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Innovation Excellence – from Idea to Launch –. Jersey, September 16, 2005. Dr. Christian Weigel. Innovation Excellence – Why?. Improving innovative ability will increase profitability and growth 1). Levers to Increase Profitability and Growth . Enhance innovation ability. 4,3.

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Slide1 l.jpg

Innovation Excellence

– from Idea to Launch –

Jersey,

September 16, 2005

Dr. Christian Weigel


Improving innovative ability will increase profitability and growth 1 l.jpg

Innovation Excellence – Why?

Improving innovative ability will increase profitability and growth1)

Levers to Increase Profitability and Growth

Enhance innovation ability

4,3

Focus on core competencies

4,0

Cost cutting

3,9

Organic growth

3,7

Capital efficiency

3,7

Internationalization

3,7

Active pricing

3,6

Acquisitions and alliances

3,4

2

3

4

5

Low importance

Very high importance

Source: Arthur D. Little Innovation Excellence Study 2005; 1) Same answer across all regions and industries


Innovation turns knowledge into cash l.jpg

Innovation Excellence – Definition of Innovation

Innovation turns knowledge into cash …

Product and service innovation

  • Innovative problem solutions

  • Substitutions of existing products and services

  • New markets

Process innovation

  • Productively increase

Structural innovation

  • New structures of R&D organizations

  • Value chain reengineering

Source: Degussa, Euroforum 2005


And is not limited to technologies and products l.jpg

Products

Service

Supply

Chain

Manu-

facturing

Marke-

ting

Distri-bution

Sales +CustomerSupport

Innovation Excellence – Definition of Innovation

… and is not limited to technologies and products

Over the next five years, how much value do you expect your company to create through innovation in the following areas

Global Response

79

77

74

73

80

67

65

64

60

40

20

Portion of Value Chain

Source: ADL Global Innovation Survey


Innovation is all about hard work l.jpg

Innovation Excellence – Definition of Innovation

Innovation – is all about hard work

Art consists of 90% transpirationand only 10% sudden inspiration(Adolf von Menzel)

Innovation consists of 90% transpirationand only 10% sudden inspiration(Thomas Edision)


Chemical industry is a low intensity innovator l.jpg

Innovation Excellence – Survey Results

Chemical industry is a "low intensity innovator"

Share of sales generated by

products launched in the last 5 years in %

Efficient Innovators

High Intensity Innovators

Inter-industry average

70%

60%

Electrical engineering and Electronics

Automotive OEMsand Suppliers

50%

Aero-space

Pharma-ceuticals

Construction

and Equipment

Telecommunication, IT and Media

40%

Consumergoods and food

Inter-industry average

30%

Public and Professional Services

Financial Institutions

20%

Chemicals/ Resources

Logistics/ Services

Engineering and Manufacturing

10%

Utilities

Low Intensity Innovators

Low Leverage Innovators

0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

Share of R&D budget in total sales in %

Source: Arthur D. Little Innovation Excellence Study 2005


No correlation between r d expenditures and share of new products l.jpg

Innovation Excellence – Survey Results

No correlation between R&D expenditures and share of new products

Various Chemical companies (commodity and specialty focused); 2004 figures

Sales with products younger than 5 years

Average = 2,8

45%

40%

35%

30%

25%

20%

Average= 19,1

15%

10%

5%

R&D expenditure as % of sales

0%

0%

1%

2%

3%

4%

5%

6%


Innovation leader need less for more l.jpg

Innovation Excellence – Survey Results

Innovation leader need less for more

R&D expenditures to generate 1 million sales with a new product

– Chemical industry –

'000 €

1360

+50%

860

+50%

430

Best

Average

Worst

30%

21%

26%

% new productsyounger 5 years


A well balanced innovation approach is one key to success l.jpg

Innovation Excellence – Top Innovation Management

A well-balanced innovation approach is one key to success

Learning from top innovators

Learning from best practices

A well balanced approach

Learning

Customers

Idea Management

Product/Service Portfolio Mgmt.

