strategic innovation - sdg - stanford university

Strategic InnovationCreativity for Profit

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© 2007 Strategic Decisions Group www.sdg.com

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Meet Today’s Speakers

Bill BurnettExecutive Director,

Product Design ProgramDepartment of Mechanical

Engineering, Stanford University

Carl SpetzlerCEO, Strategic

Decisions GroupProgram Director

Stanford Center for Professional Development

Carissa LittleAssociate Director,Stanford Center for

Professional Development

Hannah WinterPartner, SDG; Associate

Program Director, Stanford Center for

Professional Development

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Strategic Innovation

1. The Innovation Imperative

2. Design Thinking as a Business Tool

3. A New Model: Innovation and Value Discipline

4. Learning More

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The global economic boom of the 1980s and early 1990s fueled a long period of steady growth.

Geopolitical Harmony+ Global Access

to Markets+ Low Cost of Capital+

FormulaicGrowth Strategy

=Technology-BasedProductivity

Source: Bigcharts.com

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The 1990s accelerated into the bubble years.

Y2K+ “IrrationalExuberance”+

Strategy as Speed and Flexibility

=Internet-BasedInnovation


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Then we had four years of real turmoil.

GeopoliticalEvents+ Financial

Scandals+ Survival Strategy=+ Globalization

of CapabilitiesTechnology

Disillusionment


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… and, the new era is not for the timid.

GeopoliticalConflicts+ Natural

Disasters+

Growth from

Innovation with Smart Risk-Taking

=+ Flat Worldwith Hyper-competition

FinanciallyStrong


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Source: “Innovation 2006,” BCG Senior Management Survey

Business leaders rank innovation as a top priority…but remain largely dissatisfied with current efforts.

7% 7%

27%

47%

19%

2005

21%

32%

40%

2006

Not a Priority

Top 10 Priority

Top 3 priority

Top priority

100%

Where does innovation rank among your company’s strategic priorities?

52% 56% 51% 44%

48% 44% 49% 56%

Industrial Goods

HealthcareAll Industries

Financial Services

No

Yes

100%

Are you satisfied with the financial return on your investments in innovation?

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4. Learning More

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Is design thinking the next big thing?

TIME, March, 2006 WIRED, June, 2006Fast Company, March, 2006

MIT Technology Review, April, 2005

Business Week, June, 2006

Bruce Nussbaum of BusinessWeek is a leading media advocate for design and innovation.

“THE CREATIVITY ECONOMY may sound like another over hyped catch-phrase, but companies that have embraced the concept are gaining a bottom-line edge over those who haven't.”

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The focus on design thinking is being led by universities and design firms.

the d.school at Stanford

Design firms are becoming strategy firms– IDEO, point>Forward, Doblin, and others

Business schools are teaching design thinking.– Stanford d.school – One-year d.school fellowships,

five-day boot-camp on design thinking

– IIT Institute of Design – A nine-month masters program in design methods for executives

University of Toronto

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d.school –a multi-disciplinary approach with Design Thinking “glue”

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What do we mean by “design thinking” in this context?

• In our experience, design thinking requires the following to be “active”:

• It has a Context in the firm• Multidisciplinary teams• Fluency trained• Longevity

• It has a Process • Experience-based, user-centered research• Prototyping • Iteration

See: The Role of Design Thinking in Firms and Management Education

– Bruce A. Heiman, San Francisco State University, USA

– William R. Burnett, Stanford University, USA

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P&G — a case in point:AG Lafley of P&G is known for his appreciation for the role of design in business.

“We want to become the number one consumer design company in the world, so we need to be able to make it part of our strategy. We need to make it part of our innovation process.”

– AG Lafley Chairman, President, and CEO P&G

“We want to become the number one consumer design company in the world, so we need to be able to make it part of our strategy. We need to make it part of our innovation process.”

– AG Lafley Chairman, President, and CEO P&G

Source: AG Lafley, as interviewed by Fast Company in May 2005.

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P&GP&G

S&P 500S&P 500

5-ye

ar S

tock

Pric

e G

row

thAt P&G, embracing innovation and design has been a deep and broad effort … and has produced outstanding results.

2000: Stagnant sales growth. A.G. Lafley becomes CEO.

2000: Stagnant sales growth. A.G. Lafley becomes CEO.

2005: P&G’s design staff has quadrupled; 12% sales CAGR since 2002.

2005: P&G’s design staff has quadrupled; 12% sales CAGR since 2002.NEW: Pair R&D staff

with in-house designers to drive innovation throughout product life cycles.

NEW: Pair R&D staff with in-house designers to drive innovation throughout product life cycles.

NEW: Seek out unarticulated consumer desires that can be transformed into products.

