Intellectual Property and Innovation Management The Biggest Opportunity For Differentiation March 2009

Why We’re Here Discuss intellectual property and innovation – what are they? Measures innovation Explore the innovation management process Global Innovation Success Factors - Mastering the Three Cs Five Innovation Strategies every CTO should invest in

Discuss intellectual property and innovation – what are they?

Measures innovation

Explore the innovation management process

Global Innovation Success Factors - Mastering the Three Cs

Five Innovation Strategies every CTO should invest in

Business Climate Impacts How We Build and Manage Software Products Disruptive forces: consolidation, new technology, new business models, global markets The cost and complexity of Innovation processes put pressure on productivity Increasing importance of R&D investment and the pressure to leverage it more effectively Regional talent shortages Global economic crisis and recession Rapid emergence of expertise and mature partners in India and China Customers demanding more from vendors Intensifying competition and shorter development cycles What role does globalization play in generating more value from R&D and product development investments?

Disruptive forces: consolidation, new technology, new business models, global markets

The cost and complexity of Innovation processes put pressure on productivity

Increasing importance of R&D investment and the pressure to leverage it more effectively

Regional talent shortages

Global economic crisis and recession

Rapid emergence of expertise and mature partners in India and China

Customers demanding more from vendors

Intensifying competition and shorter development cycles

R&D Goes Global Number of companies with R&D functions outside HQ country is increasing Today—65% Predicted in three years—84% Best overall overseas locations for R&D? Source: The Economist Intelligence Unit

Number of companies with R&D functions outside HQ country is increasing

Today—65%

Predicted in three years—84%

An Upswing in Global R&D, Engineering and Development Source: Duke University / Booz Allen Hamilton Offshoring Research Network Survey Procurement Product Development Finance/ Accounting Marketing & Sales IT Call Centers/ Help Desk Engineering Services R&D Offshoring Growth Rates Increasing in Innovation-centered Functions % Growth Based on New Implementations in 2006 56% 50% 50% 48% 43% 43% 40% 38%

Access to Global Talent is a Key Driver for R&D and Engineering Functions Source: Duke University / Booz Allen Hamilton Offshoring Research Network Survey Product Design Engineering, R&D Administrative Back Office (BPO) IT Call Centers Procurement “ Access to Qualified Personnel” as a Driver of Offshoring is Most Significant for Innovation-centered Functions % of Responses “important or very Important 74% 71% 67% 66% 45%

Logic of Innovation and R&D is Changing The footprints of research and development have become more international and dispersed, moving from closed to open innovation Companies are globally expanding to access potential new markets High levels of internal R&D investment are no guarantee of success R&D Internationalize drivers have been changing in response to increasing dispersion of knowledge Technology-focused innovation is becoming commoditized The rapid economic emergence of India and China Sustained competitive advantage does not come from just productivity or inventiveness These changes have a significant impact on the set of organizational capabilities needed to manage and obtain value from innovation

The footprints of research and development have become more international and dispersed, moving from closed to open innovation

Companies are globally expanding to access potential new markets

High levels of internal R&D investment are no guarantee of success

R&D Internationalize drivers have been changing in response to increasing dispersion of knowledge

Technology-focused innovation is becoming commoditized

The rapid economic emergence of India and China

Sustained competitive advantage does not come from just productivity or inventiveness

How Software Vendor Customers View Innovation How business and IT executives define innovation: Better integration and usability, more so than whiz-bang features What business users want: More innovative software faster, they’ll bypass IT to get it Innovation cited most often, then specific innovations: SaaS SOA Open Source 55% think innovation is on the upswing in software industry Which developments in the software industry are most important to businesses? Source: McKinsey / Sand Hill Survey of Software Customer Executives

How business and IT executives define innovation:

Better integration and usability, more so than whiz-bang features

What business users want:

More innovative software faster, they’ll bypass IT to get it

Innovation cited most often, then specific innovations:

