ASAP

AnnualConference

Play In

The

Creative

EconomySt. Petersburg, FLJan. 27, 2006

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 over100 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)?

3

WARM UP THOUGHTS: (2)

3. Global, micro-manufacturers are designing,manufacturing, selling & distributingtheir products all over the US with 1 or 2 employees working out of their homes withbroadband connection -- so what?

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.?

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?

ASAP

AnnualConference

Play In

The

Creative

EconomySt. Petersburg, FLJan. 27, 2006

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?

8

INNOVATE UP “EXPERIENCE CHAIN”

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

Coffee:

9

IPOD: 7 CHANGE LEVERSType

1. Business model 2. Alliances

5. Performance

6. Product system

8. Channel

9. Brand

10. Customer exp.

negotiated more licensing solution

with music publishers & accessory producersLine of hardware

Hardware + software + itunes + storesBreakthrough deal to sell music onlineBolstered Apple’s image

iPod is cooler & more expensive than MP3

10

TEN TYPES OF INNOVATION* (1)

1. Business model

2. Alliances

3. Enabling process

4. Core processes

How you make $

Synergize w/others

Premium compensation

Add value

Dell’s working capital

Sara Lee outsourcing

Nucor, Costco’s, UPS, FedEx, Starbucks

Wal-Mart; Nike & Cisco

*www.doblin.com

Type Description Example

11

TEN TYPES OF INNOVATION* (2)

5. Product preference

6. Product system

7. Service

8. Channel

9. Brand

10. Customer experience

Design of offering

Link products

Communicate tot. value prop.

VW Beetle old & new

Microsoft Office

Singapore Airline: CAT dealers

CAT; M. Stewart

Absolut

Harley D.; Starbucks

Type Description Example

12

GOOGLE CHANGES EVERYTHING

Any fans here? Why how-to book sales have dropped? Search: “Innovation Management

(987,000)

[ “images” (3,600)]

+ article (261,000)

+ PDF (81,200)

+ ERP (619) or software (39,400)

or “mature industries” (164)

or “service industries” (531)

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

14

GOOGLE: “LOCAL (+) “FROOGLE” = ?

Anyone tried “local” or “froogle”?

Pharmacists’ presence for “local froogle”?

Meanwhile, Help my Mom (SRs)

-- buy “long-tail” wellness items (fees, commissions, package receiving)

-- provide e-mail & general e-shopping services

15

GOOGLE OVERALL EFFECTS

Advertised funding of info-solutions?

Matching new, better, buyer-seller &

outsourcing partners (global, micro-mfg’rs)

Adds big living & dying edges to all business models (from info. perspective)

Let’s all rethink our advertising & PR

efforts around Google (+ RSS/Blogs)

16

BACK TO: “CREATIVE ECONOMY”

• Mature markets• Growing, global, glut supply; margins • Optimization done• Lifecycle collapse• Eroding brands

• Delight deeper needs• Dynamic outsourcing• Info2 + web2.0

• Bisociation

C.E.Threats Opportunities

Turn ad hoc, art of innovation intoa continuous science; corporate habit

17

NOT ENOUGH “CREATIVE” (?)

“National Innovation Initiative” (www.compete.org/nii/)

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”

18

WHAT’S OUR INNOVATION GAP?

Revenue(Millions)

Today 5 Year Target

Market expansion

Base revenue

New products currently in pipeline

Traditional mergers & acquisitions

?Innovation

Gap

Target

Future Revenue

19

P&G’S INNOVATION GOAL

“Proctor & Gamble of 5 years ago (‘99) depended upon 8000 scientists & engineersfor 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 fromoutside the company.”

A. C. Lafley, 2004 from Fortune Magazine

What culture changes to support 100% innovators?

20

DEFINE “INNOVATION”(“SCIENTIFICALLY”)

The profitable implementationof 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

21

ONE DEPICTION OF INNOVATION “PROCESS”

Generation

of ideas

Selection ExecutionCreationof Value

(New Product Development-NPD)

Radical Innovation

Generation of Ideas

Generation of IdeasIncrementalInnovation

*“Fuzzy front end” (FFE)

*Google it under “images”

22

FFE VS. NPD

Nature of work

Completion date

Funding

Revenue Expectations

Activity

Measure of Progress

Experimental, often chaotic,“Eureka” movements. Can’tschedule invention.