NEW: Seek out unarticulated consumer desires that can be transformed into products.

NEW: Hire experienced designers and work with outside firms like IDEO.

NEW: Hire experienced designers and work with outside firms like IDEO.

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Apple — another example:Apple uses design strategically and is considered by some to be the most innovative company in the world.*

Source: Top 20 Innovative Companies in the World. Poll of 940 senior executives in 68 countries by Boston Consulting Group as reported in BusinessWeek August 1, 2005.

“ While Jobs may not consider himself a designer, I don’t think he can talk about Apple for more than five minutes without mentioning design. His passion gets operationalized within the company in a number of ways…and it is a self-reinforcing cycle.”

– John Zapolski Design as a Core Strategy Perspectives on Design + Strategy IIT Institute of Design Strategy Conference May 18–19, 2005

“ While Jobs may not consider himself a designer, I don’t think he can talk about Apple for more than five minutes without mentioning design. His passion gets operationalized within the company in a number of ways…and it is a self-reinforcing cycle.”

– John Zapolski Design as a Core Strategy Perspectives on Design + Strategy IIT Institute of Design Strategy Conference May 18–19, 2005

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Leading design firms are finding that design thinking practices support business transformation as well.

“IDEO is becoming much more than a design company. Indeed, it is now a rival to the traditional purveyors of corporate advice.

IDEO advises clients by teaching them about the consumer world through the eyes of anthropologists, graphic designers, engineers, and psychologists.”

– BusinessWeek, May 17, 2004, “The Power of Design”

“IDEO is becoming much more than a design company. Indeed, it is now a rival to the traditional purveyors of corporate advice.

IDEO advises clients by teaching them about the consumer world through the eyes of anthropologists, graphic designers, engineers, and psychologists.”

– BusinessWeek, May 17, 2004, “The Power of Design”

“Doblin is an innovation strategy firm. We craft comprehensive, reliable, and repeatable approaches to innovation” … across the range of strategy elements of a business.

– Doblin’s Website

“Doblin is an innovation strategy firm. We craft comprehensive, reliable, and repeatable approaches to innovation” … across the range of strategy elements of a business.

– Doblin’s Website

DOBLIN

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4. Learning More

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Not all companies recognized for their innovation* are equally outstanding in providing shareholder returns. Why?

*Top 10 Innovative Companies in the World: 2005 poll of 940 senior executive in 68 countries by Boston Consulting Group.

5 Year Return Relative to S&P 500

Apple 3MMicrosoftGE SonyDell IBM P&GNokiaGoogle(1 year only)

-50%

0%

50%

100%

150%

200%

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In most organizations, creativity opposes evaluation. Currently design-innovation often falls into this trap.

Value Discipline

Value Value DisciplineDiscipline

Customer Experience

Shareholder Value

AppliedCreativityAppliedApplied

CreativityCreativity

“Wow” Factor

Excitement Number-Crunching

SpreadsheetAnalysis

Fuzzy

Evaluation is a sword in the hands of the controllers.

“Bean Counters”

Creativity is a “nice-to-have” once we hit our targets.

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Organizational hurdles to strategic innovation exist in many places.

ExecutionExcellence

AppliedAppliedCreativityCreativity

Value Discipline

Value Value DisciplineDiscipline

GrowthOpportunities

Value Guidance

Weak structural support for applied creativity

Processes are linear, not cyclical

Implementation failures

Learning failures

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Mindless application of financial hurdle analysis to novel and uncertain ideas can totally miss value.

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A lack of execution discipline results in not delivering the value from the ideas.

© The New Yorker Collection 1986 Frank Modell from cartoonbank.com. All Rights Reserved.

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The Innovation Competency Model: Effective Execution Driven by the Innovation Cycle

Value Guidance

Growth Opportunities

Cycle builds learnings and

buy-in

Respects & leveragesthe practical natureof business analysis

Respects & nurtures theopen-ended

nature of creativity

1

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Value Significance

Value Value SignificanceSignificance



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–900 –600 –300 0 300 600 900

Change in NPV: High-End TV Strategy ($ millions)

Base Case value = ~ $2 Billion

Analytic tools such as SDG’s tornado chart can inform and direct innovation and design.

