The four pillars_of_innovation

The Four Pillars of
Innovation

Joel M. Vardy
Vardy & Associates, LLC
Jan 27, 2012

THE FOUR PILLARS of INNOVATION
Business Model Innovation: “When the game gets tough,
change the game”
Radical vs. Incremental (semi-radical) Innovations
The Role of Business Transformation
Business Model Diagnostics (Value Assessment/Creation)
Process Innovation: “the method & language of doing things
differently…making innovation work”
New & Exciting Developments
Product/Service Innovation: “The artifacts of Innovation – the
ultimate output”
Technology & Design
New Channels, Customer Service Concepts
Innovation Culture: “the art of collaboration...changing
organizational DNA to achieve sustained innovation”
How to Ensure Success
How to Maintain It

Confidential/Proprietary Vardy & Associates LLC

Innovation: Famous Quotes

“Innovation is the specific instrument of
entrepreneurship. The act that endows resources
with a new capacity to create wealth”
Peter Drucker
“Innovation distinguishes between a leader and a
follower”
Steve Jobs
“Without tradition, art is a flock of sheep without a
shepherd. Without innovation, it is a corpse”
Winston Churchill

Why do previously strong Corporations face
Higher Risks Today?
Periods of High Volatility can Destroy Business Value in
Some Sectors allowing New Value Creation in Others…

Demand Supply Stronger
Demand Supply Stronger Volatility Volatility New Players
Volatility Volatility New Players Corporate
Corporate
Strategy
Strategy
Direction
Direction

Business
Business
Unit
Unit
Direction
Alignment

Corporate
Tactical
Countermeasures
Shifting Closing Global
Global Markets Skills
Differences
Shifting Closing Global
Global Markets Skills
Differences


Key Concept #1
Radical vs. Semi-Radical Innovations

Business Transformation
• Reforming - Strategic new Vision
• Restructuring - Work Flow redesign
• Revitalization - Linking Technology
• Renewal - Changing Behavior
Innovation RADICAL Improvements
(FMEA can be applied here)
2 Continuous Improvement
• Total Quality Management
1
• SPC/SQC
0 Semi-Radical Improvements
Existing Work Processes
• As-Is Process

• First order changes are not enough
• Bus. Trans. required to create dramatic (radical/breakthrough) improvements


Balancing Creativity and Commercialism – Managing
the Paradox
Imagination Innovation Concept to Reality

CREATIVITY PROCESSES VALUE CREATION PROCESSES

Blue - Out-of-Box thinking Portfolio - In-the-box thinking

Ocean
- Raw and refined ideas
- Experimentation Mgt. - Engineering/Manufacturing Ecosystems
- Precision
- Ambiguity/Uncertainty - Well-calculated trade-offs
Disruptive - Research Scenario
- Intuition Foresighting - Buying/Selling of ideas

Innovations - Surprise
- Do things right
- Answer question and
Planning
- Courage verify solutions
- Find the right things Innovation - Avoid major risks
- Ask questions and explore
the unknown innovation Mgt - Find the right things
- Get the product into
- Seize opportunities the marketplace
- Visualize the future and - Bias for incremental
consider all options Program
- Include incremental and
radical innovations Mgt
Source: “Making
Innovation Work”
Davila, Epstein, Shelton

Business Model Innovation
First Pillar of Innovation

“When the game gets tough, change the game”


The Human Brain & Innovation – Making the ‘Connections’
in a land of Complexity and Uncertainty

“The brain appears to be naturally configured for
innovation to work and to have new ideas
because its job is to use information about
the world and innovate by modeling new
ways in which the state of the world out
there might be put together”

James Burke
Science historian, author
and television writer/producer


Business Models: Molding the Process --
Another Key Innovation Concept

1. Visualize to Understand It
2. Model to Simulate It
3. Measure to Improve It

Visualize
Understand
Improve

Measure Model

Simulate


Business Models: Striking the appropriate Balance
between 4 Key Ideas/Metrics
Innovation
Excellence
Front Office Key High
(external) Level Metric:
Time-to-Market