Customer & Business Results

Business Vision & Strategy

Business & Technology Intelligence

Development & Launch

Post-Launch

Technology Management

Resource & Competence Management

Partners

Learning


Slide10 l.jpg

Innovation Excellence – Market Intelligence

Customer contact and excellent business intelligence form essential components of Innovation Excellence

Gaining Market Intelligence

Direct customer contact

Source for Innovation

Source for Innovation

Systematic market andtechnology screening

Extrovert corporate culture

Clear role allocation

2

3

4

5

Very high importance

Low importance

Source: Arthur D. Little Innovation Excellence Study 2005


Uncover unarticulated customer needs l.jpg

Innovation Excellence – Market Intelligence

Uncover unarticulated customer needs

What?

Clues

How?

Frustrations with current products and services

Anticipating changes

in customers' environment

1. Ill-served needs

Listening tocustomers

+

Frustrationswith current

activities

2. Un-served needs

Watchingcustomers

+

"Blue-sky" dreams about ideal world

3. Un-conscious needs

Speculating with customers


Think of customers broadly l.jpg

Innovation Excellence – Market Intelligence

Think of customers, broadly

YourCompany

Regional

Internat’l

Network

Whole-

saler

Retailer/

Dealer

Customer

Customer’s

Customers

Service

  • Needs / wants ?

  • Satisfaction level ?

  • Future pressure / conditions of success ?


Pivotal factors in idea management include creative employees and business partner l.jpg

Innovation Excellence – Idea Management

Pivotal factors in idea management include creative employees and business partner

Idea Management

Creative employees/ business partner

Methodology to evaluate and select new ideas

Systematic process to generate new ideas

Available time to generate ideas

2

3

4

5

Very high importance

Low importance

Source: Arthur D. Little Innovation Excellence Study 2005


Idea does not necessarily mean market success l.jpg

Innovation Excellence – Idea Management

Idea does not necessarily mean market success

1,919

369

176

32

11

Success

Market

Products

Projects

Ideas

Invention

Innovation

Source: University St. Gallen, Prof. Gassmann


Slide15 l.jpg

Innovation Excellence – Idea Management

Are those companies more successful that involve their customers into the development of new products and services?

"If I had asked my clients what they wanted they would have answered 'A faster horse'!"

Henry Ford, 1863 – 1947

"It seems that just about every industry on mapright now is being reinvented from the customer backwards"

Gary Hamel, 2002

"... users rather than manufacturers are typically the initial developersof what later become commercially significant new products and processes"

Eric von Hippel, MIT, 2002


Remember innovation has many sources 1 l.jpg

Innovation Excellence – Idea Management

Remember innovation has many sources (1)

Thermoplastics-using

Industrial gas-using

Plastics additives

Engineering plastics

Semiconductor and printed circuit board process

Scientific instruments

0%

20%

40%

60%

80%

100%

Innovation Developed by:

User

Manufacturer

Supplier

Other

Source: Evon Hippel


Remember innovation has many sources 2 l.jpg

Innovation Excellence – Idea Management

Remember innovation has many sources (2)

Innovation Sources

Chemical Industry

Industry in general

0%

20%

40%

60%

80%

100%

Customer

Supplier

Science

Competitors

R&D, othersinternal

Source: ZEW: Mannheimer Innovationspanel (Erhebung 1999)


In order to meet the challenges new approaches and methods are required l.jpg

Innovation Excellence – Idea Management

In order to meet the challenges new approaches and methods are required

Ideageneration

Conceptdevelopment

Implementation

Launch

Analyze emotional needs

Involvelead-user

Focus groups

Quality Function

Deployment

Conjoint

analyses

Rapid Prototyping

Toolkits

Product clinics

Next Generation

Road mapping

Empathic design

Communities

Positioning models


In many markets decisions are made emotionally ratio provides only the reasons l.jpg

Innovation Excellence – Idea Management

In many markets decisions are made emotionally – ratio provides only the reasons

Decision hierarchy product purchase

2. Objective reasons for product use

Ratio

Emotion

  • Security

  • Wishes

  • Dreams

1. Decision based on emotional use


For the analysis of emotional factors in case of purchase decision new methods are required l.jpg

