Innovation - There is no other optionPresentation Transcript
Innovation – there is no option Alistair Keddie WIMRC Seminar, 27 February 2007
Grow faster than non-innovators
Are much more profitable
Sustain higher performance
( From an analysis of 500 listed companies by Geroski & Machin)
Innovation – the successful exploitation of new ideas
new products, services and processes driven by customers and markets
enabled by science, technology, design and new business practices
creates wealth, improves wellbeing, uses resources more efficiently/productively
Wealth created by companies/organisations
Measured as sales less cost of bought-in materials, components and services
Levels of Innovation Zone 3 Transformational Innovation Zone 2 Relative Innovation Innovations that build on existing products/services Taking existing products to new markets eg Dyson cleaner Carphone Warehouse Supermarket on-line shopping New concept products or services, Breakthrough value propositions and business models eg mobile phone, I-Pod, Low cost airlines, Web-based banking Zone 1 Incremental Innovation Minor product or service enhancements eg the new LandRover Discovery Coke with lemon Improved customer care
The fundamental characteristic of a modern market is not price, but innovation…….technological superiority…the best technology wins, the second best loses
Innovation is as much an attitude of mind as a scientific or practical exercise (Sir Paul Girolami, Chairman, Glaxo, 1993)
Innovation is the key to growth because it delights our customers
We are managing in chaos, and this is the right way to manage innovation…..in reaching our goals
(William Coyne, Senior Vice President R&D, 3M, 1996 )
Innovation drives profits and improves the human experience
Principles of successful innovation:
Hire the best and let them lead you, regardless of title or department
Create communities with partners, customers and business groups that allow collaboration and open innovation
Create small groups and give them autonomy – task forces, not steering committees
Allow public debate, but know when the debate should end and then move quickly to focus resources
Have the courage to make the hard decisions
Great companies and leaders pursue projects with dramatic potential
Innovation is a messy business
(Jonathan Schwartz, CEO and President, Sun Microsystems, 2006)
Global Pressures - Examples
Exports of manufactured goods from developing countries:
2005: 25% 2025: 50%
Graduates produced per year:
2 million in both China and India
Growth in R&D investment:
15% per year in Singapore
Global R&D Growth Rates, 2000 – 2005 (From Booz Allen Hamilton, 2006)
Value Added by Knowledge Based Services and Industries Finance, insurance, other business services, community, social and personal services G7 comparison, 2000 Per cent of total value added 0 10 20 30 40 50 Germany UK France Japan US Canada Italy Communication services High and medium-high technology Source: OECD
DTI Innovation Report: Economic Message
UK Businesses will only achieve long-term success in global markets by focusing on greater value added as their competitive edge.
Innovation is the key to achieving this.
Businesses need to keep innovating to stay ahead of the competition.
UK innovation performance accounts for significant part of productivity gap
Weaknesses in innovation and productivity performance affect all sectors
Need more innovation in business and a larger number of innovative businesses – more high value added activity
Government has significant role to play by influencing behaviour of business and other participants in the innovation system
DTI Innovation Report: Key Conclusions
Capacity to absorb and adapt new knowledge Competition & entrepreneurs Networks & collaboration Regulatory environment Access to finance Sources of new knowledge Innovation Customers Suppliers Critical Success Factors
Influences Activities Value Added Productivity Economic Growth Employment Environmental Quality Health Public goods and services Knowledge
Public Policy Context for Business Innovation Business innovation
Building blocks of innovation: a supportive climate
Education, training and skills
Science and technology
Physical and IT infrastructure
Advice and Support:
Help for accessing
R&D Tax Credits
Intellectual property framework
National Measurement System
Characteristics of Innovative Businesses
An innovation culture with corporate leadership that expects growth through development of new products and services.
A worldwide focus, often requiring early expansion overseas.
A balanced growth strategy, with a majority of organic growth and targeted acquisitions to enter new markets or acquire critical expertise.
A focus on what really matters to the customer.
Above average investment in market-led research and development.
Above average investment in physical and business processes
Sources: DTI analysis of company reports to compile Value Added and R&D Scoreboards, reporting on the performance of major UK and European companies. The analysis has identified successful companies that invest heavily in innovation.