Service
Excellence
Business
Key High
Model
Level Metric:
Commercialization
Order to
Excellence
Deliver Time
Key High
Manufacturing Level Metric:
(Operations)
Time to Scale
Operational Key High
Excellence Level Metric:
Source-to-Make Time Back Office
(internal)

Business Models: Sample Innovation Value Prop. Tree

(/)
KPI TREE

Return
On Inno. Other

Working Net Oper. Fixed Inv.
Capital Inno. Profit Costs Holding
(-)
Production
Process Process Net Oper. (x)
Innovation Innovation Margins
Improvement 1 Improvement 2.
Primary Influences

Measured KPI’s
Revenue (-) Variable for analysis
Costs

Product Lost Manufacturing
Expedite
Innovation Orders Inno. Improvement

Overtime Logistics Inno.

Bus. Forecast Other
Accuracy Drivers Rework/
Supply Wide Spec
On Time Customer Inno. Imp.
Delivery Service Levels


Process Innovation
Second Pillar of Innovation

“the method & language of doing things differently…making
innovation work”


Process: The Innovation Process

Stage Gate Stage Gate

Gathering Filtering Supporting Bringing ideas
the ideas the ideas ideas to the market

Source: MCE Management
Centre Europe

Putting ideas through the selection Process
• any number of ideation processes to gather ideas
• market and financial gate criteria required
• strong commercialization infrastructure critical to profitable
execution as well as talented project managers


Process: Accelerating the Innovation Process

$ Time to
$ Market

Existing 30-50%
revenue increase
through accelerated
and more sustained
revenue

Existing Time
10-40% less through
Development time compression and greater
Costs efficiencies

Four Key Elements to Achieve these Results:
1. Time-to-Market
2. Internal Integration
3. Collaboration
4. IT enablement
Source: IBM Global Business
Services analysis. 2006


Process: Key Factors in Driving Innovation --
Complexity, Uncertainty and Change

Complexity
Maturing market (SKU proliferation starts to address different
segments).
Needs to be embraced rather than feared.
Process complexity can be reduced while embracing
product/service complexity.

Uncertainty
Byproduct of higher levels of complexity
Market volatility
Needs to be managed and minimized

Change
Constant
It cannot nor should it be eliminated
It actually represents new opportunities, frequently exploited by
new startups.


Process: Transforming typical Execution-type
processes to more Planning-driven ones

20/80 (Planning/Executing)
Back-End Loading (‘Churning’)

As-Is
?

To-Be
?

80/20 (Planning/Executing)
Front-End Loading (Collaborative)


Process: Decision Process Workshops get the
Critical Organizational Buy-in


Product/Service Innovation
Third Pillar of Innovation

“The artifacts of Innovation – the ultimate output”


Product/Service: Key Concept for Innovation-Driven
Programs: Factoring People, Process & Technology

‘Formula-Raw Materials’ ‘Procedure’

People Process
50%* 30%*
Knowledge of
Process
how to measure
of running a
& incent people 20%* superior
business
Enablement
of People & *Audited Project
Processes Technology Success Factors
Accelerator
‘Catalyst’
Enabler

Technology – though accounting for only 20% of project success factors is the most confusing due to
rapid changes. Key to either accelerating or enabling possible people & process factors.