Innovation Excellence – Idea Management

For the analysis of emotional factors in case of purchase decision new methods are required

  • Non-verbal communication prevails;"people think in pictures, not in words"

  • Better assimilation in the brain and easier activation of the brain through non-verbal signals

  • Traditional analysis methods (focus groups, questionnaires etc.) strongly "verbo-centric"

  • New methods with approaches to non-verbal articulation of needs; linkage between psychoanalysis, arts, literature and neurobiology


Zaltman methaphor eliciation technique l.jpg

Innovation Excellence – Idea Management

"Zaltman Methaphor-Eliciation Technique"

Example ZMET

Project definition

  • Object of investigation

  • 12 – 30 participants

"Good tasting energy provider"

  • Pictures with strong association to product

  • Pictures: press clippings, picture books, brochures etc.

"Picture"-collection

Digital collages

  • In-depth interviews

  • Point out metaphors

"Symbol of good old times"

Further examples:

  • Translate collages into idea landscapes

  • Interpretation

Idea landscape

  • Arthritis drugs

  • Buick

  • Motorola security system


Slide22 l.jpg

Innovation Excellence – Idea Management

For each market there are lead-users having today already needs they can articulate but which are developed only tomorrow by the broad market

  • Early and intensive customer involvement leads to innovation success(Arthur D. Little Studies 2004)

  • Well-known methods for the analysis of customer needs focus on broad customer groups in well-known markets

  • Despite great efforts hardly any impulses for real innovations

"Our clients want all the same thing: more service, better quality and low prices at the same time"

  • Lead users have today already needs that the total market will develop only tomorrow

  • Lead-user strongly profit from the development of new products or services

Conclusion: Identify lead-users and involve them closely into the product-/ service development


The lead user approach can be applied in markets of industrial and consumer goods l.jpg

Innovation Excellence – Idea Management

The lead-user approach can be applied in markets of industrial- and consumer goods

+

Pilots on wet roads

ABS-System

+

Bikers in the mountains

Mountain-bike

Customerswith sensitive hair

+

Proteinshampoo


A critical success factor is a structured search process l.jpg

Innovation Excellence – Idea Management

A critical success factor is a structured search process

Real-life

example

Infection protection in operating room

  • Search field

  • Project targets and team

Project

start

Cost pressure

Hygienerequirements

Antibiotics resistance

  • Most significant trends in search field

  • Lead-user criteria

Trend

analysis

Minimal budgets

External stress

  • Screening or networking search

Lead-user

search

Surgeons in devel. countries

MASH units

Make-upartist

  • Lead-user workshop

  • Concept development and assessment

  • 2 new products

  • Radically new approach for infection control

Conceptdevelopment

Result


Top innovators explicitly link strategy and clear innovation objectives l.jpg

Innovation Excellence – Innovation Strategy

Top innovators explicitly link strategy and clear innovation objectives

Strategic Planning of Product / Technology Development

Clear product or service strategy

Tight relation between innovation objectives and business strategy

Defined core competencies

Distinct product and/or technology platforms

Strategic make-or-buy decisions

2

3

4

5

Very high importance

Low importance

Source: Arthur D. Little Innovation Excellence Study 2005


Innovation objectives have to be defined l.jpg

Innovation Excellence – Innovation Strategy

Innovation objectives have to be defined

Project examples

Share on technology development

SBU A (40%)

breakthrough

SBU E (30%)

Share on product development

Type ofInnovation

SBU D (10%)

SBU (xy = % of saleswith products youngerthan 5 years in 2008)

SBU C (20%)

incremental

Size of bullet is proportional to sales of SBU

SBU B (10%)

short

long

Investment Cycle of Market


Canon s high speed digital copier business is a good example of successful platforms growth engines l.jpg

Innovation Excellence – Innovation Strategy

Canon’s high-speed digital copier business is a good example of successful platforms/growth engines

