Slide 1: AS AP Annual C onference St. Petersburg, FL Jan. 27, 2006 Play In The Creative Economy
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: AS AP Annual C onference St. Petersburg, FL Jan. 27, 2006 Play In The Creative Economy
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 2. By branded retail bag 3. Served retail 4. Starbucks experience 1 - 2¢/cup 5 - 25¢/cup 75¢ - $1.50 $2 - $5 8
Slide 9: IPOD: 7 CHANGE LEVERS Type 1. Business model negotiated more licensing solution 2. Alliances 5. Performance 6. Product system 8. Channel 9. Brand 10. Customer exp. with music publishers & accessory producers Line of hardware Hardware + software + itunes + stores Breakthrough deal to sell music online Bolstered Apple’s image iPod is cooler & more expensive 9 than MP3
Slide 10: TEN TYPES OF INNOVATION* (1) Type 1. Business model 2. Alliances 3. Enabling process 4. Core processes *www.doblin.com Description How you make $ Synergize w/others Premium compensation Add value Example Dell’s working capital Sara Lee outsourcing Nucor, Costco’s, UPS, FedEx, Starbucks Wal-Mart; Nike & Cisco 10
Slide 11: TEN TYPES OF INNOVATION* (2) Type 5. Product preference 6. Product system 7. Service 8. Channel 9. Brand 10. Customer experience Description Design of offering Link products Example VW Beetle old & new Microsoft Office Singapore Airline: CAT dealers CAT; M. Stewart Absolut Communicate tot. value prop. Harley D.; Starbucks 11
Slide 12: GOOGLE CHANGES EVERYTHING V Any fans here? V Why how-to book sales have dropped? s 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”? c Pharmacists’ presence for “local P froogle”? s 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 F Advertised funding of info-solutions? n Matching new, better, buyer-seller & outsourcing partners (global, micro-mfg’rs) n Adds big living & dying edges to all business models (from info. perspective) i Let’s all rethink our advertising & PR efforts around Google (+ RSS/Blogs) 15
Slide 16: BACK TO: “CREATIVE ECONOMY” Threats C.E. Opportunities • Mature markets • Growing, global, glut supply; margins ↓ • Optimization done • Lifecycle collapse • Eroding brands • Delight deeper needs • Dynamic outsourcing • Info2 + web2.0 • Bisociation ↑ Turn ad hoc, art of innovation into a continuous science; corporate habit 16
Slide 17: NOT ENOUGH “CREATIVE” (?) T “National Innovation Initiative” (www.compete.org/nii/) e 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 & acquisitions Market expansion Base revenue Revenue (Millions) 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: Radical Innovation Generation ONE DEPICTION OF INNOVATION “PROCESS” Generation of Ideas of ideas (New Product Development-NPD) Selection Execution Creation of Value Incremental Innovation *“Fuzzy front end” (FFE) *Google it under “images” Generation of Ideas 21
Slide 22: FFE VS. NPD Nature of work Experimental, often chaotic, “Eureka” movements. Can’t schedule invention. Fuzzy Front End NPD Disciplined & goal oriented with a plan High degree of certainty Budgeted Increasingly predictable to release date Multifunction Milestone achievement Completion date Unpredictable or uncertain Funding Revenue Expectations Activity Measure of Progress Variable: bootlegged; ex-budget-strategic Scenario guesses Small team Strengthened concepts 22
Slide 23: DON’T RUSH TO ANSWERS Generate possibilities & study Process & innovate Coalesce & arrange into a system FFE Generation Cook & Stew (NPD) Convergence 23
Slide 24: A GOOD IDEA COMES FROM A LOT 60 20 # of ideas Initial screening Business analysis Funnel down quickly, ramp up investment 10 5 Customer prototype feedback 1. Adv. prototype 2. Wider cust. testing 3. Roll-out of winner 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? Customer Need Current Emerging New (A) Semi-radical Semi-radical Next Level Next Level (B) Radical RISK Semi-radical Next Level Due Diligence Current (C) Semi-radical New 26 Emerging Technology Know-How
Slide 27: VALUABLE ARTISTRY? Y The unique strategic insight(s) for your corporate context to focus idea generation → real, unique value prop’s. l How we lead and develop: -- An innovative corporate culture -- Evolving innovation mgt. system(s) 27 -- The FFE, new concept phase