Product/Service: Exploiting New and Traditional
Innovation Tools & Concepts

Innovation Fields/Strategy Project Portfolio Selection
3

1.1 1.2 1.3

4.1 4.2
1.5 1.4
High

IF 1) 1 2.4
Innovation field attractiveness

6.1 6.2 2.1
IF 2

Strategic importance
2.2 7.1 7.2

IF 4 2 2.3
7.3
3.2 3.1

5.1 4.3
6.3
Middle

2.5 5.2

IF 5 IF 3
1

5.3
Low

IF 6

0
0 1 2 3
Low Middle High
Improvement potential
Innovation strength

Creating a balanced portfolio of product/service projects
that maximizes return on innovation and mitigate risks


Innovation Culture
Fourth Pillar of Innovation

“the art of collaboration...changing organizational DNA to
achieve sustained innovation”


Culture: The Innovation Culture Continuum
Foundation Advanced Breakthrough

Hierarchical Departmental Silos Self-directed Virtual Management
Command & Control Teams
Transactional and Integration across Learning & Service Information
Aggregated the Enterprise Delivery Architecture
Cost and Risk Productivity Collaborative Operations
Reduction Improvement Improvement
Product Segmented but Customer’s Individual Customers
still Product Based Needs and Values
Growth Growth and Innovation Strategy
Performance

“There is no guarantee that an innovation culture leads to innovation
but it certainly is a prerequisite.”
Source: Ivey Business Journal
Jan/Feb 2006


Culture: New Game Changing Strategies
-- Managing Uncertainty using Collaboration to
Highly Evolved
Incorporating both
Co-marketing and
Co-development
Across the ecosystem

Integrated
Ecosystem High
Integrated Internal
Collaboration IV
Level Of
Decision
High Systems
Integrated
Value

II III External
Collaboration
Integration

Level Of Low
Information
Systems
Integration
I
Low

Functional Internal External
Collaboration
Scope Scope
Source: Cayuga Partners


Culture: The Innovators
Top 10 - Most Innovative Companies
Traits of the
top 10 2006 2007 2010 2011
Apple Apple Facebook Apple
Company
Google Google Amazon Twitter
Leadership
Sony Toyota* Apple Facebook
Ideas
3M YouTube* Google Nissan*
Strategy
Microsoft Microsoft Huawei Groupon*

JetBlue Starbucks First Solar Google
Personal
Starbucks Motorola PG&G Dawning*
Strategist Information
BMW Samsung* Industry
Methodologist Novartis Netflix
Motorola Nike*
Walmart Zynga*
Facilitator Target Sony
HP Epocrates*
* New to list in 2007

* New to list in 2011
Source: futurethink article:
2007 Innovation Tracker Source: fastcompany.com
The Shift from Creativity to Value The Shift to Social Tech.


Innovation Management Tools
Align
Assess Status Strategize Operationalize Externalize Organization &
Behavior

Tools
Capabilities Assessment
Innovation Fields/Strategy Readiness Assessment Implementation of radical innovation
Budget Strategy 3
4th 3rd 2nd 1st

1
Quartile Quartile Quartile 1.1 1.2 1.3
Collaboration Maturity
High

Quartil
Innovation field attractiveness

IF 1
e
1)
4.1 4.2
2 People 1.5 1.4
Technology
IF 2
2.4
3 6.1 6.2 2.1

IF 4
- Strategic

Strategic importance
2.2 7.1 7.2

4 Clarity
2 2.3
5
Middle

7.3
Innovation - Financial and  3.2 3.1
6 core process Competitive
Qualification Focus 5.1 4.3
Ability

- Management 
IF 3
6.3

IF 5
& skills 2.5 5.2
Support

Process
1
Low

Corporate
culture
Patents &
standards
IF 6 - Demand/S
KU
Complexity
 5.3

- Levelof SKU’s &
(no. of 
Low Middle High Internal
nodes)
Collaborati
Qualitative Assessment Innovation strength - on
Level of
(Structures
External
 0
0 1 2 3
)
Collaboratio
n Improvement potential
(Structures
Technology
Reward/Recognition
Communications
)

KPI Development - Infrastructure 
(ERP)
KPI Improvement/Monitoring
Inputs>Processes>Outputs> Plan
- Tools 

Outcomes Return
On
Innovation

Working Operating
Capital Profit

Map: As -Is
Inno. Imp. Inno. Imp.