Innovation and R&D
R&D is only one measure of innovation performance
R&D is a measure of technological innovation; it does not capture non-technological aspects
R&D accounts for about 40% of all investment in innovation
R&D intensity (R&D/Sales) is a key benchmark of company investment in R&D, especially in R&D intensive sectors
But a low R&D intensity does not necessarily mean a firm/sector does not innovate, or does not generate substantial value added
R&D Performance of UK Based Firms
Within any sector UK based firms have similar R&D intensities to their competitors in the same sector
But the UK has relatively few large firms and low economic activity in some high R&D intensive sectors
Hence overall UK business R&D investment is below that of major competitors – in terms of R&D intensity (R&D/Sales), 1.8% for the UK compared with 2.6% for France, 3.80% for Japan and over 4.0% for Germany and the USA
Challenge: More Business R&D in the UK
Government wants to see total UK R&D (business and public) increase in real terms from £22.5 billion per year (1.9% of GDP) to £39 billion (2.5%) between 2004 and 2014
Business share of this would increase by £12 billion per year, from £14.5 billion to £26.5 billion
How realistic is the ambition?
What are the options for achieving it?
Is there a better alternative to simply focusing on R&D ?
Grouping of Sectors by R&D Intensity
Group 1. High intensity ( 5.0% or greater). Pharmaceuticals & biotechnology and health; some chemistry-based sectors.
Group 2. High intensity (5.0% or greater). Electronics and IT which include electronics & electrical, IT hardware and software & computer services.
Group 3. Medium intensity (2.5% to 4.9%). Engineering and chemicals. This group includes aerospace, automotive and chemicals.
Group 4. L ow intensity (1.1% to 2.4%). Includes beverages, food producers and telecomms.
Group 5. V ery low intensity (up to 1%). Includes construction, oil & gas, mining and utilities.
Performance of High-Leverage Innovators (From Booz Allen Hamilton, 2006)
High–Leverage Innovators: Geographical Distribution (From Booz Allen Hamilton, 2006)
Examples of High-Leverage Innovators (From Booz Allen Hamilton, 2006)
Apple Computer, Black & Decker, Caterpillar, Dell, Exxon Mobile, Google, Kellog, Par Pharmaceutical, Research in Motion, SanDisk, St Jude Medicical, Symantec, Yahoo
Adidas, Cadbury Schweppes, Christian Dior, Volvo
Casio Computer, Kobe Steel, Komatsu, Konica Minolta, Toyota Motor
Rest of World
AU Optronics, Hen Hai Precision Industry, Hyundai Motor, Mediatek, Petrobas, Samsung Electronics, Tata Motors, Teva Pharmaceutical Industries
Case Study: Grippel, Sheffield
Product: spring loaded wire tensor
Markets: agriculture, electrical and lighting
30% growth per annum
6.7% of revenues re-invested
27 stock turns per year
24 hour delivery
1.2% labour costs, reduced from 40% in 1989
146 employees, 86% are shareholders
All involved in continuous product and process improvement
7% of time on training
Fun place to work
“ We don’t want to manufacture because you end up running the plant rather than running the business”
(Tony Moloney, Co-founder, Anthony Allan Foods/WeightWatchers, 2007)
A final quote
“ He that will not apply new remedies must expect new evils; for time is the great innovator”
(Francis Bacon, Essay on Innovation, 1625)
Can successful innovation be managed?
Does the best technology always win?
Is the Government objective of increasing UK R&D investment from 1.9% to 2.5% of GDP by 2014 realistic?
Do the most successful business models exclude manufacturing?
How long can the low wage advantage of emerging economies last?
Geroski and Machin, Business Strategy Review, Summer 1992, pp 79-90
DTI Innovation Report, Competing in the global economy: the innovation challenge, December 2003
DTI Economics Paper No 11, R&D Intensive Businesses in the UK, March 2005
The 2006 R&D Scoreboard, Commentary and Analysis – Part 1, DTI and Company Reporting Ltd, October 2006
The 2006 Value Added Scoreboard, Commentary and Analysis – Part 1, DTI and Company Reporting Ltd, July 2005
The Global Innovation 1000, Booz Allen Hamilton, Special Report, 2006