SaaS

SOA

Open Source

55% think innovation is on the upswing in software industry

A Shortage in the U.S. Talent Pool xx

What is Innovation? Do We Have a Common View of the Value? No single definition “ Innovation is the process whereby ideas for new (or improved) products, processes or services are developed and commercialized in the marketplace. The process of innovation affects the whole business – not just specific products, services or technologies.” “ Innovation – A new idea, method or device. The act of creating a new product or process. The act includes invention as well as the work required to bring a new idea or concept into final form.” PDMA – Handbook of New Product Development Broader look “ Sustainable competitive advantage has never come only from productivity or inventiveness. Today, more than ever, the premium comes from the fusion of invention and insight into how to transform how things are done. Real innovation is about more than the simple creation and launching of new products.” Samuel Palsmisano “ If you assume innovation is merely a synonym for new products, think again. What about strategy innovation, such as entering new markets with your existing products? What about supply chain innovations? What about value-adding service enhancements that allow real time responsiveness, make the customer’s life easier, and otherwise take on the customer’s problems in ways the competition is unable or unwilling to do? Such strategy innovations are a bold new frontier that many firms have never pursued.” Robert Tucker Net: No clear definition, so let’s define our own!

No single definition

“ Innovation is the process whereby ideas for new (or improved) products, processes or services are developed and commercialized in the marketplace. The process of innovation affects the whole business – not just specific products, services or technologies.”

“ Innovation – A new idea, method or device. The act of creating a new product or process. The act includes invention as well as the work required to bring a new idea or concept into final form.” PDMA – Handbook of New Product Development

Broader look

“ Sustainable competitive advantage has never come only from productivity or inventiveness. Today, more than ever, the premium comes from the fusion of invention and insight into how to transform how things are done. Real innovation is about more than the simple creation and launching of new products.” Samuel Palsmisano

“ If you assume innovation is merely a synonym for new products, think again. What about strategy innovation, such as entering new markets with your existing products? What about supply chain innovations? What about value-adding service enhancements that allow real time responsiveness, make the customer’s life easier, and otherwise take on the customer’s problems in ways the competition is unable or unwilling to do? Such strategy innovations are a bold new frontier that many firms have never pursued.” Robert Tucker

in • no • va • tion The successful implementation of an invention or idea that adds sustained value that can be measured in the form of new revenue and more profit culminating in increased valuations.

The successful implementation of an invention or idea that adds sustained value that can be measured in the form of new revenue and more profit culminating in increased valuations.

Innovation. Too Important to be Left to Chance Innovation doesn’t just happen Transitioning an invention into an innovation doesn’t always succeed Inventions can happen by accident, but the resulting innovation does not Innovation is influenced by a variety of factors and obstacles Organizational structures, project team dynamics, strategic decision-making, technological and market events, culture Lack of shared context, turf battles, sub optimized partnerships, guarding of personal trade secrets and fear of sharing IP, fear of irrelevant innovations Managed Innovation seems counter intuitive but it is critical The systematic elimination of obstacles to enable full exploitation of innovation. Successful innovation is a managed process Innovation never ‘just happens’. Add a 10,000 mile difference to the equation and you’ll need some real structure.

Innovation doesn’t just happen

Transitioning an invention into an innovation doesn’t always succeed

Inventions can happen by accident, but the resulting innovation does not

Innovation is influenced by a variety of factors and obstacles

Organizational structures, project team dynamics, strategic decision-making, technological and market events, culture

Lack of shared context, turf battles, sub optimized partnerships, guarding of personal trade secrets and fear of sharing IP, fear of irrelevant innovations

Managed Innovation seems counter intuitive but it is critical

The systematic elimination of obstacles to enable full exploitation of innovation. Successful innovation is a managed process

Innovation Drives Profitable Growth Innovation is directly related to profitable growth, both for you and our clients Profitable growth is ensured with a repeatable pattern of innovation and execution with operational excellence “ Our research also suggests that a company that generates 80% of its revenue from new products, typically doubles its market capitalization in a 5 year period. Innovation is therefore confirmed as a lever of growth and value creation.” Source: PricewaterhouseCoopers – “ Innovation and Growth: a Global Perspective”