Appeal to Market Size 0.5x Base 2x Base Estimate

Next-Gen Cost None 1.5x Initial Design

TV Cost High Low

New Broadcast Standard None Rapid Changes

Screen Size 40” 50”

Development Costs 2x Estimates

TV Replacement Cycle Slow Rapid

Distribution Markup Low High

Display Resolution Low High

Base Case

Product and market

characteristics can be defined

and valued

Product and market

characteristics can be defined

and valued

Understanding of the range of impact can be valuable

to the design team

Understanding of the range of impact can be valuable

to the design team

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The Innovation Competency Model: Effective Execution Driven by the Innovation Cycle

Value Guidance

Growth Opportunities

Execution Excellence

Cycle builds learnings and

buy-in

Respects & leveragesthe practical natureof business analysis

Respects & nurtures theopen-ended

nature of creativity

Flexibility adapts to various situations

4

1

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Value Significance

Value Value SignificanceSignificance



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SDG Case: Ford needed to make a platform decision in 1996 for its next-generation Mustang.

Traditional Business Case

“Design Lead” Case

Design Approach Retro themed, high-performance nicheWide audience, broad appeal

Volume and Price Point Low volume, high priceHigh volumes, low price

Capital Investment Required New platform, $$$$Existing platform, $$

Product Demand Cycle Limited production; maintain price premium through lifecycle

High volume; heavy discounts over lifecycle to fill capacity

Traditional

“Design Lead”

Net Present Value Comparison

10%-ile 90%-ile

Expected Value

Base Case

Base case forecast reflected optimistic bias; risk assessment revealed downside of an older platform

New Higher Value

Design

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GE under Jeff Immelt has the four elements working together.

3

4AppliedApplied

CreativityCreativityValue

DisciplineValue Value

DisciplineDiscipline

GrowthOpportunities

Value Guidance

Reinforcing Cycle

ExecutionExcellence

1

2

1. Growth is driven with “imagination breakthroughs” and “dreaming sessions.”

1. Growth is driven with “imagination breakthroughs” and “dreaming sessions.”

2. The strategic value discipline has been deeply embedded in GE for some time.

2. The strategic value discipline has been deeply embedded in GE for some time.

3. It is a cycle in which everyone has to participate.

3. It is a cycle in which everyone has to participate.

4. Execution discipline is intense, with adequate funding and the best people being assigned to deliver on the innovation initiatives.

4. Execution discipline is intense, with adequate funding and the best people being assigned to deliver on the innovation initiatives.

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Repositioning well for growth trends …

… is a strong strategic foundation.Source: GE 2006 Annual report

WINNING IN THE FUTURE

Perhaps the clearest view of GE’s growth potential lies in the trends shaping our collective future: the demand for infrastructure globally, growth of emerging markets, the economics of scarcity regarding natural resources, the ever-evolving opportunities of the digital age, the available liquidity in the global capital markets and the unstoppable demographics of healthcare.

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The Jim McNerney period instilled GE’s Six Sigma and value disciplines into 3M with great results.

2001 2002 2003 2004 20051996 1997 1998 1999 2000

3M

Chart from ©BigCharts.com; current as of 10/25/05

3M

S&P 500S&P 500

The prior five years, 3M underperformed the S&P 500, even

though it was among the most innovative

companies.

The prior five years, 3M underperformed the S&P 500, even

though it was among the most innovative

companies.

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Why is it so hard to build the competencies for a virtuous cycle and embed them into an organization?

• Three very different competencies working together

– It is by nature a cross-functional organizational challenge, and those are always difficult.

• Numerous behavioral and organizational barriers

– Turf and the split of roles – incentives to succeed within the silos

– The requirement for scale to achieve excellence

– Risk aversion, realism vs. optimism

– Habits of mind and practice

• Strong leadership and vision are crucial.

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Sources: July 2005 interview of Jeff Immelt by Fast Company. June 2006 interview in HBR

“When I got the job, I knew I wanted the company to be more innovative, more global, and more focused on the customers. But it does take a year or two or three to really put ideas intoinitiatives and get the team aligned.

The big difference is that the business leaders have no choices here. Nobody is allowed not to play. Nobody can say, ‘I'm going to sit this one out.’ That's the way you drive change.”

“When I got the job, I knew I wanted the company to be more innovative, more global, and more focused on the customers. But it does take a year or two or three to really put ideas intoinitiatives and get the team aligned.

The big difference is that the business leaders have no choices here. Nobody is allowed not to play. Nobody can say, ‘I'm going to sit this one out.’ That's the way you drive change.”

It takes time and real commitment from the top.

“When we have an idea factory like IDEO talk to us about innovation, it’s my job to translate what they say into GE. That means putting it in terms of process and metrics.”

“When we have an idea factory like IDEO talk to us about innovation, it’s my job to translate what they say into GE. That means putting it in terms of process and metrics.”

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4. Learning More

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We define strategic innovation using design tools …

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We teach a 2.5-day course that covers the three main components of strategic innovation.


Day 3

Identify Organizational Requirements

Day 1

Learn Design Tools and Process

Creative

Day 2

Apply Design Thinking to

Business Issues

Significant Real

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The Strategic Innovation course emphasizes interactive discussion and experience-based learning.

