The Exponential Economy, Value Creation and the Discipline of Innovation

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The Exponential Economy, Value Creationandthe
Discipline of Innovation
Dr. Len Polizzotto, Vice President
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Our Rapidly Changing WorldWhy is the extinction
rate for companies increasing?
Average Lifetime of SP 500 Companies
Lifetime in Years
Year
From Creative Destruction by Foster and Kaplan
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An Exponential EconomyIts almost impossible to
keep up

• Over the past 50 years, only a few companies have
  outperformed the market
• GE did but it took neutron Jack to do it!
• Kodak did, but no more
• Philip Morris and JJ may have
• All the others are going away
• Companies built to fight the last war not built
  to last
• Enterprise defends older products
• Infrastructure built for older products
• Managements experience based on older products
• Over 10 to 20 years, delays from addressing these
  legacy issues take their toll
• Small- and medium-sized companies create jobs

According to Foster and Kaplan
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DriversMany of the most important new
opportunities are interdisciplinary
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Exponential Growth100 every 18 months
Moores Law
Performance
Time
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A Knowledge Age Trend Increasing numbers of
activities are improving at exponential rates

• Computers
• Memory
• Fiber optics
• Genome
• Web hosts

• Content
• Food
• Entertainment
• Medicine
• Other

6 to 36 months
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GlobalizationAdding fuel to the fire of creative
destruction
Economic growth per year
Western Europe 0-2
United States 4
India and China 6-10
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The Fundamental Role of InnovationInnovation
improves society worldwide

• Growth
• Prosperity
• Quality of Life
• It is needed to address worldwide issues such as
  the environment, energy, health, and poverty

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The Importance of InnovationHow are we doing?

• 18 to 19 out of every 20 new products fail within
  a year
• One out of every 5 to 10 ventures succeeds
• 80 of new jobs come from new companies

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The Product Life CycleThe process of innovation
needs to dramatically improve
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The Best ModelMarket pull, technology-enabled
3
Maturity and obsolescence
Unmet customer and market needs
Value
2
High-Value Innovation
Ideas
1
Time
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The Miracle of InnovationA common view
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Ingredients for Successful InnovationAssuming
favorable government policy, university
infrastructure, industry clusters

• Excellent people
• Excellent technology
• Plus
• Deliver the highest customer value
• Through continuous improvement based on
  innovation best practices

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Innovation ProcessesDo they exist?
"Every CEO will at least give lip service to the
idea that the world is moving faster and that we
need to do a better job at innovation. But if
you go into an organization and ask people to
describe their innovation system, you get blank
looks. They have none."
-- Gary Hamel
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Helpful DefinitionsHow SRI uses these terms

• Creativity Something clever
• Invention Something novel reduced to practice
• Innovation Creation and delivery of sustainable
  new customer value into the marketplace

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Authentic LeadershipBy Bill George, former
Chairman and CEO of Medtronic

• In recent years, many companies have sold out
  to the financial community.In response to
  pressure from shareholder groups, many companies
  have said their primary purpose is to maximize
  shareholder value. They focus primarily on
  serving their shareholders, often neglecting
  their customers. This philosophy is flawed at its
  core. Companies that devote themselves to
  maximizing shareholder value will ultimately fail
  to do so.

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What is Customer Value?An important equation
Customer Benefits Customer Costs

• Customer Value

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Value PropositionsA common language for
systematic, high-value innovation
N Customer/Market Needs
A Compelling
Approach B Customer Benefits/cost C
Worldwide Competition
NABC captures the essential, defining
ingredients of a Value Proposition.
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Value Proposition DevelopmentBasic ingredients
for exponential improvement

• Identify important customer needs
• Define champions and productive teammates
• Write down the value proposition (NABC)
• Iterate often with others
• Regularly
• In a group

If its not written down, its not real
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Things to RememberTell a story and make it
quantitative

• Put yourself in the customers shoes
• Understand what drives the customers business
• Be an expert in the customers microhabitat
• Know the customers customers
• Ask what keeps the customer up at night
• Ask how much the customer would pay for a
  solution
• Latest, greatest technology is not enough
• Combine good technology with great positioning
  and a great team
• Have a compelling, quantitative, value-laden,
  pithy Value Proposition
• You must have a distinctive advantage
• Even if you cannot solve the entire problem, you
  may have the critical missing piece!
• Ask - listen Listen - ask Ask - listen ...

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Ingredients of Systematic InnovationIn a global
exponential economy
Champions
Productive Teams
Value Improvement Process
Organizational Alignment
Important CustomerNeeds
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ConclusionsValue creation requires the
discipline of innovation

• Many huge market opportunities exist
• Systematic innovation is the key to growth,
  prosperity, and quality of life
• To thrive in the worldwide Exponential Economy
• Aspire to provide the highest customer value
• Drive continuous improvement
• Employ innovation best practices

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Who We AreSRI International is a world-leading
independent RD organization

• Founded by Stanford University in 1946
• A nonprofit corporation
• Independent in 1970 changed name fromStanford
  Research Institute to SRI International in 1977
• Sarnoff Corporation acquired in 1987
  (formerly RCA Laboratories)
• 2,000 staff members combined
• 800 with advanced degrees
• More than 15 offices worldwide
• Consolidated revenues of 400 million in 2005

SRI headquarters, Menlo Park, CA
Sarnoff Corporation, Princeton, NJ

• Sarnoff India
• SRI Taiwan Ltd.

SRI State College, PA
SRI Washington, D.C.
SRI Tokyo, Japan