Innovation is directly related to profitable growth, both for you and our clients

Profitable growth is ensured with a repeatable pattern of innovation and execution with operational excellence

Continuing Importance of Innovation Disruptive forces: consolidation, new technology, new business models, globalization Cost and complexity of the Innovation process put pressure on productivity Increasing importance of R&D investment and the pressure to leverage it more effectively Regional talent shortages Rapid emergence of expertise and mature partners in India and China The rise of the customer — at the center of it all Intensifying competition and shorter development cycles Innovation is non-linear — opportunities can move forward or backward It’s about generating more value from ideas and inventions and many current factors are making it more important than ever

Disruptive forces: consolidation, new technology, new business models, globalization

Cost and complexity of the Innovation process put pressure on productivity

Increasing importance of R&D investment and the pressure to leverage it more effectively

Regional talent shortages

Rapid emergence of expertise and mature partners in India and China

The rise of the customer — at the center of it all

Intensifying competition and shorter development cycles

Innovation is non-linear — opportunities can move forward or backward

Innovation & Globalization: Yin and Yang Innovation and globalization are both complementary and opposing Putting them in harmony requires mastery of collaboration, culture and common processes in a global environment

Innovation and globalization are both complementary and opposing

Putting them in harmony requires mastery of collaboration, culture and common processes in a global environment

Factors Eroding Current Innovation Model Availability of talents Increasing availability and mobility of skilled workers Universities are producing talented professionals around the world “ Learning by hiring”–Cannot count on best talents to be around Capability of external suppliers External suppliers can increasingly offer solutions of equal or superior quality to in-house development On one hand drives focusing of R&D investment On the other hand, drives competition by leveling the playing field Ideas getting off the shelf Talented professionals are finding VC funding to commercializing ideas on the shelf Faster product cycles and external options for commercialization are driving innovations to the market faster Ideas put on the shelf are losing their value faster Venture capital Venture capital funded start-ups are a significant source of innovation Start-ups offer attractive risk/reward schemes for top talents

Availability of talents

Increasing availability and mobility of skilled workers

Universities are producing talented professionals around the world

“ Learning by hiring”–Cannot count on best talents to be around

Capability of external suppliers

External suppliers can increasingly offer solutions of equal or superior quality to in-house development

On one hand drives focusing of R&D investment

On the other hand, drives competition by leveling the playing field

Ideas getting off the shelf

Talented professionals are finding VC funding to commercializing ideas on the shelf

Faster product cycles and external options for commercialization are driving innovations to the market faster

Ideas put on the shelf are losing their value faster

Venture capital

Venture capital funded start-ups are a significant source of innovation

Start-ups offer attractive risk/reward schemes for top talents

Formula for innovation “ Successful organizations are typically rich in ideas, embody a culture where innovation is a core capability, and embrace new, unusual ways of fostering innovation. In contrast, poorly performing businesses rely on 'the next big thing'. If it doesn't arrive, they have little else with which to deliver value or revenue growth.” Source: PricewaterhouseCoopers – “ Innovation and Growth: a Global Perspective” ideas action innovation

Innovation Dimensions Products Innovations in products are the most visible, especially software-related examples such as relationship management, customer management, etc. Basic development technology These innovations relate to how software and services are made Services Service innovation is obviously critical for us and many of our clients. For example, implementation, configuration, and migration Customer experience While it is closely related to both products and services, the total integrated customer service offers many opportunities for innovation It is often how the customer experiences the full range of “touch points” with our company that differentiate us from our competitors Business processes Innovation in business processes that are not visible to the customer are often a source of significant market differentiation Business model or design In some instances, innovation affects a broad enough range of business dimensions (supply chain management, product/service design, production, sales and marketing, distribution, pricing, etc.)

Products

Innovations in products are the most visible, especially software-related examples such as relationship management, customer management, etc.