Consumer Electronics

Business Electronics

Markets

Office Automation

Products

Cameras

Copiers

Fax

Printers

DigitalCopiers

DocumentSystems

Platforms/ Growth Engines

Precision Machining

Micro-optics

Imaging

Laser Sensing

Networking & Connectivity

Technologies,Competencies

Material Science

Finite Element Analysis

High- Precision Measurement

Fourier Analysis

DigitalElectronics


Top innovators focus on good cross functional teams and a milestone based development process l.jpg

Innovation Excellence – Product Selection and Development

Top Innovators focus on good cross-functional teams and a milestone-based development process

Product Development Process and Project Management

Prioritization of limited resources

Milestone-based product development process

Management of development partners

Methodology of risk management

Collocation of development teams in critical project phases

2

3

4

5

Very high importance

Low importance

Source: Arthur D. Little Innovation Excellence Study 2005


We will jointly select the appropriate portfolio criterias l.jpg

Innovation Excellence – Product Selection and Development

We will jointly select the appropriate portfolio criterias

Project examples

1,0

1,0

1

ideal

ideal

6

3

0,8

0,8

7

1

4

5

8

10

0,6

0,6

2

2

Technology life cycle

9

Market skills

3

10

0,4

0,4

4

5

9

6

7

0,2

8

0,2

fatal

fatal

0

0

0

0,2

0,4

0,6

0,8

1,0

0

0,2

0,4

0,6

0,8

1,0

Technology Position

Technology Position

  • Customer needs

  • Access to clients

  • Knowledge of competitors

1,0

1

ideal

0,8

7

4

3

0,6

6

5

10

9

2

Strategic benefit

0,4

8

  • Potential profit

  • Fit for the business

  • Sustainability of competitiveness

  • Strategic role of technology

0,2

fatal

0

0

0,2

0,4

0,6

0,8

1,0

Risk (technological, commercial)


Slide30 l.jpg

Innovation Excellence – Product Selection and Development

A Portfolio Management based on ECV (Expected commercial value of projects) can lead to a significant increase of the R&D pipeline value

Project examples

Before

After

high

high

NPV

Attrac-tiveness

low

low

low

high

low

high

Risks

Probability of commercial/technical success

Mainly qualitative criteria for selection

Selection based on NPV/probability (ECV)

+40%

Pipeline Value ~ 3,5 bn $1)

Pipeline Value ~ 5,0 bn $

1) ECV based: Expected Commercial Value

Size of bubble = ECV in mio $


Value management starts at the money gate of the stage gate process l.jpg

Innovation Excellence – Product Selection and Development

Value Management starts at the Money Gate of the Stage Gate process

Stage Gate and Portfolio Management

"new" product

Idea/ Proof of concept

Kick-off Gate

Go to testing Gate

Business Case

Develop-ment

Testing & validation

Money Gate

Launch Gate

Launch

Evaluation of single projectbased on NPV and risk

Portfolio review:

  • Prioritization

  • Resource allocation

Budget planning

Strategy

Responsible: Gatekeeper


Slide32 l.jpg

Innovation Excellence – Product Selection and Development

A properly implemented Stage Gate Process can free up significant resources and improve productivity

Project examples

ADL Project example

Benefits

Number of Projects

Status

  • Innovation closer to market needs, due to market justification (business case) in early project phase

  • Resources will be increased in the more cost efficient early phases

  • Projects will be terminated earlier – if required

Target

100%

50%

0%

Time

Stage 1

Idea- Gener-ation

Stage 2

Business Case

Stage 3

Lab-phase

Stage 4

Pilot-phase

Stage 5

Launch

Gate 4

Gate 5

Gate 3

Gate 2

Source: Arthur D. Little


The secrets of success are good project management and technology partnerships l.jpg

Innovation Excellence – Technology and Resources Management

The secrets of success are good project management and technology partnerships

Management of Technology and Resources

Systematic improvement of project management skills

Technology partnerships with other companies

Collaboration with federal research institutes

Active license management

Clear separation between product and technology development

2

3

4

5

Very high importance

Low importance

Source: Arthur D. Little Innovation Excellence Study 2005


Degussa s routes to new business involve project houses and internal start ups l.jpg

