Collaborating for innovation 2010

Collaborating for InnovationCapgemini’s 2010 Global Study – Results and FindingsOctober 2010

Agenda Collaborating for Innovation – About The Study Key Findings Recommendations

About the StudyIn this edition of “Collaborating for Innovation” the goal was to draw executive attention to currentstrengths and improvement opportunities, relating to the process of innovation, focusing on fouroverarching aspects of the innovative company: The consequences of changing corporate/strategic imperatives upon innovation as a lever for growth The changing structure and operation of the R&D function and its impact on corporate success The embedding of innovation as a culture underpinning an organization beyond the R&D function and across the value chain, including customers and suppliers The drivers and obstacles for integrating these “external” parties in various stages of the innovation process

Study Methodology and Respondent Profile The study was carried out by a professional market research agency, using a web-based survey, comprising 41 questions focused on Corporate Strategy, Innovation Performance, and Collaboration with the R&D function, Customers and Suppliers Industry Representation among Survey Respondents  Invitations to participate were sent to board-level and senior executives, as well as middle managers closely Automotive, Aerospace & involved with, or responsible for, Innovation, Product Industrial Defense Development, Manufacturing, Sales, Marketing and Products 12% Customer Service. We approached a range of potential 23% participants including, but not exclusively, existing Capgemini clients around the world  We collected responses from 189 participants from companies based in 15 countries, with the respondent distribution of 38% from companies headquartered in 42% North America, 39% from Europe, 11% China and 23% North East Asia, 7% Indian and South East Asia, and 5% from Australasia Central/South America and High Tech Consumer Africa/Middle East Products & Retail

Agenda Emerging Multinationals – About The Study Key Findings Recommendations

Overall Key FindingsOur research indicates that manufacturing companies have improved in their ability andconfidence to develop, produce, promote and measure innovation from strategy and thenthroughout the value chain: Innovation is increasingly integrated into corporate strategy An integrated innovation performance measurement system is essential R&D collaboration is key for top-line growth in global markets Customer collaboration is more than collecting customer insights – it’s about capitalizing on them Supplier collaboration needs to shift from cost reduction to shared value creation

Corporate Strategy 1/3• Innovation appears to have become an integral part of corporate growth strategy and increasingly is embedded in other functions beyond the R&D division, representing an evolving approach Alignment of Strategic Approach to Innovation with Growth Strategies 100% 6% 7% 10% 10% 17% 44% 59% 36% 56% Completely aligned in all aspects 67% Closely aligned Somewhat aligned Not aligned 50% 45% 34% 33% 23% 0% 2% 1% Automotive, Industrial High Tech Consumer Total Aerospace & Products Products & Retail Defense

Corporate Strategy 2/3 This, together with increasing C-level involvement and growing external pressure from globalization, has led companies to look at it as an important lever to improve business performance, in addition to the more traditional role of bringing new products to market Effectiveness of C-Level or Executive-Level Sponsorship and Support for Innovation Projects 100% 14% 10% 13% 13% 22% 46% Complete and effective support 50% 65% Good support 73% 73% Some support No support 37% 22% 19% 11% 13% 6% 2% 7% 1% 3% Automotive, Industrial High Tech Consumer Total Aerospace & Products Products & Retail Defense

Corporate Strategy 3/3 Compared with our 2008 survey, the role of Marketing & Sales as the primary driver for innovation has been strengthened, which reflects the tendency to more market-driven innovation instead of a technology push Which Functional Area is the Primary Driver of Innovation? General Management 16% Information Research & Technology 5% Development 38% 11% Manufacturing / Operations 1% Purchasing / Procurement Marketing & 29% Sales

Innovation Performance 1/3 Overall, we see a mix of performance measurements for innovation across and within sectors. To demonstrate the benefits of collaborative innovation, companies need to establish a consistent range of performance indicators About one-quarter of respondents rated customer satisfaction, product performance and sales from various types of new products as the key benchmarks to measure innovation performance – factors that impact primarily the top line Primary Measure of Innovation Performance Effectiveness 100% 14% 9% 9% 13% 23% 16% 14% 9% 24% 40% 22% 25% 41% Time to market 23% 12% Sales from various types of new products 27% 9% 3% 5% Product performance 9% 5% 10% 14% Manufacturing and operations costs 7% Development costs 31% 25% 23% 20% 18% Customer satisfaction 0% Automotive, Industrial Products High Tech Consumer Total Aerospace & Products & Retail Defense