Basic development technology

These innovations relate to how software and services are made

Services

Service innovation is obviously critical for us and many of our clients. For example, implementation, configuration, and migration

Customer experience

While it is closely related to both products and services, the total integrated customer service offers many opportunities for innovation

It is often how the customer experiences the full range of “touch points” with our company that differentiate us from our competitors

Business processes

Innovation in business processes that are not visible to the customer are often a source of significant market differentiation

Business model or design

In some instances, innovation affects a broad enough range of business dimensions (supply chain management, product/service design, production, sales and marketing, distribution, pricing, etc.)

Necessary Characteristics (1/2) Part of World Class Performance Innovation is a critical component of being a world class outsourcer of research and development Innovation at the GOC level is not enough to differentiate in today’s markets Linked to Higher Growth and Profitability Innovative companies consistently outperform their less innovative competitors in terms of sales growth and profitability Not Just Products and Technology Innovation needs to be understood in a broad context – it is about innovation in all aspects of both our clients and the outsourcing value chain (processes, services, methods, management practices, strategy and business design, not just products and technology) Driven By Strategy The role innovation driven by our strategic focus for product development and engineering services outsourcing; that is, our desired positioning and differentiation; and targeted customer segments A Continuum The “innovation continuum” runs from client or corporate oriented and incremental process improvements to radically new business designs; innovate at every stage of the product development and engineering services value chain We need to make choices about how much resources it will focus on which part of the continuum

Part of World Class Performance

Innovation is a critical component of being a world class outsourcer of research and development

Innovation at the GOC level is not enough to differentiate in today’s markets

Linked to Higher Growth and Profitability

Innovative companies consistently outperform their less innovative competitors in terms of sales growth and profitability

Not Just Products and Technology

Innovation needs to be understood in a broad context – it is about innovation in all aspects of both our clients and the outsourcing value chain (processes, services, methods, management practices, strategy and business design, not just products and technology)

Driven By Strategy

The role innovation driven by our strategic focus for product development and engineering services outsourcing; that is, our desired positioning and differentiation; and targeted customer segments

A Continuum

The “innovation continuum” runs from client or corporate oriented and incremental process improvements to radically new business designs; innovate at every stage of the product development and engineering services value chain

We need to make choices about how much resources it will focus on which part of the continuum

Necessary Characteristics (2/2) Partnerships Extended value net to include academic research, venture capital, strategic business, and customers Requires Process Discipline Innovation is a skill, not an art, and requires the same level of rigorous process discipline as product development and engineering services Process stability and capability is possible with innovation; It just requires focus, commitment and hard work Supported By Culture and Leadership Innovation needs to be supported by a complementary organizational culture of creativity; communication; and risk taking Innovation needs to be strategically driven from the very top of the organization, but tactically executed by every person in the company There Is No “Right Way” We need to develop own customized approach to innovation There are many tools, but no “one size fits all” formula to follow

Partnerships

Extended value net to include academic research, venture capital, strategic business, and customers

Requires Process Discipline

Innovation is a skill, not an art, and requires the same level of rigorous process discipline as product development and engineering services

Process stability and capability is possible with innovation; It just requires focus, commitment and hard work

Supported By Culture and Leadership

Innovation needs to be supported by a complementary organizational culture of creativity; communication; and risk taking

Innovation needs to be strategically driven from the very top of the organization, but tactically executed by every person in the company

There Is No “Right Way”

We need to develop own customized approach to innovation

There are many tools, but no “one size fits all” formula to follow

Five Strategies Every CTO Should Invest In Create an innovation vision The first step is to create a vision for innovation that is directly linked to our overall business strategy. It requires us to be clear about the role of innovation at Symphony and how innovation supports our desired long-term market positioning and growth Create an innovation culture The work of creating an innovation culture is akin to creating any other kind of culture in a company It requires a clear set of principles; modeling by leadership; communication and reward systems. Create the innovation processes This is the “guts” of our innovation system – the development of disciplined business processes whose intent is to create a reliable stream of innovations for our clients and us The four core processes include: identifying innovation opportunities; managing the portfolio of innovation projects; designing and developing new products and services; and launching new products and services Create innovation structures Our innovation processes need to be supported by organizational structures and other support systems (for instance, information technology; training; team structures) Measuring innovation results We will understand what we measure and get what we reward

Create an innovation vision

The first step is to create a vision for innovation that is directly linked to our overall business strategy. It requires us to be clear about the role of innovation at Symphony and how innovation supports our desired long-term market positioning and growth

Create an innovation culture

The work of creating an innovation culture is akin to creating any other kind of culture in a company

It requires a clear set of principles; modeling by leadership; communication and reward systems.

