Innovation: A Primer

Srinivas Thummalapalli

Catalyst

Agenda

• Necessity

• Definition & Illustration

• Types of Innovation

• Ideation Cycle

• Personal Role

• Triggers of Innovation

• Business Model for Innovation

• Institutionalizing Innovation

• Results

• Innovation Metrics

• India & Bharat Innovates

• Way Forward

Necessity

Innovation is single most differentiating element of

sustainable corporate growth and success

Innovation is one of the top most priority in current

economic scenario

- Monitor Group Study

- Boston Consulting Survey

- Business Week Survey

- Forrester Survey

- McKinsey Survey of Leaders

- Accenture Survey

Sine’ Qua Non’

Superlative and sustained financial performance of Most Innovative firms vs. Their Peer Group Members

• On Total Shareholder Return

• Revenue Growth

• Growth in the Profits Margin

- Businessweek / S&P World Innovation Index

Definition

Innovation is transforming the creative prowess to

build value and enhanced financial performance

Or

Innovation is conversion of a

new idea into revenues and

profitsOr

Innovation is “Uncommonsense” to derive profits

Definition

Innovation is NOT invention

Financial Industry

• First Indian bank to provide internet banking

• First bank in the world to securitize microfinance portfolios

• First bank in India to provide ATM facility for bill payments

• First bank in India to connect all ATMs (voice enabled and

multilingual) with WLL technology

• First bank in India to auction Non-Performing assets

• First bank in India that has revolutionized the Retail

segment

• Who am I?

Consumer Goods

• Designed in California

• Made in Taiwanese Factories in China

• Built with SDRAM from Samsung

• Marketed all over the world

• Unique business model for revenue generation

• Pasha of Innovation: Consistently rated as Most Innovative Firm in the World

• Iconic brand for innovation. Yes I can be used for communicating as well…

• I could have done better in India )-:

• Who am I?

Consumer Goods

• I can be used as a phone, as an alarm clock, radio, flashlight, all under Rs.1000

• I originally belong to paper industry, then on to rubber manufacturing, then into communication industry, but gravitated towards mobile telephony and wish to be a Internet firm

• I can be procured from 100,000 vendors in hinterlands of India

• I can operate at 2% margin but immensely profitable to the extent of being Numero Uno in my markets

• Who am I?

Reaching to Masses: Catalytic Innovation

• 5.6Million borrowers across 6000 villages are serviced

• I have lent USD5.2Billion with recovery rate of >98%

• Co-owned by borrowers to the extent of 95%, 2% by Government, rest by other lending institutions

• Profits are used to increase the lending base and capital

• Lead by a Noble Prize Winner for Social Change/Financial Inclusion

• Who am I?

Types of Innovation

Incremental

Intersectional

Disruptive

Platform

Business Model ( High Leverage and high

payouts) Closed Innovation

Open Innovation

Directional Innovation

Gradual improvement in a particular area,

topic, field that benefits the firm

Ex: Process Improvements

Chip Sets: from 386-486-Pentium

Intersectional Innovation

Explosion of ideas

Better success rate of innovation

Idea germinates at the intersection of couple of fields

Cargill, USD50B firm( grain harvesting + financial derivatives= Risk Management products for investors and farmers)

Aquavit: Swedish Restaurant in New York( base Swedish ingredients and fusion with intercultural dishes)

Sahara African construction: absolutely cool architecture by mimicking Ants

Disruptive Innovation

• Disruptive: game changing experience to

the Firm; hitherto non-consumers are the

targets, dramatic increase in the overall

financial performance

• Ex: Southwest Airlines, Personal

Computers

Platform Innovation

Innovation is creating a platform for

customers to co-create their own

experience (N=1)

Mobilizing the resources (external and

internal) to make it happen (R=G)

- Prof.CK Prahlad

- Co-Creation, Crowd – Sourcing,

Democratizing innovation, Open Innovation

Co-Creating Innovation with Customers

• Provide a platform or tool kit that Customer can “play” around

• Improvise your ( supplier) production processes

• Refine the toolkit

General Mills design of cereals( breakfast)

Pomarfin-Finnish firm, in the shoe-designing, uses Italian design group Mazzucato, Estonian factories, software developers of Finland, Own dealers, for one UNIQUE experience, ie YOU

ING + Unisys = Reduction of Claims processing from 10-20days to 20-30seconds.

