Creative economy

Slide 1: ASAP Play In The Annual Confere nc e Creative Economy St. Petersburg, FL Jan. 27, 2006

Slide 2: WARM UP THOUGHTS: Read before the presentation 1. P&G used outside technology to pioneer “whitestrips” - a breakthrough, successful product; within 12 months there were over 100 competitive, teeth-strip clones & varied products. 2. What are google scenarios for local pharmacies when google allows first “local” searches for specific items, then “froogle” price comparisons (with merchant ratings)? 2

Slide 3: WARM UP THOUGHTS: (2) 3. Global, micro-manufacturers are designing, manufacturing, selling & distributing their products all over the US with 1 or 2 employees working out of their homes with broadband connection -- so what? 3

Slide 4: WARM UP THOUGHTS: (3) 4. The exponentially growing & compounding factors for: -- computing power -- connecting possibilities via the net -- bandwidth -- digital storage capacity will continue as their costs also drop exponentially. How do these affect: competition, creative problem solving, business outsourcing, business start-up costs, etc.? 4

Slide 5: WARM UP THOUGHTS: (4) 5. Your company’s future is already here, it is just unevenly distributed & understood from the micro (amongst all your employees) to the macro (amongst all innovative companies in the world). Will we see our future, understand it, accept it & run with it when it passes by? 5

Slide 6: ASAP Play In The Annual Confere nc e Creative Economy St. Petersburg, FL Jan. 27, 2006

Slide 7: QUESTIONS TO EXPLORE 1. No time for how-to, but provocative? 2. What is the “creative economy”? 3. Is it real? 4. Who’s leading the way? 5. What’s “innovation management? 6. How are the best doing it? 7. What should my firm start doing? 8. How do we learn more? 7

Slide 8: INNOVATE UP “EXPERIENCE CHAIN” Coffee: 1. By the wholesale bag 1 - 2¢/cup 2. By branded retail bag 5 - 25¢/cup 3. Served retail 75¢ - $1.50 4. Starbucks experience $2 - $5 8

Slide 9: IPOD: 7 CHANGE LEVERS Type 1. Business model negotiated more licensing solution 2. Alliances with music publishers & accessory producers 5. Performance Line of hardware 6. Product system Hardware + software + itunes + stores 8. Channel Breakthrough deal to sell music online 9. Brand Bolstered Apple’s image 10. Customer exp. iPod is cooler & more expensive 9 than MP3

Slide 10: TEN TYPES OF INNOVATION* (1) Type Description Example 1. Business How you make $ Dell’s working model capital 2. Alliances Synergize Sara Lee w/others outsourcing 3. Enabling Premium Nucor, Costco’s, process compensation UPS, FedEx, Starbucks 4. Core Add value Wal-Mart; Nike processes & Cisco *www.doblin.com 10

Slide 11: TEN TYPES OF INNOVATION* (2) Type Description Example VW Beetle 5. Product Design of old & new preference offering Microsoft Office 6. Product Link products system Singapore Airline: CAT dealers 7. Service CAT; M. Stewart 8. Channel Absolut 9. Brand Communicate tot. value prop. Harley D.; Starbucks 10. Customer 11 experience

Slide 12: GOOGLE CHANGES EVERYTHING Any fans here? Why how-to book sales have dropped? Search: “Innovation Management (987,000) [ “images” (3,600)] + article (261,000) + PDF (81,200) + ERP (619) or software (39,400) or “mature industries” (164) 12 or “service industries” (531)

Slide 13: GOOGLE + RSS + BLOGS Don’t search “innovation management”, go to blogs like: www.innovationtools.com Needle-in-haystack traffic generates real ad $ via sponsored ad’s from complimentary niche providers/partners 13

Slide 14: GOOGLE: “LOCAL (+) “FROOGLE” = ? Anyone tried “local” or “froogle”? Pharmacists’ presence for “local froogle”? Meanwhile, Help my Mom (SRs) -- buy “long-tail” wellness items (fees, commissions, package receiving) -- provide e-mail & general e-shopping services 14

Slide 15: GOOGLE OVERALL EFFECTS Advertised funding of info-solutions? Matching new, better, buyer-seller & outsourcing partners (global, micro-mfg’rs) Adds big living & dying edges to all business models (from info. perspective) Let’s all rethink our advertising & PR efforts around Google (+ RSS/Blogs) 15

Slide 16: BACK TO: “CREATIVE ECONOMY” C.E. Threats Opportunities • Mature markets • Growing, global, glut • Delight deeper needs supply; margins  • Dynamic outsourcing • Optimization done • Info2 + web2.0 • Bisociation  • Lifecycle collapse • Eroding brands Turn ad hoc, art of innovation into a continuous science; corporate habit 16

