Only 62 companies have appeared on the list of America's biggest corporations, ranked by revenue, every year since this magazine began publishing it in 1955. Another 1,952 have come and gone. Just in the past two years, admittedly more volatile than most, 71 companies dropped off the 500. Among them: Anheuser-Busch (BUD), Bear Stearns, Circuit City, Lehman Bros., Merrill Lynch (MER), and Tribune. Source: The Fortune 500 Fallen Angels, CNN Money, Fortune, Oct. 21, 2010In 2010, Out of Fortune 25, 1980 2010 only 6 remained; from 2000 2010 only 18 remainedThe Living Company, Arie De Geus: Avg. life expectancy of all firms….12.5 years. I know of no reason to believe that the situation in the U.S. is materially better. There is something unnatural about the high corporate mortality rate.The oldest public companies are 700 (Stora in Sweden) and 400 (Sumitomo in Japan) years old.No living species has such a large gap between its maximum life expectancy and its average life expectancy. Moreover, few other types of organizations – churches, armies, governments, universities – seem to have the poor statistics of the corporate life form. The implications of a short life-span are truly depressing.The damage is not merely a matter of shifts in the fortunes of a few firms but in most cases, it completely disrupts work lives, communities, and economies. Then the question becomes, how can firms last longer?
The research of Samuel Arbesman: Using a data set of empires that spans over 3000 years he shows that the average lifetime of an empire is 215 years…. This includes the Babylonian, Phrygian, Lydian, …. It has been 223 years since the ratification of the US Constitution.
2005 Booz Allen Study
JAY RAO_1 Innovation: Key to Organic Growth
Innovation: Key to Organic Growth Jay Rao Professor Babson
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……2
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 Journey5
The structure of a mature industry MONKEY 3% 3% 4% 10% 35% 10% GORILLACHIMP 35% Source: Moore
All Firms Die! Number of Firms in the U.S. Typewriter Industry Number of Firms in the U.S. Automobile Industry 75 Entry 70Number of Firms Exit 65 Total 50% of U.S. products in 60 all-steel closed body 80% of U.S. products in 55 all-steel closed body 50 45 Entry Number of Firms 40 Years (1874 to 1936) Exit 35 Total Number of Firms in the U.S. Picture Tube Producers 90 30 80 25 70 EntryNumber of Firms 60 20 Exit 50 Total 15 40 10 30 20 5 10 0 0 1900 1910 1920 1930 1940 1950 1960 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 Years (1949 to 1970) Years (1900 to 1960) Source: Mastering the Dynamics of Innovation, Uttberback 9
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 Apple1997 Fuji has 17% market share of U.S. film2005 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 share2012 Files for bankruptcy
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! Average life expectancy ofThe average life span of a Only 16% of firms listed all firms, regardless ofMultinational Fortune 500 on the 1957 S&P 500 size, in Japan and much offirm is around 45 years remained on the 2007 list Europe, is only 12.5 yearsOut of the top Fortune 25 Of the top 500 firms inin 2010, only 18 remained the U.S. in 1980, only 202 1/3rd of the Fortunefrom the year 2000 and had survived by the year 500 listed in 1970,only 6 from the year 1980. 2000. had disappeared by 1983 – acquired, The firms on the original 1920s U.S. S&P 90 list stayed merged or broken to there for an average of 65 years. By 1998, the average pieces. 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 EUfirms by market cap. The equivalent number in U.S. in 22%. Source: Fortune, S&P, and others
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 Year18 years 14 years 12 years 12 years 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… 75% of all new products launchedMore than 90% of all by established firms fail to makeInnovations that were profit. Most are yanked/killedsuccessful started off in without shaping & developing themthe wrong direction Given more money & time, Most new innovations firms are known to pursue are started with the wrong strategies for a access to no credit in longer period of time. 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 Sources: Innosight; Amar Bhide; Barton
2008 McKinsey Study Highlights CEOs and Executives are frustrated with their Overall dissatisfaction efforts to jumpstart with dismal outcomes of Innovation initiatives Innovation programs Resources and Processes Unanimous agreement that are applied are either (94%) that people andunderutilized or not achieving corporate culture arescale to have a financial impact the most important drivers of innovation Mimicking and Benchmarking best practices have been ineffective 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 is a Discipline.Unconscious Incompetence Knowledge Conscious Incompetence Practice Conscious Competence DisciplineUnconscious Competence
Innovation = Long + Long Lewis Carroll’s Alice in Wonderland • 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 dont much care where…” • Cheshire Cat: – "Then it doesnt 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.” Source: Prof. Thornberry46