Skype: e-Bay owned platform enabling, voice, data, video communications on Net

Customers Creating Innovation

• Java, Linux, and other open source products

• BBA( provides flavors to Nestle and other

agencies): Online preparation of new flavor• It has USD1000 – USD300,000production cost for

every sample, acceptance rates are only 10%; No

stake in the development costs( fixed costs);

• Now it is time to market and fewer trials as the

customer is directly involved in the tasting and testing

Closed vs Open Innovation

• People: All smarts vs Some smarts

• R&D Realization: internal vs collaboration

• Time to Market: we do it first vs non-ownership of IP

• Firm to innovate first vs Better Business Model for given innovation

• We win if we have most and best ideas vsleverage internal and external ideas

• Control the IP vs Profit from other‟s use of our IP, buy others‟ IP whenever it advances business model

Open Innovation

Mobilize the minds across locations, units,

industries, capitalize the mobilizing workforce

Funding Options: Venture Capital industry

External Options for Ideas sitting on the shelf

Increasing capability of external suppliers

User Innovation

Jake Nickell and Jeffrey Kalmikoff started Threadless

Headquartered in an outdated printing plant in Chicago

Started in 2000 and grown into USD100,000 firm with user community of 10000, in 2001 to USD30M in 2007 with similar margins

Revenues are growing 500% YoY

Margins are growing at 30% YoY

Emulated the Open source software development

Combined their passion for design, utilitarian movement

Blurs the customer and developer experience

Platform to design, vote, win, order and improvise the product and platform/experience

Taps into the human nature to express oneself in one‟s field; Here in it is the amateur designers in a different medium called Tees

Engages the user community to maintain the pristine trust with which the “movement” has grown into a profitable venture before making any business decisions( retail, brand extension to children clothes, on the shelves of leading retailers etc)

Transformative Process

• Follows a predictable cycle

• Interaction-Insight-Ideation-Prototype-Testing-

Commercialization-Realization

Ideation Cycle: Definitions

• Originality + Relevance = Creativity

• Creativity + Value Realization = Innovation

• Ideation is a f( creativity)

Inventive Process

• Associative barriers: enablers and hindrance

• (command, foot, apple)

• Reverse Assumptions( restaurants)

• - restaurant without any menu, price, no food!!

• Combine the concepts, randomly(Enigma vs Blatchey Park: secret code Division

• a way of perspective of breaking up a product and reconfiguring it

• Ex: Simple Rug, broken into 4 Ruglets which can be used in standalone and unified mode (

• Task Unification (building a task into the current feature)

Ex: Automotive windshield to have defrosting; Luggage with Wheels( to enhance mobility)

Inventive Process

• Attribute Dependency Change( lens of the

spectacle and outside temperatures; stiffness and

length of the mattress)

- Systematic Inventive Process

- “Теория решения изобретательских задач”

(Teoriya Resheniya Izobretatelskikh Zadatch)

- IDEO Process

Ideo Process• Learning Personas

• The Anthropologist:

• soaks the ideas by intense observation

• Polish railway stations: vending machines with large clocks, a big hit

• SMS texting : teens lingua franca

• The Experimenter

• Accelerates the idea to prototype/tangible output

• Inventions to be demonstrable

• Tupperware, an employee of Dupont got patent for airseal. Brownie Wise first realisedthat it is “Burp”

• Gyrus ENT: nasal surgical equipment----Diego Surgical Systems

• The Cross-Pollinator

• (genesis of intersectional innovation)

• Frisbees are from the apple pie making lids of Frisbee Baking Company

• IBM Punch Cards of Mainframe are from Weaving industry

• PUR Water purification system to Mr.Clean auto washing auto-dry

• How US eye surgeons can learn from Aravind Hospitals in Madurai for USD10 eye cataract operation?

Ideo Process

• Organizing Personas• The Hurdler

• Converts hurdle into a solution

• Myra Goodman started Earthbound Farm Organic products

• Baby lettuce for salads in pre-washed, pre-specified quantities ziploc bags shipped

• Lexus: quality issue turned to customized maintenance service

• Scotch Tape by Richard Drew, a junior lab technician

• The Collaborator

• Opposition into profitable cooperation

• The Director

• Make things happen in right direction

• Provides the stage for visibility to others

• Name the programs, make it ebullient brimming with confidence and zest

Ideo Process

• Building Personas• The Experience Architect

• Stave off the ordinary to extraordinary experiences

• Minimizes the commodization to provide delightful experience

• Antifreeze in radiators: 50% antifreeze and 50% water, fills the

raidator; nasty way to check this out

• Hence pre-mixed antrifreeze ( gain 50% profit by selling water)

• Dutch Boy: changed the size and shape of the paint, nozzles,

lids, enable frequent on and off

• Water to designer experience( flavored, specific utility, luxe

spending)

• Ikea‟s affordable style

Ideo Process

• The Set Designer

• Work environment that taps and harnesses the creative sparks

• P&G: The Gym;

• The Caregiver

• Helping the customer make the right choice with intent listening

• Best Cellar Wines: simplified the whole gamut of wine selection into a standardized matrix: fresh, soft, luscious, fizzy and four for red wines: juicy, smooth, big and sweet