Slide 28: LEAD NEW CONCEPT DEVELOPMENT (FFE); NON-LINEAR, ITERATIVE (3) Idea gen. & enrichment (4) Idea selection (5) Concept definition (6) NPDP Concept selection TechDo - Leadership - Corp. culture capacity Opportunity analysis (2) OPP identification (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: High THE STRATEGY CANVAS OF SOUTHWEST AIRLINES (B.O.S.) Southwest Average Airlines Car transport Low Price Hub Speed Lounges connectivity Setting Friendly class Meals Service choices Frequent point-topoint departures 38
Slide 39: High THE STRATEGY CANVAS OF CIRQUE du SOLEIL (B.O.S.) 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 concessions Star & venue watching & dance enjoinment Performers humor 39
Slide 40: ELIMINATE-REDUCE-RAISECREATE GRID (B.O.S.) THE CASE OF CIRQUE DU SOLEIL Eliminate Star performers Animal shows Aisle concession sales Multiple show arenas Reduce Fun & humor Thrill & danger Raise Unique venue Create Theme Refined environment Multiple productions Artistic music & dance 40
Slide 41: VOCABULARY OF ADJACENCIES `04* Backward (B.T.C.) Local Global expansion Integration Sell capability Forward outside integration New Value New to New Chain Steps world Geographies needs New Businesses New New Channels subs. New New Customer New Products Segments models Next generation New to world Complements Support services Internet Dist. Indirect Microsegmentation of current segments Unpenetrated segments New segments *Modified from Beyond The Core, Zook 41
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 Industry UK grocery Wholesale drug Winner TESCO Cardinal Fizzler (B.T.C.) Sainsbury McKesson K-Mart Eckerd’s Mass merch. `83 Wal-Mart Retail drug Walgreen’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 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 (S.E.)
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 3rd party assessor ASKS most innovative ??? (S.E.) 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 3) SUSPENDING 4) REDIRECTING 9) INSTITUTIONALIZING “AHA” 8) PROTOTYPING 7) CRYSTALLIZING 6) EMERGENCE 5) LETTING GO *”Presence” by Senge, Scharmer, Jaworski & Flowers. SoL, Cambridge, MA See Exhibit 39 @ merrifield.com 49
Slide 50: # 1 NOVEL INFORMATION A Our (financial) information supply ruts? (Presence) i Interview the most: - Progressive customers & non-customers - Progressive suppliers & their suppliers - Supply-chain, bissociation-able consultants - Profitable & un-profitable customers n Ideas = fuel for innovation Best way to a good idea is to have lots 50
Slide 51: N Steps 1 - 6 of the “U” all generate ideas GUIDELINES FOR INFO → IDEAS (1) (Presence) h The ones that occur between 5 & 6 are most powerful c We see the world like we are; not the way it is We think in (unspoken): stereotypes, patterns, paradigms g The world is changing, not the way we think/see n Bad decisions due to mindsets, not quality of info e Mindset shifts are key to breakthrough ideas r 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 e Raise questions about questions a Build a corporate, creative, suggestion/idea pipeline system e Imagine & build first, judge later; try a 52 (Presence) response instead of “yes, but. .” “yes and”
Slide 53: # 2 QUESTION MAPS (Presence) S How to outline living edge, new-frontier space with questions? e Those with quick answers see only what their mindsets allow & have reflexive, old-paradigm conclusions c(Examples of Question Maps are at First, get all of the right questions 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) c 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. i Let go: retreat, relax, gestate, reflect to see what emerges. No quick, pragmatic decisions 54
Slide 55: THE “AHA” MOMENT (Presence) ° (5) Letting - AHA - (6) Emergence: all at once; sometimes oscillates e Archimedes & Newton moments t Revelations, epiphanies & grace too p At birth, most such ideas aren’t: u seen by all u “great”; need careful work e welcomed by defenders of the past 55
Slide 56: # 6 & 7: EMERGENCE & CRYSTALIZATION (Presence) C Initial visions have to get enough people moving h Effective visions are not: s made by top-down process imposed on team rooted in old ways y They are: y 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 o Without a recipe or roadmap: feel the way learn by doing stay connected to deepest inspiration sources o stay with flow, let the world help 57
Slide 58: # 9: INSTITUTIONALIZING (Presence) A Turn successful experiments into scalable, lasting success t Lock in right governing ideas & values v The corporate “Kinetic Chain*” must be un-woven & re-woven to insure total, energetic alignment. g 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