Cos
Process Process Revenue t

Quantitative Assessment
Title Inno. Inno. Inno. Inn
Imp. 1 Imp. 2 Imp. o.
Process Imp
Step B .
Quantifying the Gap (Using Key Performance Indicators - KPIs)

Supply Chain
Input A
Inventory Management: Current Value Unit
Marginal Value
($/unit)
Improvement
Potential (%) Process Process Process Output
Raw Materials
WIP
10,000
10,000
$
$
1,000.00
1,200.00
50%
20%
Input B Step A Step D Unit E C
Finished Product 10,000 $ 1,400.00 25%
Spare Parts/Other 10,000 $ 1,600.00 30%
Inventory Carrying Cost 15% % of COGS Input C
Process
Supply Chain

Current Value Unit
Improvement
Potential (%)
Step C
Finished Product Management:
On-Time Delivery to Cust. Request Date %
On-Time Delivery to Firm Commit Date %
$/Occurrence
Expediting 500 Qty/month $ 1,000 90%

Range of Transportation Costs
Minimum Value

$
($/unit)
2.00
Unit
$
Maximum
Value ($/unit)
3.00
Supply Chain
Improvement
Potential (%)
10%
Map: To - Be
Average Qty. of Product Transported Yearly 10,000,000

Supply Chain
Marginal Value Improvement
Process, Cross-Functional Measures: Current Value Unit ($/unit) Potential (%) Title
Average forecast accuracy
Order fill rate 80%
%
% 15%
Process
Orders lost 50% % Step B

Input A
Estimated Range of Innovation Benefits
Planning process cycle time 5 $ 4,000 90%
- Qty. of planning occurences per year 52 Occurences
Scheduling process cycle time
- Qty. of scheduling occurences per year 365
6
Occurences
$ 1,000 90%
Process Process Process Output
Source-to-make cycle time 365 Days 30% Input B Step A Step D Unit E C
New product time-to-market 365 Days 30%

Manufacturing-Related Measures
Minimum (M$) Most Likely (M$) Optimistic (M$)
Input C
Marginal Value
Supply Chain
Improvement
Non-Recurring Working Capital Benefits $ 13.2 $ 18.9 $ 24.6 Process
Total Nominal Yearly Capacity:
Current Value
10,000,000
Unit
$
($/unit)
100.00
Potential (%)
1.0% Recurring COGS Benefits $ 18.3 $ 26.2 $ 34.0 Step C
In Process Rework per Year 40,000 $ 30 50%
Recurring Revenue Enhancing Benefits $ 26.3 $ 37.5 $ 48.8
Variable Cost per unit produced $ 20.00 $/unit 5.0%
Selling Price per unit produced $ 150.00 $/unit
Total qty of units produced per year
Total number of orders per year
Average revenue per order $
10,000,000
100,000
150.00
orders/year
$/order
TOTAL (M$): $ 57.8 $ 82.6 $ 107.3
Number of setups and changeovers
during a month 70 Qty/month $ 1,500 50%


Summary: The 4 Innovation Pillars

Business Model Innovation
Business Model Diagnostics entering new era
Convergence of Disparate Data
Opportunity for new markets creation
Ability to better exploit existing markets
New Diagnostic Tools and Skills geared to Data-rich environments
Process Innovation
Changes in Collaboration Practices are changing Decision Making
Making it more timely and effective
Sharing of all Strategies and Tactics between trading partners
Product/Service Innovation
Product life-cycles are ever accelerating
Service opportunities are creating unique differentiators
Innovation Culture
A new breed of cross functional and cross cultural talent is needed to drive
growth for the future
Capable of non-linear thinking
Able to be equal parts Strategist, Methodologist and Facilitator


Thank You

Joel M. Vardy
Vardy & Associates, LLC
(267) 222-2324 (cell) - jvardy@aol.com

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