Innovation Excellence – Technology and Resources Management

Degussa's routes to new business involve project houses and internal start-ups

New Business Development

Science

Society

Markets

High

Risk

Exploration

& Validation

Internal

Start-ups

NewBusiness

Business

Technology

Corporate

Venture

Project

House

Business

Unit

Medium

Risk

New Technology Platforms

Source: Degussa, Euroforum 2005


Slide35 l.jpg

Innovation Excellence – Delocalization of Innovation

Due to the global innovation competition the early stages of the innovation process become increasingly important

Today

Trend to shift concept- and implementation phase to foreign countries

  • To benefit from efficiency advantages

  • To increase proximity to customers

  • Challenge: Keep proprietary Know How

Ideageneration

Tomorrow?

Concept development

Ideageneration

Implementation

Concept development

Example China

  • With more than 10,000 research institutes

  • Pool of trained scientists (800,000 science and engineering degrees)

  • Repatriation of US educated scientists (over 110,000 scientists since 1994)

Implementation

Innovation performance in

Europe

Asia


Slide36 l.jpg

Innovation Excellence – Measurement of Innovation

Good performance indicators help companies to set the baseline and support improvement in innovation excellence

Key Innovation Metrics

Sales/results of new products

36%

17%

Number of new products

Impact on sales, EBIT, and/or costs

11%

11%

Number of patents

Time to market

4%

Project management measures

3%

2%

Innovation rate

16%

Others

0%

10%

30%

40%

20%

Frequency

Source: Arthur D. Little Innovation Excellence Study 2005


Slide37 l.jpg

Innovation Excellence – Measurement of Innovation

Good performance indicators help companies to set the baseline and support improvement in innovation excellence

Key Innovation Metrics

General metrics, indirectly related to innovation, e.g.

Metrics directlyrelated to innovation

47%

53%

  • Customer satisfaction

  • Total sales

  • Market share

  • EBIT

Source: Arthur D. Little Innovation Excellence Study 2005


Possible innovation balanced scorecard l.jpg

Innovation Excellence – Measurement of Innovation

Possible Innovation Balanced Scorecard

illustrativ

3. Portfolio und Pipeline Health

– Erwartungswert der F&E-Projekte

1. Umsatz aus neuen Produkten

%

Mio. €

30

900

Neue Produkte

20

600

Neue Varianten

300

10

AlteProdukte

0

0

2003

2004

2005

2003

2004

2005

2. Rentabilität der F&E

4. Innovationsklima

40

Verhältnis F&E-Aufwand/ Deckungs-beitrag

neuer Produkte

Innovations-klima Index

1,10

Bester Wett-bewerber

30

1,00

20

Wir

0,90

10

0

0,80

2003

2004

2005

2003

2004

2005


In der post reengineering welt wird innovation zum schl sselerfolgsfaktor l.jpg

Innovation Excellence – Innovation and Stock Markets

In der Post-Reengineering-Welt wird Innovation zum Schlüsselerfolgsfaktor

Average Shareholder Return vs. Innovativeness Rating

80% Zustimmung zu der Feststellung

60%

50%

"Top management's commitment to and focus on increasing its organization's innovative ability could lead to significant bottom line results over and above typical costcutting and re-engineering initiatives"

Source: ADL innovation survey

40%

30%

20%

10%

Average Annual Shareholder Return 1986-96

0%

-10%

-20%

3,00

4,00

5,00

6,00

7,00

8,00

9,00

Innovativeness Rating

Innovativeness Rating: Based on America’s Most Admired Corporations, Fortune Magazine ranking of 578 U.S. companies based on executive peer ratings and investment analyst evaluations.


Impact of innovation on chemical stocks value drivers l.jpg

Innovation Excellence – Innovation and Stock Markets

Impact of innovation on chemical stocks' value drivers?