• Archrival( an athlete shoe maker in NY)

• Provides a safety net to the customers in trying new things

• Bank of America „s return on innovation: every point improvement in wait perception is equivalent to USD1.4 per customer

• The Storyteller

• Right story at right time

• Builds the credibility

Personal Role

Continual Learning

Passion to be a better person, professional, role holder

Self-Awareness: strengths and limitations

Its inevitability of inter-dependence

Personal alignment

Sense of Purpose in staying the course

Diligence in execution, in realizing the potential

Triggers for Innovation

• Look across Alternate Industries

• Ex: Net Jets( strategic pricing, flexibility)

• Upfront fixed costs are nil; recurring costs are

equivalent to a commercial airline ticket

• Ex: NTT DeComo Imode service

• Integrated mobile internet access for pre-specified

and pre-selected sites.

Triggers for Innovation

• Look across the Strategic groups within an

industry

• Ex: Curves: combined the traditional health club

and home exercise program exclusively for ladies

in utmost privacy

• Word of mouth advertising; Revenues USD1billion

• Membership of USD30 per person per month

• Ex: Sony‟s walkman: combining mobility and high

fidelity acoustic experience

Triggers of Innovation

• Look across the Chain of Buyers: go across the

traditional notion of buyers / customers

• Ex: Novo Nordisk, Danish pharma major created

NovoPen( disruptive) in 1985: customer is not

Doctor, but the patient; Improvised( directional

innovation) to Innovo

• Ex: Bloomberg: has come out with two terminal

stock exchange platform for traders( one for prices

and the other for what if analysis): shift from

Purchasers to Users

Triggers of Innovation

• Look across Complementary Product and Service

Offerings

• Ex: NABI, a Hungarian Bus Mfg company( total

solution orientation to the selling of buses to local

governments)

• In 2002, it is rated as 32nd most successful

company in the world by EIU

• Ex: Philips Tea Kettle( flushes out the limescale

and minimizes in the tea making )

Triggers of Innovation

• Look Across Functional or Emotional Appeal to

Buyers

• Ex: QB( Quick Beauty): moved from emotional to

functional space in salon experience in Japan

• Charles Schwab: emotional personal relationship

oriented investment banking into purely

transactional low-cost functional business

• Viagra from Pfizer: shifted functional to emotional

plane( of addressing a medical ailment to lifestyle

enhancement)

Triggers of Innovation

• Look across Time: spotting the trends

• Ex: iTunes: legal, affordable, ala carte‟ song

downloads vs Napster, Kazaa, Lime Wire(tide of

teens)

• Ex: CNN: Live News Coverage for the first time in

the broadcasting industry( tide of globalization)

• Ex: Cisco Router: ( tide of high speed data

connectivity)

Triggers of Innovation

• “Unarticulated Need” Fathom Out

• Ex: L‟Oreal, has designed a mascara specially for

Japanese woman

• Ex: 3M has introduced Display Systems from

Optical Systems Group

Business Model for Innovation

• Identified Market Segment• Ex: Xerox: Corporate and Govt Market

• 3Com: Corporate PC Market

• Value Proposition• Ex: Xerox: High-quality copies at a low monthly lease

rate

• 3Com: Establishes the file and printer sharing between IBM PCs

• Elements of Value Chain• Ex: Xerox: Entire copier system including supplies

• 3Com: Focused on Ethernet protocol and add-on boards

Business Model for Innovation

• Defined Cost and Margins• Ex: Xerox: Modest profit on equipment and high profit

on supplies

• 3Com: High Volume and low unit cost

• Positioned in Value Network• Ex: Xerox: First Mover in dry-copy process

• 3Com: Set the IEEE 802 standards

• Utilized PC distribution Channel

• Formulate Competitive Strategy• Ex: Xerox: competed on technical product quality

• 3Com: competed on new channels and standard

Institutionalizing Innovation

• Motivating Purpose & Values

• Stretching Goals

• Choiceful Strategies

• Unique Core Strengths

• Enabling Structures

• Consistent Reliable systems

• Courageous & Connected Culture

• Inspiring Leadership

Institutionalizing Innovation

• Innovation agenda in the strategic decisions

• Build the talent that can tap into their creative

prowess

• Shape the culture that fosters the innovation( risk

taking, intrapreneurship, corporate ventures, trust

and respect for individuals, not necessarily the

monetary incentivization)

Results

• Since World War II, P&G had 17 Disruptive

Innovations

• Half the revenues are still emanating from these

disruptive innovations

• Incremental innovations are always nurtured

• Each of the disruptive innovation has stood the

times and become either Number One or Two in

product category

• Market cap is doubled to USD100Billions;

Earnings per share increased by 12%

• Profits have been tripled to USD10Billions; Free

Cash Flow of USD50 Billion exists

Results

• P&G Brands• Tide/Ariel

• Pampers

• Gillette Blades

• Heads & Shoulders etc..

