Jay Rao, Professor Babson College, “No existeix cap correlació entre la inversió que fa una companyia en R+D i les seves vendes”

1. Innovation: Key to Organic Growth
Jay Rao
Professor
Babson

2. 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……
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3. 3

4. One proposed solution
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5. 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 Journey
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6. Innovation: Key to Organic Growth

7. The structure of a mature industry
MONKEY
3%
3%
4%
10%
35%
10%
GORILLA
CHIMP
35%
Source: Moore

8. All Firms Die!
Number of Firms in the U.S. Typewriter Industry Number of Firms in the U.S. Automobile Industry
75
Entry 70
Number 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 Entry
Number 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

11. 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 Apple
1997 Fuji has 17% market share of U.S. film
2005 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 share
2012 Files for bankruptcy

12. Music

13. Which company should have owned
the iPod space?
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14. SONY
2004
Jukebox – SonicStage
Connect – Music Store
At its peak:
2.5 million songs from all labels,
but Windows only
2008
Kills Connect

16. HP
Dell
Acer
Apple
Lenovo
Toshiba
Asus
17 | BAP | 2007 | ©

17. Nokia Symbian
Google Android
RIM Blackberry
Palm (HP)
Apple iPhone

18. Abbott is among the companies paving the way for the newest
generation of stents, ones that dissolve away after their product
life runs its course. In January, Abbott received approval in
Europe for its bio-absorbable drug-eluting stent, called Absorb.
The company plans a limited distribution on the continent later
this year. By contrast, J&J encountered problems developing a
follow-up to its Cypher stent, called Nevo. Last October, the
company said it was suspending patient enrollment in a study
of the stent due to a problem with the catheter that surgeons
use to deliver the device. Nevo was based on technology that J&J
bought as part of a $1.4 billion takeover of Conor MedSystems
in 2007.
19 | BAP | 2007 | ©

19. Industry leadership does not last
• Typewriters
• Manual  Electric  Word Processors  PCs
  
• Computers
• Mainframe  Minicomputers  PCs
    
• Hard Disk Drives
• 14” 8”  5 ¼”  3 ½”
  

20. Leadership in Retail Services didn’t
last either
• General Purpose
   
• Bookstores
  
• Toys
  
• Electronics
  

21. Corporate mortality is very high!
Average life expectancy of
The average life span of a Only 16% of firms listed
all firms, regardless of
Multinational Fortune 500 on the 1957 S&P 500
size, in Japan and much of
firm is around 45 years remained on the 2007 list
Europe, is only 12.5 years
Out of the top Fortune 25
Of the top 500 firms in
in 2010, only 18 remained
the U.S. in 1980, only 202 1/3rd of the Fortune
from 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 EU
firms by market cap. The equivalent number in U.S. in 22%.
Source: Fortune, S&P, and others

22. Average Age of Global 1000 since
1980
Source: Factset, 2011

23. Average Age of Global 1000 since
1990
Source: Factset, 2011

24. Global 1000Percentage of Survivors
Year to Year
18 years
14 years
12 years
12 years
Source: Factset, 2011

25. Global 1000 by country
Source: Factset, 2011

26. New Entrants into the Global 1000
Source: Factset, 2011

28. “Every organization – not just business – needs
one core competence: …..”
- Peter Drucker
Innovation
(in Innovation & Entrepreneurship, 1985)

29. Some empirical findings about
Innovations…
75% of all new products launched
More than 90% of all by established firms fail to make
Innovations that were profit. Most are yanked/killed
successful started off in without shaping & developing them
the 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

30. 31
, 2005

31. 32

32. 2010 Data of Spend vs. Performance

33. 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 and
underutilized or not achieving corporate culture are
scale 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

34. Source: Booz Allen Hamilton Global Innovation 1000

35. Why is it so hard? Why are firms
struggling?
What is Innovation?

36. Innovation = Left + Right

37. Fosbury Flop
Western Roll
Scissor or
Eastern Cut-off
Straddle
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38. Radical Innovation
Performance Gains in Petroleum Cracking
(inputs per 100 gallons of gasoline)
Process Burton Original Fluid Current Fluid
Inputs (1920) (1936) (1940)
Raw Materials (gallons) 396 238 170
Capital (1939 $) 3.6 0.82 0.52
Labor (man hours) 1.61 0.09 0.02
Energy (million BTUs) 8.4 3.2 1.1
Source: Mastering the Dynamics of Innovation, Uttberback

39. Innovation = Radical + Incremental
RADICAL - unknown
(Continuous
Experimentation)
Performance
INCREMENTAL - known
(Continuous Improvement)
DO NOTHING
Time

40. Innovation: New to the Industry
Yes
EXPLOIT CREATE
New
to
Industry?
No SAME OLD CATCH UP
No Yes
New to Firm?
Source: Michelle Rogan, INSEAD, 2009

41. Innovation:
Is a Choice & Overvalued
Source: Oded Shenkar

42. We are our words!

44. Innovation is a Discipline.
Unconscious Incompetence
Knowledge
Conscious Incompetence
Practice
Conscious Competence
Discipline
Unconscious Competence

45. 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 don't much care where…”
• Cheshire Cat:
– "Then it doesn't 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. Thornberry
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46. Questions & Issues