Portfolio Focus

Earnings Predictability

Long-term sales growth

Scale

Capital Structure

Profitability/ROIC

Source: CSFB


Innovative enterprises l.jpg

Innovation Excellence – Innovation and Company Climate

Innovative enterprises …

Build an innovative culture

Time and budgets for ideas/exploration

Open up communication, build flat hierarchies

Establish errortolerance

Set enterprise target innovation

Break down think barriers

Question thestatus quo

Destroy status-quo-mentality and cemented structures

Increase speed of change

Source: Degussa, Euroforum 2005


Slide42 l.jpg

Turn employees into entrepreneurs

Offer incentives to build new business, share success instead of jealousy

Establish fast decision process

Install and use tools

Implement professional knowledge management

Build cooperations with knowledge institutions globally

Give access to external and internal knowledge for everybody

Innovation Excellence – Innovation and Company Climate

… and …

Source: Degussa, Euroforum 2005


Achieving innovation excellence can boost the ebit margin l.jpg

Innovation Excellence – Survey Results

Achieving Innovation Excellence can boost the EBIT-margin

Improvement Potential

Shorten time to market…

24.8%

65.0%

Top

line

Increase rate of innovation1) …

23.6%

80.0%

Increase sales…

13.5%

55.8%

Reduction of product

cost …

Bottom

line

15.4%

43.3%

Reduction of develop-ment cost2) …

15.0%

46.3%

Absolute increasein EBIT margin

ø all companies

3.6%

11.4%

ø of Top Performer(Top 5%)

1) Number of successful new product launches per year; 2) Project specific development costs

Source: Arthur D. Little Innovation Excellence Study 2005


Slide44 l.jpg

Innovation Excellence – Summary

As a number one priority, companies worldwide are targeting the huge untapped potential to improve profit growth through innovation management

1

Innovation-based profit growth tops the corporate agenda again

Innovation excellence can boost EBIT-margins by 4%

Top innovators have 2.5 times higher sales of new products and get more than 10 times higher returns from their innovation investments

A well-balanced innovation approach is the key to success:

  • Good business intelligence

  • Clear innovation objectives linked to strategy

  • Milestone-based idea generation and implementation process

  • Measurement of/feedback on innovation performance

  • Wise use of partnerships

  • Right innovation climate

2

3

4


Innovation related processes l.jpg

Appendix

Innovation-related processes

  • Informal

  • Ration resources

  • Analysis

  • Formal

  • Extensive

  • Elaborate/formal

  • Isolated

  • Removed from Mkt

  • Underestimated/used

  • Excluded

Innovation strategy

Planning focus

Planning emphasis

Communications

Staff involvement

Decision process

R&D

Product managers

Technology

Outsiders

  • Defined/clear

  • Identify opportunities

  • Action

  • Informal

  • Minimum

  • Short/informal

  • Exposed to market

  • Attuned to market

  • Well understood/used

  • Participate


Innovation related attitudes l.jpg

Appendix

Innovation-related attitudes

  • Not explicit

  • Short-term

  • Not tolerated

  • Not accepted

  • Buried

  • Little emphasis

  • Rigid/enforced

  • Disliked

  • Low/unrealistic

  • Corporate interests

Interest in innovation

Payback horizon

Mavericks

Failure

Lessons from failure

Interpersonal skills

Corporate norms

Uncertainty

Mgmt. expectations

Staff emphasis

  • Explicit

  • Long-term

  • Tolerated

  • Accepted

  • Extracted/shared

  • Strong emphasis

  • Not enforced

  • Accepted

  • High/reasonable

  • Personal development


Innovation related policies l.jpg

Appendix

Innovation – related policies

Partnerships/ acquisition

Careers for innovators

Rewards for innovators

Structure

Innovation resources

Product champions

Work groups

Decision mode

R&D budgets

Innovation success

  • Closed

  • Inexistent

  • Not Available

  • Centralized

  • Scarce

  • Individuals

  • Discouraged

  • Autocratic

  • Below average

  • Ignored

  • Open

  • Dual ladder

  • Available

  • Decentralized

  • Available

  • Teams

  • Encouraged

  • Participative

  • Above average

  • Publicized