Slide 17: NOT ENOUGH “CREATIVE” (?) “National Innovation Initiative” (www.compete.org/nii/) Business Week’s Special Report issue (8/1/05) “Welcome To The Creative Economy” www.businessweek.com/innovate/index.html Many books, etc. on “creativity - innovation” Lots of agreement “talk”, but little “walk” 17

Slide 18: WHAT’S OUR INNOVATION GAP? Future Revenue Target Innovation ? Gap New products currently in pipeline Traditional mergers Revenue & acquisitions (Millions) Market expansion Base revenue Today 5 Year Target 18

Slide 19: P&G’S INNOVATION GOAL “Proctor & Gamble of 5 years ago (‘99) depended upon 8000 scientists & engineers for the vast majority of innovation. The P & G we are trying to unleash today asks all 100,000+ of us to be innovators. We’re trying to get 70% of our new technology from outside the company.” A. C. Lafley, 2004 from Fortune Magazine What culture changes to support 100% innovators? 19

Slide 20: DEFINE “INNOVATION” (“SCIENTIFICALLY”) The profitable implementation of strategic creativity. 1. Strategic: focus, novel insight, foresight 2. Creative: idea flow; many good too few great 3. Implementation: buy-in, clarity, prototypes, etc. 4. Fills real needs, price > cost = profits 20

Slide 21: ONE DEPICTION OF INNOVATION “PROCESS” Radical Generation of Ideas Innovation Generation of ideas (New Product Development-NPD) Creation Selection Execution of Value Incremental Innovation Generation of Ideas *“Fuzzy front end” (FFE) 21 *Google it under “images”

Slide 22: FFE VS. NPD NPD Fuzzy Front End Nature of work Experimental, often chaotic, Disciplined & “Eureka” movements. Can’t goal oriented schedule invention. with a plan High degree Completion date Unpredictable or uncertain of certainty Funding Variable: bootlegged; Budgeted ex-budget-strategic Increasingly Revenue Scenario guesses predictable Expectations to release date Activity Small team Multifunction Measure of Strengthened concepts Milestone Progress achievement 22

Slide 23: DON’T RUSH TO ANSWERS Generate Process & Coalesce & arrange possibilities innovate into a system & study FFE (NPD) Cook & Generation Convergence Stew 23

Slide 24: A GOOD IDEA COMES FROM A LOT 60 # of ideas Funnel down Initial screening quickly, ramp 20 Business analysis up investment Customer prototype 10 feedback 1. Adv. prototype 2. Wider cust. testing 3. Roll-out of winner 5 1 SUCCESS Time 24

Slide 25: BUT, WHAT TYPE OF “GOOD IDEAS”? 1. Sporadic, ad hoc  continuous flow 2. Unfocused  Strategic intersection of: -- core competencies -- best customer needs -- viable technology 3. Balance of: incremental next level, breakout value semi-radical radical, disruptive 25

Slide 26: WHAT MIX & PATH OF INNOVATIONS? (A) (B) Current Emerging New Semi-radical Semi-radical Radical Customer Need Next Next Level Semi-radical RISK Level Next Level (C) Due Semi-radical Diligence Current Emerging New 26 Technology Know-How

Slide 27: VALUABLE ARTISTRY? The unique strategic insight(s) for your corporate context to focus idea generation  real, unique value prop’s. How we lead and develop: -- An innovative corporate culture -- Evolving innovation mgt. system(s) -- The FFE, new concept phase 27

Slide 28: LEAD NEW CONCEPT DEVELOPMENT (FFE); NON-LINEAR, ITERATIVE (4) (5) (3) Idea Concept Idea gen. & selection definition enrichment (6) NPDP - Leadership Concept - Corp. culture capacity selection Opportunity OPP TechDo analysis identification (2) (1) 28

Slide 29: BOOK SOURCES See appendix for key concepts Making Innovation Work by Davila, et. al. Blue Ocean Strategy by Kim & Mauborgne Beyond The Core by Zook The Only Sustainable Edge by Hagel & Brown Presence by Senge, et. al. (merrifield.com’s “Innovation Mgt.” tab) 29

Slide 30: SUMMARY POINTS (1) 1. Hyper-competition (+) Web 2.0 = Creative Economy 2. “Innovation Mgt.” -- a continuous system for all thrivers by 2007 (?) 3. Lean-n-mean is antithetical to innovation 4. Harvest dying edge activity to feed living edge 30

Slide 31: SUMMARY POINTS (2) 5. Pursue “open innovation” guidelines to get best, most, unique-strategic-insights to focus all innovation activity 6. Getting to - 100% innovators habitually - is a journey -- gather a small team & start learning -- choose a chief innovation champion -- do small, quick, cheap steps consciously -- crawl, walk, run -- keep expanding the participation circle(s) 31