Unpredictable or uncertain

Variable: bootlegged;ex-budget-strategic

Scenario guesses

Small team

Strengthened concepts

Disciplined & goal oriented with a plan

High degree of certainty

Budgeted

Increasingly predictable to release date

Multifunction

Milestoneachievement

Fuzzy Front End NPD

23

DON’T RUSH TO ANSWERS

FFEGeneration

Cook &Stew

(NPD)Convergence

Generatepossibilities

& study

Process &innovate

Coalesce & arrangeinto a system

24

A GOOD IDEA COMES FROM A LOT

Time

# of ideas60

10

5

20Initial screening

Business analysis

Customer prototypefeedback

Funnel downquickly, rampup investment

1. Adv. prototype2. Wider cust. testing3. Roll-out of winner

1 SUCCESS

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

26

WHAT MIX & PATH OF INNOVATIONS?C

ust

om

er N

eed

Cu

rren

tE

mer

gin

gN

ew (A)Semi-radical Semi-radical

(B)Radical

Semi-radical

Next Level

(C)Semi-radical

Next Level

Next Level

DueDiligence

RISK

Technology Know-How

Current Emerging New

27

VALUABLE ARTISTRY?

The unique strategic insight(s) for your

corporate context to focus ideageneration real, unique value prop’s.

How we lead and develop:

-- An innovative corporate culture

-- Evolving innovation mgt. system(s)

-- The FFE, new concept phase

28

LEAD NEW CONCEPT DEVELOPMENT (FFE); NON-LINEAR, ITERATIVE

- Leadership- Corp. culture capacity

Opportunityanalysis

(2)

OPPidentification

(1)

(3)Idea gen. &enrichment

(4)Idea

selection

(5)Conceptdefinition

(6)Concept selection

NPDP

TechDo

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)

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 livingedge

31

SUMMARY POINTS (2)

5. Pursue “open innovation” guidelines toget best, most, unique-strategic-insightsto 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)

32

CLOSING QUOTES (1)

1. Insanity is doing the same thing over& over & expecting different results

Einstein

2. A problem cannot be solved by thesame consciousness that created it.

Einstein

3. The future is already here. It’s just notevenly distributed yet.

William Gibson

33

CLOSING QUOTES (2)

4. Creativity is about divergent thinking.Innovation is about convergent thinking

Ikerjivo Nonaka

5. The real difficulty in changing the courseof any enterprise lies not in developingnew ideas, but in escaping old ones.

John Maynard Keynes

6. People support what they help create.Anonymous

34

7. “Nothing is as powerful as an ideawhose time has come.”

Victor Hugo

8. “Never doubt that a small group ofcommitted citizens can change the world. Indeed, it’s the only thing that ever has.”

Margaret Mead

CLOSING QUOTES (3)

35

APPENDIX

Highlights From

Reference Books

In Slide # 29

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

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

38

THE STRATEGY CANVAS OF SOUTHWEST AIRLINES (B.O.S.)

Price

FriendlyService

Speed Frequentpoint-to-pointdepartures

Settingclass

choices

Lounges

Meals

Hubconnectivity

High

Low

Average Airlines

Cartransport

Southwest

39

Price

Fun &

humor

Multipleproductions

Artisticmusic

& dance

Aisleconcessions

Animalshows

StarPerformers

Multipleshow arenas

High

Low

Ringling Bros. & Barnum & Bailey Value Curve

THE STRATEGY CANVAS OF CIRQUE du SOLEIL (B.O.S.)

Theme

Refinedwatching

enjoinment

Thrills& danger

Uniquevenue

Cinque du SoleilValue Curve

SmallerRegionalCircuses

40

ELIMINATE-REDUCE-RAISE-CREATE GRID (B.O.S.)

THE CASE OF CIRQUE DU SOLEIL

Eliminate

Star performersAnimal showsAisle concession salesMultiple show arenas

Create

ThemeRefined environmentMultiple productionsArtistic music & dance

Raise

Unique venue

Reduce

Fun & humorThrill & danger

41

VOCABULARY OF ADJACENCIES `04*

Local

Internet

Globalexpansion

New Geographies

New ValueChain Steps

New Products

New CustomerSegments

Microsegmentationof current segments

Complements

New toworld

New toworldneeds

Newmodels

New subs.

New Channels New BusinessesDist.

Indirect

Sell capabilityoutside

BackwardIntegration

Forward integration

Unpenetrated segments

New segments

Supportservices

Nextgeneration

*Modified from Beyond The Core, Zook

(B.T.C.)