Discussion and Lecture Topics

• Defining Strategic Innovation

• Creativity Tools

• Design Thinking

• Applying an Innovation Cycle

• Organizational Issues and Realization

Discussion and Lecture Topics

• Defining Strategic Innovation

• Creativity Tools

• Design Thinking

• Applying an Innovation Cycle

• Organizational Issues and Realization

Case Exercise: Defining a New Business Model

• Understanding Customer Needs

• Alternative Generation

• Iterating for Value

Case Exercise: Defining a New Business Model

• Understanding Customer Needs

• Alternative Generation

• Iterating for Value

Examples of Speakers from Previous Courses

• “Need Finding and Customer-Based Ideas,” Dennis Boyle, IDEO

• “Weird Ideas that Work,” Prof. Bob Sutton, Stanford

• “Internal and External Innovation,” Tom Cripe, P&G Connect + Develop Program

• “Executing and Innovative Business Model,” Ralph Morales, HP, Finance

Examples of Speakers from Previous Courses

• “Need Finding and Customer-Based Ideas,” Dennis Boyle, IDEO

• “Weird Ideas that Work,” Prof. Bob Sutton, Stanford

• “Internal and External Innovation,” Tom Cripe, P&G Connect + Develop Program

• “Executing and Innovative Business Model,” Ralph Morales, HP, Finance

Course Instructors

• Carl Spetzler, SDG

• Bill Burnett, Stanford

• Cynthia Benjamin, IMS Health

Course Instructors

• Carl Spetzler, SDG

• Bill Burnett, Stanford

• Cynthia Benjamin, IMS Health

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Stanford University and SDG have created education programs focused on improving decision-making.

• Directed by Professor Ron Howard, Management Science and Engineering

• Developed in partnership between SCPD and Strategic Decisions Group

• Available online, on campus, and on-site

• Meets the career-long education needs of professionals, managers, and executives

Stanford Center for Professional Development (SCPD)

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Our program comprises education for strategic decision-making at two levels.

• Certificate program in Strategic Decision and Risk Management – For leaders and senior managers who want to

improve decision-making by their teams

– For those who support strategicdecision-making

– On-campus sessions in March, June,and September

– What past participants have said:- “A highly engaging intellectual experience with practical applications”

- “Very rich in content that is relevant and valuable”

- “Excellent materials and presentation with an interactive approach”

- “This course was worth the time and monetary investment!”

• Two-day senior executive seminar– For senior executives with significant decision responsibility

– November 13–14, 2008

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The certificate program offers 2.5-day courses spanning the breadth of decision staff skills.

DADecisionAnalysis

DQDecisionQuality

AdvancedDecisionAnalysis

Modelingfor Strategic

Insight

SDRMPracticum

StrategicInnovation

BehavioralChallenges in

Decision-Making

EnterpriseRisk

ManagementStrategic Portfolio

Management

DecisionLeadership

Strategic Decision and Risk Management (SDRM) Program Core course

Proposed course

Elective

Advanced

Project

Management

Program

ConvertingStrategy into

Action

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2007 On-Campus Calendar

SeptemberMonday Tuesday Wednesday Thursday Friday

10 11 12 13 14

17 18 19 20 212221201918

2928272625

1514131211

FridayThursdayWednesdayTuesdayMonday

June

Pricing

• $2,495 per course

• $2,245 per course – early registration (register by 5/11/07 for June)

Decision Analysis

Advanced Decision AnalysisStrategic Decision and Risk

Management Practicum

Converting Strategy Into Action

Decision Quality In Organizations

Modeling for Strategic Insight


Converting Strategy Into Action Enterprise Risk Management

Decision Quality In Organizations Decision Analysis

CORE ELECTIVE

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To contact one of today’s speakers:

Q & A

Hannah [email protected]+1.650.475.4455

Carl [email protected]+1.650.475.4405

To learn more about the SDRM program:[email protected]

1-866-234-3380

Carissa Little [email protected]+1.650.723.0653

Bill [email protected]+1.650.280.0098

Thank you for participating in today’s eBriefing, the winner of the iPod Shuffle is…

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Upcoming Executive eBriefing

April 18, 200712:00–1:00 p.m. EDT

Enterprise Risk Management:A Value-Driven Approach

Register at: http://proed.stanford.edu/redir.asp?M8

To visit the SDRM home page: http://proed.stanford.edu/redir.asp?M9

For more information, please contact:Patty Harris, Customer Relationship ManagerToll Free +1 866 234 3380Outside the US +1 650 475 [email protected]://strategicdecisions.stanford.edu

strategic innovation - sdg - stanford university

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