Slide 32: CLOSING QUOTES (1) 1. Insanity is doing the same thing over & over & expecting different results Einstein 2. A problem cannot be solved by the same consciousness that created it. Einstein 3. The future is already here. It’s just not evenly distributed yet. William Gibson 32

Slide 33: CLOSING QUOTES (2) 4. Creativity is about divergent thinking. Innovation is about convergent thinking Ikerjivo Nonaka 5. The real difficulty in changing the course of any enterprise lies not in developing new ideas, but in escaping old ones. John Maynard Keynes 6. People support what they help create. Anonymous 33

Slide 34: CLOSING QUOTES (3) 7. “Nothing is as powerful as an idea whose time has come.” Victor Hugo 8. “Never doubt that a small group of committed citizens can change the world. Indeed, it’s the only thing that ever has.” Margaret Mead 34

Slide 35: APPENDIX Highlights From Reference Books In Slide # 29 35

Slide 36: MAKING INNOVATION WORK, by Davila 1. Leading innovation 2. Integrating innovation & business strategy 3. Balancing creativity & value capture 4. Weaving innovation into the fabric of business 5. Neutralizing organizational “antibodies” 6. Building innovation networks 7. Measuring & rewarding innovation 36

Slide 37: THE SIX PRINCIPLES OF BLUE OCEAN STRATEGY (B.O.S.) Formulation principles: Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right Execution principles: Overcome key organization hurdles Build execution into strategy 37

Slide 38: THE STRATEGY CANVAS OF SOUTHWEST AIRLINES (B.O.S.) High Southwest Average Airlines Car transport Low Hub Frequent Speed Lounges Price connectivity point-to- Setting Friendly point class Meals Service departures choices 38

Slide 39: THE STRATEGY CANVAS OF CIRQUE du SOLEIL (B.O.S.) High Ringling Bros. & Barnum & Bailey Value Curve Cinque du Soleil Value Curve Smaller Regional Circuses Low Multiple Multiple Thrills Theme Animal Price productions show & danger shows Artistic Aisle arenas Fun Unique Refined music venue watching concessions Star & & dance enjoinment Performers humor 39

Slide 40: ELIMINATE-REDUCE-RAISE- CREATE GRID (B.O.S.) THE CASE OF CIRQUE DU SOLEIL Eliminate Raise Star performers Unique venue Animal shows Aisle concession sales Multiple show arenas Create Reduce Theme Fun & humor Refined environment Thrill & danger Multiple productions Artistic music & dance 40

Slide 41: VOCABULARY OF ADJACENCIES `04* Backward (B.T.C.) Local Integration Sell capability Global Forward outside expansion integration New Value New to New Chain Steps world Internet Geographies needs New Businesses New Channels New Dist. subs. New New Customer New Indirect Products Segments models Next Microsegmentation generation of current segments New to Unpenetrated Support world segments services New segments Complements 41 *Modified from Beyond The Core, Zook

Slide 42: SUCCESS DECLINES WITH DISTANCE FROM THE CORE From: Beyond The Core, Chris Zook, 2004 Core Declining odds of success Economic distance from core Diversification 42

Slide 43: CONTRASTING COMPANY PAIRS (B.T.C.) Industry Winner Fizzler UK grocery TESCO Sainsbury Wholesale drug Cardinal McKesson Mass merch. `83 Wal-Mart K-Mart Retail drug Walgreen’s Eckerd’s 43

Slide 44: COMPANY PAIR LESSONS (B.T.C.) Winners: • Organic, living edge innovation & incremental acquisitions • Deep insight of customers (un)seen needs • Stay focused, disciplined & humble Fizzlers: • Past success  cash & hubris • New CEO (from the outside)  “next big thing” • Over-reach too far from the core (Mattel & Learning Co.; Time Warner & AOL) 44

Slide 45: . . .SUSTAINABLE EDGE: GUIDELINES Multiply 3 waves (S.E.) Dynamic specialization: outsource all but # 1 essentials x Connectivity: use outside-in I.T. achieve “performance fabric” for partners x Leverage capability building new partner network -- push each other to share other partner apps. -- set stretch performance metrics Think: Nike & Cisco: (“closed”) & Li & Fung for apparel (“open”) 45

Slide 46: MORE ON DYNAMIC SPECIALIZATION (S.E.) 1. Shed all non-differentiating activities 2. New can’t afford to fail incentive 3. New can work a broader range of customers -- less legacy reseller constraints/resistance 4. Act faster 5. Partner with #1 best outsource/off-shore partners • Mfg: Celestica, Solectron, Flextronics (+) many new Asian companies • Logistics: UPA, FedEx, 3PLS, (& 3PL channel utility) 46 • Call Centers: Philippines, India