Innovation Metrics

• Number of Ideas Selected

• Quantum of funding provided to the projects

• Time to Market( tracking the complete cycle)

• Profitability out of Innovations in the last 1-3 years

• Percentage Growth associated with New

Products/Solutions

• Cannibalization of Ideas during testing phase

• Percentage growth in net margins after the

inception of innovation systems

Bharat Innovates• 1. Instant Curd: by Pamula Chandrasekhar of Rajahmundry

• Got patent in 2004 for UDDS Curd, FDA approved.

• Increase the mileage of the scooters with the increase in its speed

• 2. Amphibious Cycle: Mohammad Saidullah in Motihari-Bihar

• Rs.3000 per piece; based on daily needs of the villagers

• Patented; National Innovation Foundation awardee; Wallstreet Journal‟s Asian Innovation Award.

• 3. Smooth Drive: by S. Gopalakrishnan, Wall Street, Asian Innovation Golden Award winner.

• Created a “electronic catalytic converter” that enables easier burning of the fuels. Saves fuel by 20%, mileage is increased and emissions are cut by 90%

• 4. Grain Bank: started in October 2004

• To address acute food shortage in September-October months

• Situated in Maner Telpa, with Rs.5000 investment from local NGO

• Bank with 1156kg of food grains; interest of 1kg for every 5kg loan; replenish in the harvest period; Started in one village; spread across 60 villages in Bihar

• Bihar government is in active discussions with this bank to systemitize

• 5. Elephant Foot Yam cultivation: fashionable, affordable, multiple revenue streams, non-arable to arable with better productivity, by Shankar K Choudhary in Samastipur( Muzaffarpurto Vaishali)

• Products: Litti, Pickles, and other food products

• From 1356SFT to 5000acres of land under cultivation

Bharat Innovates• 5. Nano Ganesh: a modem, an interface between 3.8V handset and 415V

electrical pumpset.

• Cost is reduced from Rs.7500 to Rs.150

• 5000 farmers are currently using it

• To operate their pumpsets in remote mode at their will by punching in the

pre-assigned code

• Firm: Ossian Agro Automation by Mr.Santosh Ostwal

• 6. Honey Bee Network: promoted by Prof.Anil Aggarwal, IIM-Ahmedabad,

coordinates with National Innovation Foundation

India Innovates

• Tata‟s Nano( world‟s cheapest car)

• Maruti Suzuki( for non traditional customers)

• Marico‟s After Shower for Men, Kaya Skin Care,

Refined Oils

• M&M‟s Scorpio Passion( custom built)

• Air Deccan( inspired by Southwest Airlines)

• ITC( reinventing business models)

• Wipro: 7.5% of its revenues or from Innovation

• TCS: “ Platform “ and “disruptive” innovation

• Infy: SET Labs, Patents, Monetization

Clean Fuels: New Area of Innovation

• Pregnant with possibilities

• Billions have been invested

• Most potential ones…Sapphire Energy, a combination of best of the brains in scientific community

• Formally instituted in 2007

• Developed a revolutionary molecular platform that converts sunlight and CO2 into renewable, carbon-neutral alternatives on non-arable land to conventional fossil fuels without the numerous downsides of current bio-fuel efforts. First up: renewable gasoline.

• Carbon neutral fuels; Similar molecule buildup; Renewable gasoline

• Highest leverage by Venture Capitalists

Quantum Computing: New Area of

Innovation

• D-Wave Systems with 60 Phds in Physics are

running the show

• Quantum computing: f( Qubits) Operationalized 28

Qubit computing platform

• Solves Su-Doku puzzles

• Needs the power of 1000Qubit computing

• Qubit: a bit with dual values of 0 or 1 at given time

• Extremely mind boggling speeds of crunching the

numbers

• Usual suspects: IBM, HP, Microsoft are

researching their way…

Summing it up…

• Invention and Innovation are different

• Innovation: incremental or disruptive

• Innovation is a transformative process of tapping

creative energies into enhanced financial

performance on sustainable note

• Innovation can be co-created, in-house,

outsourced

• It spans of innovation in business models,

products, services, business processes

• Pattern of transformation exist

• Robust Innovation Capability is what is required

Way Forward

• Stop Talking, Start Doing• IBM‟s Way

Acknowledgements

• I sincerely thank all the sources of

information and incisive thought leadership

of Innovation Gurus/Leaders, whose

insights have indeed inspired me to

present this topic

• Information herein contained does belong

to respective firms and is acutely

acknowledged.

The Firm

• Credo• Nourishing Intellect

• Mission• To foster innovation

• Vision• To be the preferred trusted advisor

• Name• Su = Good

• Mantrana = Advise

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For an ongoing dialogue…

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