Create the innovation processes

This is the “guts” of our innovation system – the development of disciplined business processes whose intent is to create a reliable stream of innovations for our clients and us

The four core processes include: identifying innovation opportunities; managing the portfolio of innovation projects; designing and developing new products and services; and launching new products and services

Create innovation structures

Our innovation processes need to be supported by organizational structures and other support systems (for instance, information technology; training; team structures)

Measuring innovation results

We will understand what we measure and get what we reward

Global Innovation Success Factors Mastering the Three Cs Common Innovation Processes The systematic elimination of obstacles to enable full exploitation of innovation to achieve business results with distinct measures and metrics. . in • no • va • tion Inventions that are implemented to realize measurable value. Culture of Innovation Recognizing and managing cultural characteristics so they don’t interfere with outcomes. Bringing clarity on aspects that should be embraced, rewarded and establishing norms. Collaboration and Context Getting teams to a seamless level of operation so you can co-create whenever, where ever.

A Culture of Innovation—Breadth and Depth Mine Ideas Across the PDLC Ideas Pipeline for each Client Innovation Metrics part of Governance Sustain Organizational Engagement Innovation Resource Center Innovation Council program management Innovation Mentors: Nurture ideation, support implementation Innovation Rating Points and Awards: Spot, Quarterly, Annually Volume, Intensity, Quality Discovery Rewards Ideation Sustaining Cycle Communicate Client IP Contributions Showcase Innovators Implementation and value tracking Document: Patents, White Papers

Mine Ideas Across the PDLC

Ideas Pipeline for each Client

Innovation Metrics part of Governance

Sustain Organizational Engagement

Innovation Resource Center

Innovation Council program management

Innovation Mentors:

Nurture ideation, support implementation

Innovation Rating Points and Awards:

Spot, Quarterly, Annually

Volume, Intensity, Quality

Communicate

Client IP Contributions

Showcase Innovators

Implementation and value tracking

Document: Patents, White Papers

Extending Innovation to Clients Innovation Teams Innovation Labs Innovation Councils A small core team within the operating centers dedicated to coming up with innovative ideas that when implemented further differentiate the client’s product or spin off into new products. A dedicated ecosystem where teams use common processes to innovate across the product lifecycle to more rapidly close the gap between the promise of technology and the market. Joint team to champion common innovation processes, metrics, foster collaboration and track progress. Key task is setting context for innovating by bringing competitive view and insight into customer pain.

Client Innovation Labs

How it Works—Ideation Example Process Global Agile delivery model for ideation Backlog driven by Client CTO 2 to 3 week sprint cycles deliver: rapid prototyping multiple views for potential solutions continuous sustaining, incremental Innovation Multiple ideas developed in parallel leverage: The team and technology Lessons learned Investments Domain expertise Benefits Validate requirements, investment, and customer deliverable without disrupting main stream engineering Reduce risk of developing the wrong or incomplete solution Reduce time to product/feature realization Enhance product management insight A dedicated environment of specialized hardware and software where innovation teams apply discovery techniques to rapidly identify solutions.

