach innovation. Involve everyone so they have the tools to know what is important and how to innovate.

4. Incentivize productive failure in order to improve the number of attempts. Position it in a more positive manner as a learning experience.

5. Celebrate the lessons after failing. Identify why failure occurred (e.g., execution vs. concept) then celebrate what was learned.

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Bringing the outside inToo often, large organizations view the market through their own organizational lens. They look from the inside out and approach questions of innovation based on their own capabilities. But in today’s world of disruption, globalization, advanced technologies and rapid change, it is increasingly critical to bring external perspectives into the organization through ecosystems of talent, customers and stakeholders.

If large organizations want to embody a more entrepreneurial spirit, they need to pivot their perspective so that they are looking from the outside in.

For example, organizations can start by identifying customer needs and then consider how to address them in a way that delivers exceptional experiences. This change in orientation allows organizations to break the silo mentality and focus on the real world. By taking an external perspective, organizations will increase the odds of producing solutions that truly meet customers’ needs.

“ Innovation needs to be an expectation in all groups and functions and part of the organization’s DNA.”

Igniting growth through innovation participant

“ Regardless of where you are in your innovation journey, there is a responsibility to create a narrative within your company about the next phase of growth. You must have a narrative and someone who wants to steward the thought.”

Wendy Lea, CEO Cintrifuse

Tammy Erickson, London Business School, discusses key success factors for creating a culture of innovation

12 | Igniting growth through innovation

Collaborating with ecosystems increases the odds of success

In competitive markets, where the key to success means always staying one step ahead of the competition, there is an impetus to protect turf and “go it alone.” Yet this approach will be the death knell for any organization that continues on this path. Silos and fiefdoms are innovation killers. At the same time, organizations today don’t have time to make only incremental changes to their organization. They need to move fast and dive deep into the organization, fundamentally changing how it creates, operates and measures innovation strategy — embedding innovation into its DNA.

One means of jump-starting this process is to widen the circle of knowledge. Today’s digital world offers innumerable opportunities for organizations to create, activate and manage a variety of ecosystems that may include customers, external talent and a wide array of other stakeholders. The purpose is to widen the pool of ideas, feedback and sources of innovation on a global basis. In essence, it’s about bringing the outside in.

An external focus gives organizations the visibility they need to see the disruptive technologies that are around the corner or on the horizon and share leading practices to reinvent or reignite strategies and business models. Often, ecosystems work best when they offer benefits to others that they would not otherwise be able to achieve on their own. For example, large organizations may bring brand, distribution, channel marketing, compliance and regulatory experience. Start-ups, on the other hand, bring innovation, technology, intellectual property and a fast-moving team that can accelerate the innovation cycle. Ultimately, ecosystems work best when they produce “win-win” opportunities for everyone.

Obviously, collaborating with partners has its challenges, but by setting ground rules that establish a common understanding and common goals for collaboration from the outset, organizations can gain access to the talent, customers, capital and information that will be crucial to thrive in today’s Age of Innovation.

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“ Ultimately, collaborating with networks and ecosystems comes down to people and information — understanding who is out there, what they are doing, what new business models or strategies are emerging, having a very external focus, and understanding what is happening within one’s own network as well as the broader ecosystems.”

Uschi Schreiber, Global Vice Chair — Markets and Chair of Global Accounts Committee, EY

Uschi Schreiber, EY, on what startups and corporates can learn from each other

Maria Pinelli, EY, on what startups and corporates can learn from each other

See the social media reaction to the Ecosystem fireside chat on Storify.

John Kao, Institute for Large Scale Innovation, on the value of large companies in innovation ecosystems

Making ecosystems work: Achieving common understanding and searching for the win-winAsked about key ingredients to making a regional ecosystem work, Wendy Lea (CEO of Cintrifuse), began by noting that different parties have their own “turf to protect” and that this can pose challenges for common understanding and collaboration. “Sometimes you may not be able to get alignment of all the parties. The most important thing, however, is to agree upon the aspirations and goals. ... Understanding the interdependencies of needs is the essence of collaboration. You will win, I will win, but maybe not at the same time.”

14 | Igniting growth through innovation

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Uschi SchreiberGlobal Vice Chair — Markets and Chair of Global Accounts Committee+1 212 773 6738uschi.schreiber@eyop.ey.com

Gil ForerGlobal Markets+1 646 884 3666gil.forer@ey.com

David JensenGlobal Innovation and Digital Strategy Leader+1 213 977 3691david.jensen1@ey.com

Cheryl Grise Global and Americas Strategy Practice Leader+1 407 872 6619cheryl.grise@ey.com

Valerie KellerGlobal Leader, EY Beacon Institute+1 212 773 2873valerie.keller@ey.com

Additional videos:Bringing innovation to innovation, John Kao — animated recap

Disruptive trends driving innovation — animated recap

Building global innovation ecosystems — animated recap

Purpose-driven companies — animated recap

Thought leadership:Igniting innovation: How hot companies fuel growth from within

Delivering agile innovation: Creating value from collaboration with entrepreneurs in consumer products and retail

A new era of innovation

Innovation Roundtable

Services and institutes:Purpose-Led Transformation

EY Beacon Institute

Global Center for Entrepreneurship and Innovation

Key contacts Additional resources

#EYInnovate

Innovation workshopsAs a follow up to our innovation retreat, EY offers a series of in-depth workshops designed to help clients master specific areas of innovation that are critical to their business. These collaborative and engaging sessions will immerse your team in EY’s innovation process. In-depth sessions cover topics such as: the proper way to develop and maintain an innovation culture, ideation techniques and the identification of problems worth solving, and the activation and monitoring of innovation. Participants will advance through the fundamentals to a level where they can create successful innovation teams. Lessons provide practical steps to foster and monitor innovation, and to generate the collaboration and teamwork across the enterprise that can spark your next big idea.

For more information about these workshops, please contact David Jensen (david.jensen1@ey.com).

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