Slide 47: OUTSOURCING/OFF-SHORING EXERCISE (S.E.) I. Amount spent on doing these activities past 12 months? Versus II. Resource budget & plans for 0/0 next 12 months? 47

Slide 48: “LEVERAGE CAPABILITY” TEST (S.E.) 3rd party assessor ASKS most innovative ??? 1. Will they discuss most innovative ideas with you? 2. Why? What do they expect to happen? 3. What valuable lessons from you? 4. What gurus have they created for you? 5. Ways to improve the network for both/all sides? 6. Ways to deepen the capabilities on both sides? 48

Slide 49: PRESENCE* -- IT’S “U” 1) NOVEL INFORMATION 2) QUESTION MAPS 9) INSTITUTIONALIZING 3) SUSPENDING 4) REDIRECTING 8) PROTOTYPING “AHA” 7) CRYSTALLIZING 5) LETTING GO 6) EMERGENCE *”Presence” by Senge, Scharmer, Jaworski & Flowers. 49 SoL, Cambridge, MA See Exhibit 39 @ merrifield.com

Slide 50: # 1 NOVEL INFORMATION (Presence) Our (financial) information supply ruts? Interview the most: - Progressive customers & non-customers - Progressive suppliers & their suppliers - Supply-chain, bissociation-able consultants - Profitable & un-profitable customers Ideas = fuel for innovation Best way to a good idea is to have lots 50

Slide 51: GUIDELINES FOR INFO  IDEAS (1) (Presence) Steps 1 - 6 of the “U” all generate ideas The ones that occur between 5 & 6 are most powerful We see the world like we are; not the way it is We think in (unspoken): stereotypes, patterns, paradigms The world is changing, not the way we think/see Bad decisions due to mindsets, not quality of info Mindset shifts are key to breakthrough ideas What would we do if we couldn’t fail? 51

Slide 52: GUIDELINES FOR INFO  IDEAS (2) For novel info we must observe differently -- be open to aberrational news items -- rediscover the power of astonishment -- look at problems with eye of the artist Raise questions about questions Build a corporate, creative, suggestion/idea pipeline system Imagine & build first, judge later; try a “yes and” response instead of “yes, but. .” 52 (Presence)

Slide 53: # 2 QUESTION MAPS (Presence) How to outline living edge, new-frontier space with questions? Those with quick answers see only what their mindsets allow & have reflexive, old-paradigm conclusions First, get all of the right questions (Examples of Question Maps are at www.merrifield.com Exhibits # 30 - 33) 53

Slide 54: # 3 - 5: SUSPEND, REDIRECT, LET GO (Presence) Don’t debate, have “dialogue” (www.merrifield.com, Exhibit 6) Name, claim & challenge “groupthink” “What are your underlying facts, assumptions, etc.? (m.com, Exhibit 34) Redirecting: What are jet stream forces blowing over our business ecosystem? - Go with the bigger flow. Let go: retreat, relax, gestate, reflect to see what emerges. No quick, pragmatic 54 decisions

Slide 55: THE “AHA” MOMENT (Presence) (5) Letting - AHA - (6) Emergence: all at once; sometimes oscillates Archimedes & Newton moments Revelations, epiphanies & grace too At birth, most such ideas aren’t: seen by all “great”; need careful work welcomed by defenders of the past 55

Slide 56: # 6 & 7: EMERGENCE & CRYSTALIZATION (Presence) Initial visions have to get enough people moving Effective visions are not: made by top-down process imposed on team rooted in old ways They are: uncovered within a team process embraced by enough people 56

Slide 57: # 8: PROTOTYPING (Presence) Avoid fear of failure & analysis-paralysis, do some quick, cheap, simple experiments Fail forward toward vision; each prototype communicates our current collective understanding Without a recipe or roadmap: feel the way learn by doing stay connected to deepest inspiration sources stay with flow, let the world help 57

Slide 58: # 9: INSTITUTIONALIZING (Presence) Turn successful experiments into scalable, lasting success Lock in right governing ideas & values The corporate “Kinetic Chain*” must be un-woven & re-woven to insure total, energetic alignment. In theory, the “U” is circular *Exhibit 16 @ www.merrifield.com 58

Slide 59: Bruce Merrifield is a strategic advisor and planning facilitator who specializes in converting GroupThink to NewThink. For more on his services and published areas of expertise go to: www.merrifield.com Merrifield Consulting Chapel Hill, NC 27517 919/933-7474