Innovation Performance 2/3 About two-thirds of the respondents affirmed that less than half the products launched in the past three years had been successful in the market. On the other side, 11% of respondents indicate that they achieve success rates of more than 76% - a significant difference in innovation performance and a significant potential for improvement Success Rate of New Products Launched over Past Three Years 2% 100% 8% 13% 11% 23% 32% 13% 33% 23% 27% 70+% 51-75% 49% 61% 41% 51% 20-50% 36% 0-25% 14% 17% 18% 13% 15% Automotive, Industrial Products High Tech Consumer Total Aerospace & Defense Products & Retail

Innovation Performance 3/3 Failure to meet customer needs is by far the primary cause for new product launch failure, particularly in industry sectors that sell directly to end-customers. New methods in the innovation process and the more active use of collaborative technologies provide opportunities to address this challenge Primary Cause of New Products Launch Failure 100% 10% 5% 18% 13% 21% 17% 24% 18% 16% 10% 19% Products retail price too expensive 14% Product launched too late to market 21% Product launched before market 21% was ready 47% Product falled to meet customer / 58% consumer needs 19% 39% Poor product quality or technical 22% performance 14% Development project too expensive or 5% 6% not adequately fund 19% 4% 12% 12% 10% 5% Automotive, Industrial Products High Tech Consumer Total Aerospace & Products & Retail Defense

R&D Collaboration We expect a number of stakeouts of companies with large R&D units, and increased M&A activity. This may precipitate further alignment of R&D unit operations, including process and tool harmonization, and shared ways of working In-house R&D is increasingly a consolidated function with a strong majority of companies maintaining only a handful of distinct facilities, with North America still the preferred location Complementing this is the recognition of the value of collaborating beyond organizational boundaries. Compared with 2008, satisfaction levels increased for key tools such as open innovation environments to collaborate with external parties, and information systems to support internal design collaboration R&D Strategy in the Next Three Years 5% 7% 100% 11% 19% 35% Increase R&D outsourcing 64% 61% 71% 52% Increase In-house R&D 33% Increase decentralization Increase centralization 12% 10% 11% 22% 7% 19% 15% 22% 18% 6% Automotive, Industrial Products High Tech Consumer Total Aerospace & Products & Retail Defense

Customer Collaboration  Many innovations still fail due to the inability to meet customer needs, the CPR sector being the least successful in gathering or incorporating customer ideas into product development  Many companies would like to involve customers more effectively into their innovation process, but they face hurdles such as long development cycles and complex products. Our work with clients leads us to believe that customer involvement is possible for just about any business Percentage of New Products, Launched Over Past Three Years, Shaped by Customers During Development 5% 2% 3% 1% 2% 100% 10% 6% 8% 5% 11% 9% 23% 18% 29% 24% 25% 26% 80-100% 18% 60-79% 28% 32% 40-59% 20-39% 59% Less than 20% 49% 46% 34% 27%Automotive, Industrial Products High Tech Consumer TotalAerospace & Defense Products & Retail

Supplier Collaboration 1/2 Companies are undertaking a number of supplier collaboration initiatives, which suggests that suppliers are being seen more as partners in driving innovation, although the importance of being innovative in reducing costs persists Importance of Intellectual Property Control as Criterion during Partner Selection 100% 10% 15% 17% 22% 34% 43% 58% 66% Very important 64% Important 59% Somewhat important 37% Not important 24% 17% 13% 7% 10% 1% 3% Automotive, Industrial Products High Tech Consumer Total Aerospace & Products & Retail Defense

Supplier Collaboration 2/2  The overall picture clearly indicates that supplier collaboration has become a standard in all industry sectors and that companies employ various models of supplier collaboration to fulfill the market demand Effectiveness of Involving Suppliers in the Innovation Process 3% 1% 100% 24% 23% 14% 20% 26% 46% Excellent 49% 49% 48% Very good 64% Good Adequate Poor 32% 21% 24% 21% 6% 6% 7% 5% 5% 6%Automotive, Industrial Products High Tech Consumer TotalAerospace & Defense Products & Retail

Agenda Emerging Multinationals – About The Study Research Methodology Recommendations

RecommendationsOur recommendations for companies wishing to enhance their collaborativeinnovation and to become innovation leaders in the upturn: Make business innovation a fully integrated part of your corporate strategy Develop and implement appropriate innovation performance measurements or metrics to aid sound decision-making Reshape R&D to effectively enable collaborative innovation Refine and maintain customer collaboration Build and scale up strong supplier networks for collaborative innovation

For more information, contact:Udo Lange+49 151 4025 1159udo.lange@capgemini.comMark Heidenreich+1 630 660 5464mark.heidenreich@capgemini.comKoen Klokgieters+31 651 123259koen.klokgieters@capgemini.comNick Gill+44 870 904 5699nick.gill@capgemini.com Together. Free your energies www.capgemini.com

Collaborating for innovation 2010

by Koen Klokgieters

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