Combining Continual Improvement and Innovation

ALEXIS P GONCALVES

COMBINING

CONTINUAL IMPROVEMENT AND

INNOVATION

IT DIRECTOR & INNOVATION CATALYST

COTY INC.

NEW YORK, NY, USA NOVEMBER 2013

Finland is an

Innovation Hot

Spot !Information TechnologyTelecommunicationsForestryMetals and Mechanical EngineeringIntelligent Machines

Reinventing

oneself several

1922Rubber Business

1865Paper Mill

1967Electronic Devices

2006Mobile Phones

2013Network Solutions

Combining

Continual Improvement

and Innovation…

Several “metaphors”

can delineate the

combination…

The Three Horizons

Janusian Thinking

Disruptive Technologies

Growth Path & Risk

Knowledge Funnel

The Game Changer

The Metaphorof Change

The Spectrum of Change

Incremental improvement in products that can be

delivered by existing business resources and

processes

Breakthrough product improvements that

boosts market share but is still delivered by existing

resources

Disruptive business model that serves new customers and requires a new profit

model, resources and processes to deliver

Description

Sustaining Breakthrough Disruptive

Horizon 1

Kaizen

Horizon 2

Kaikaku

Horizon 3

Kakushin

Exploitation Exploration

Goals Playing the Old GameBetter

Old Game / New Rules New Game / New Rules

Continual Improvement

Innovation

1 The Reliability BiasWhen the pursuit of

continual improvement

risks innovation

2 Building AmbidexterityHow to use both

exploration and

exploitation techniques

3 De-risking InnovationMoving from “trial and

error” to a “pattern

recognition” realm

Three Relevant Perspectives to take into consideration…

The Reliability

100% Reliability 100% Validity

The Predilection Gap

ExhibitsThree Classic Stories of Reliability Bias

A Japan Loss of the DRAM Industry

B NTT slow adoption of the Internet

C The Death of Vacuum Tube Companies

DRAM Memory25 Years’ Durability

Japan Loss of the DRAM IndustryJapanese producers were making incremental improvements but not adjusting to the dramatic changes in market conditions created when DRAMs shifted from Mainframes to PC.

NTT slow adoption of the InternetNTT decision makers believed that the only way to get high quality connection was based on a dedicated connection between sender and receiver – something that the Internet (TCP/IP) did not offer.

The Death of Vacuum Tube CompaniesThey all took a license from Bell Labs and invested over $3 Billion dollars trying to make the Transistor good enough that could be used in products (televisions and radios) that existed.

SONY first “Pocketable“ Radio ($2.00 in 1957)

1. Take inattention to Reliability as a

management challenge.

2. Empathize with the “Reliability-unfriendly

elements”.

3. Speak the language of Validity.

4. Share data and reasoning, not conclusions.

5. Bite off as big a piece as possible to give

innovation a chance.

5 Productive Steps

“The optimal approach to Reliability

and Validity is not to choose but to seek a balance of both.”

– Roger Martin

Building

Ambidexterity

Five Conditions To Promote

Ambidexterity

A A Compelling Strategic Intent

B A Common Identity

C A Senior Team that Owns the Strategy

D Separate but Aligned Architectures

E A Clear Mechanism for Conflict Resolution

Emerging Business Organization (EBO)

A Compelling Strategic IntentIn 2000, IBM began a programmatic effort, termed the Emerging Business Organization (EBO), to identify and develop cross-IBM business opportunities that could provide $1.0 Billion in revenue within a 5-year time frame.

• Need to intellectually justify the importance of both exploration and exploitation.

• Need a rationale for whyprofitable exploit units, especially those under pressure, should give up resources to fund small, uncertain efforts.

A Common IdentityAt USA Today there is an explicit strategy to “be a network, not a newspaper”. The over-arching aspiration is to be “the local news for the global village”. Common values around fairness, accuracy, and trust, help knit together a highly differentiated organization.

• Need over-arching vision and values that promote a common identity but separate cultures.

• Without a common identity it’s difficult to promote trust, cooperation and long-term perspective.

A Senior Team that Owns the StrategyIn the Cisco Telepresence case, members of the governance team (Boards and Councils) had a significant portion of their bonus (70%) contingent on the success of both units.

Without senior team consensus about the importance of ambidexterity, those who are uncommitted will:

�Resist the effort

�Diminish cooperation

� Increase competition for resources

�Slow down execution

Create a Common-Fate Reward System

Separate but Aligned ArchitecturesIn 2006, the CEO of SAP declared that the future revenue growth for the company was in selling software on demand. This Software-as-a-Service (SaaS) product was developed but no separate unit was established. Although this market has grown substantially, SAP has failed to successfully market their offering. In 2010, the CEO Leo Apotheker was fired for failing to implement SaaS.

Separate exploratory and exploitative units with targeted integration at both senior and tactical levels.

Key objectives are:

• To properly leverage organizational assets.

• To efficiently use resources.

• To ensure coordination across units.

A Clear Mechanism for Conflict ResolutionAt Zensar, even though there were substantial conflicts between the existing business units and the new integrative software platform, the CEO saw to it that his team actually dealt with these conflicts and made the appropriate resource allocation shifts between the existing units.

• Have a clear, identifiable leader and forum to resolve conflicts and make definitive resource allocation decisions.

• Linked to the ability of senior leadership to tolerate and resolve tensions arising from separate alignments.

“Organizational ambidexterity is a

firm's ability to simultaneously exploit and explore with equal dexterity.”

– Michael Tushman

De-risking

Innovation

How much do we know about Innovation…? INNOVATION

How a does Body of Knowledge Emerge…?

Organic Chemistry80 years ago

Wallace Carothers(April 27, 1896 – April 29, 1937)An American chemist, inventor and the leader of organic chemistry at DuPont, credited with the invention of nylon and neoprene.

Teflon

Neoprene

Kevlar

Today, if you need a new molecule, all you need to have is…• A B.S. in Chemistry from a state school• A great piece of software

Organic Chemistrytoday

Trial-and-Error

Pattern Recognition

Rules-Based ModelingHow a does Body of Knowledge Emerge…?

Pattern Recognition Innovation Landscape

Roger Miller

Innovation Games and Migration Paths

Pattern Recognition

Strategic Consulting &

Systems Engineering

Pattern-driven discovery

Systems Integration

Platform Orchestration

Cost-based search for efficiency

Customized mass

production

Open Modular Systems

Tightly Integrated Products

Standalone Products

Market Creation

Market Evolution

Market

Offering

A B C D E F

Rules-BasedModeling Disruptive Innovation

Theory

Clayton Christensen

“A few years from now, Innovation will be just another management discipline

– like budgeting or auditing – that is well understood, thoroughly analyzed, shared and taught.”

– Larry Keeley

Closing Remarks

1 The Reliability BiasWhen the pursuit of

continual improvement

risks innovation

2 Building AmbidexterityHow to use both

exploration and

exploitation techniques

3 De-risking InnovationMoving from “trial and

error” to a “pattern

recognition” realm

Three Relevant Perspectives to take into consideration…

SEE MORE INSIDE THIS BOOK

Book “Innovation Hardwired”

Available at

Author

Alexis P. Goncalves

Join my Networkhttp://www.linkedin.com/in/goncalves

ALEXIS P GONCALVES

COMBINING

CONTINUAL IMPROVEMENT AND

INNOVATION

IT DIRECTOR & INNOVATION CATALYST

COTY INC.

NEW YORK, NY, USA NOVEMBER 2013

Combining Continual Improvement and Innovation

Business

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