42

SUCCESS DECLINES WITH DISTANCE FROM THE CORE

Core Declining odds of success Eco

no

mic d

istance

from

core

Diversification

From: Beyond The Core, Chris Zook, 2004

43

CONTRASTING COMPANY PAIRS

UK grocery

Wholesale drug

Mass merch. `83

Retail drug

TESCO

Cardinal

Wal-Mart

Walgreen’s

Sainsbury

McKesson

K-Mart

Eckerd’s

Industry Winner Fizzler(B.T.C.)

44

COMPANY PAIR LESSONS

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)

(B.T.C.)

45

. . .SUSTAINABLE EDGE: GUIDELINES

Multiply 3 waves

Dynamic specialization: outsource all but # 1 essentials

xConnectivity: use outside-in I.T. achieve “performance fabric” for partners xLeverage 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”)

(S.E.)

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) • Call Centers: Philippines, India

(S.E.)

47

OUTSOURCING/OFF-SHORING EXERCISE

I. Amount spent on doing these activities past 12 months?

Versus

II. Resource budget & plans for 0/0 next 12 months?

(S.E.)

48

“LEVERAGE CAPABILITY” TEST

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?

3rd party assessor ASKS most innovative ???(S.E.)

49

PRESENCE* -- IT’S “U”

1) NOVEL INFORMATION

4) REDIRECTING

9) INSTITUTIONALIZING

5) LETTING GO

8) PROTOTYPING

6) EMERGENCE

7) CRYSTALLIZING

*”Presence” by Senge, Scharmer, Jaworski & Flowers.SoL, Cambridge, MA See Exhibit 39 @ merrifield.com

“AHA”

2) QUESTION MAPS

3) SUSPENDING

50

# 1 NOVEL INFORMATION

Our (financial) information supply ruts?

Interview the most:

- Progressive customers & non-customers

- Progressive suppliers & their suppliers

- Supply-chain, bissociation-able consultants

- Profitable & un-profitable customers

Ideas = fuel for innovation

Best way to a good idea is to have lots

(Presence)

51

GUIDELINES FOR INFO IDEAS (1)

Steps 1 - 6 of the “U” all generate ideas

The ones that occur between 5 & 6 are most powerful

We see the world like we are; not the way it is

We think in (unspoken): stereotypes, patterns, paradigms

The world is changing, not the way we think/see

Bad decisions due to mindsets, not quality of info

Mindset shifts are key to breakthrough ideas

What would we do if we couldn’t fail?

(Presence)

52

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

Raise questions about questions

Build a corporate, creative, suggestion/ideapipeline system

Imagine & build first, judge later; try a “yes and” response instead of “yes, but. .”

GUIDELINES FOR INFO IDEAS (2)

(Presence)

53

# 2 QUESTION MAPS

How to outline living edge, new-frontier space with questions?

Those with quick answers see only what their mindsets allow & have reflexive, old-paradigm conclusions

First, get all of the right questions(Examples of Question Maps are atwww.merrifield.com Exhibits # 30 - 33)

(Presence)

54

# 3 - 5: SUSPEND, REDIRECT, LET GO

Don’t debate, have “dialogue” (www.merrifield.com, Exhibit 6)

Name, claim & challenge “groupthink”“What are your underlying facts, assumptions, etc.? (m.com, Exhibit 34)

Redirecting: What are jet stream forcesblowing over our business ecosystem? - Go with the bigger flow.

Let go: retreat, relax, gestate, reflect tosee what emerges. No quick, pragmatic decisions

(Presence)

55

THE “AHA” MOMENT

(5) Letting - AHA - (6) Emergence: all at once; sometimes oscillates

Archimedes & Newton moments

Revelations, epiphanies & grace too

At birth, most such ideas aren’t: seen by all “great”; need careful work welcomed by defenders of the past

(Presence)

56

# 6 & 7: EMERGENCE & CRYSTALIZATION

Initial visions have to get enough people moving

Effective visions are not: made by top-down process imposed

on team rooted in old ways

They are: uncovered within a team process embraced by enough people

(Presence)

57

# 8: PROTOTYPING Avoid fear of failure & analysis-paralysis,

do some quick, cheap, simple experiments

Fail forward toward vision; each prototype communicates our current collective understanding

Without a recipe or roadmap: feel the way learn by doing stay connected to deepest inspiration

sources stay with flow, let the world help

(Presence)

58

# 9: INSTITUTIONALIZING

Turn successful experiments into scalable, lasting success

Lock in right governing ideas & values

The corporate “Kinetic Chain*” must be un-woven & re-woven to insure total, energetic alignment.

In theory, the “U” is circular*Exhibit 16 @ www.merrifield.com

(Presence)

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