Process

Global Agile delivery model for ideation

Backlog driven by Client CTO

2 to 3 week sprint cycles deliver:

rapid prototyping

multiple views for potential solutions

continuous sustaining, incremental Innovation

Multiple ideas developed in parallel leverage:

The team and technology

Lessons learned

Investments

Domain expertise

Benefits

Validate requirements, investment, and customer deliverable without disrupting main stream engineering

Reduce risk of developing the wrong or incomplete solution

Reduce time to product/feature realization

Enhance product management insight

Innovation Development Funnel Stage-gate Model synchronized with Client’s product management lifecycle Incremental improvement of ideas Increased transparency in complete ideation lifecycle Increases commercial grade certainty Ideation process is a living pipeline Idea generation through envisioning to create healthy innovation pipelines Failure is an option, learning required Replace projects outside expectation Portfolio management approach: Solve problems, Exploit technology Create new market opportunities

Stage-gate Model synchronized with Client’s product management lifecycle

Incremental improvement of ideas

Increased transparency in complete ideation lifecycle

Increases commercial grade certainty

Ideation process is a living pipeline

Idea generation through envisioning to create healthy innovation pipelines

Failure is an option, learning required

Replace projects outside expectation

Portfolio management approach:

Solve problems,

Exploit technology

Create new market opportunities

Logic of the new Open Innovation Open Innovation is not about … but about Open access to client technology Outsourced R&D Technology only Technical invention Appropriating value New ventures Partnerships only Cutting R&D Cost Strategic intellectual property rights management Strategic R&D Both technology and business models Commercial innovation Win-win partnerships Core product development processes Innovation ecosystems Improving R&D performance and ROI Good ideas are widely distributed; no one has a monopoly First to discover is neither sufficient nor necessary for commercial success A better business model beats a better technology IP is perishable asset; customers or markets don’t wait

Open Innovation is not about

… but about

Open access to client technology

Outsourced R&D

Technology only

Technical invention

Appropriating value

New ventures

Partnerships only

Cutting R&D Cost

Strategic intellectual property rights management

Strategic R&D

Both technology and business models

Commercial innovation

Win-win partnerships

Core product development processes

Innovation ecosystems

Improving R&D performance and ROI

Summary R&D and Innovation are not same Companies are looking to not only outsource engineering, but innovation as well Traditional outsourcing breaks the innovation model 5 primary strategies for innovation 3 C’s of innovation Innovation Labs

R&D and Innovation are not same

Companies are looking to not only outsource engineering, but innovation as well

Traditional outsourcing breaks the innovation model

5 primary strategies for innovation

3 C’s of innovation

Innovation Labs

Comprehensive Product Engineering Services Commercial- Grade Software Complete short- and long-term Product Development Lifecycle capabilities Strategic Consulting Experts providing clients with strategic, operational, and technical guidance Embedded Systems and Software Complete short- and long-term Product Development Lifecycle capabilities

Symphony Services – Credentials Exceptional Delivery Record Commercial Software Engineering DNA & Focus More than 100 clients More than 300 products under management Delivered more than 1,000 product releases in 2007 Top-notch Staff and Quality Standards World-class talent with more than 3,500 employees Process maturity rated at CMMI Level 4 6 Sigma process proficiency Strong IP Protection: ISO 27001 certified Certified Agile Development personnel Approximately 600,000 sq ft across 6 delivery centers Unparalleled Productivity Comparable to “most effective center” 90-200% Majority of clients 1:1 or better in 6-9 months Process, focus, technology and monitoring

Exceptional Delivery Record

Commercial Software Engineering DNA & Focus

More than 100 clients

More than 300 products under management

Delivered more than 1,000 product releases in 2007

Top-notch Staff and Quality Standards

World-class talent with more than 3,500 employees

Process maturity rated at CMMI Level 4

6 Sigma process proficiency

Strong IP Protection: ISO 27001 certified

Certified Agile Development personnel

Approximately 600,000 sq ft across 6 delivery centers

Unparalleled Productivity

Comparable to “most effective center” 90-200%

Majority of clients 1:1 or better in 6-9 months

Process, focus, technology and monitoring

Questions Dr. Jerry A. Smith CTO Phone: 781.547.3667 Fax: 781.890.1793 Mobile: 484.467.4959 E-mail: jsmith@symphonysv.com 1100 Winter Street, Suite 2300 Waltham, MA 02451