Enhancing business performance through effective research and innovation practices Dr. Anil Khurana Partner PwC Management Consulting Organization logo to appear here
Introduction 3
PwC Management Consulting and Innovation As the world s leading professional services firm, PricewaterhouseCoopers provides a range of services management consulting, deals, tax, and audit and has more than 180,000 employees and operates in more than 150 countries. PwC has been operating in the Middle East for over 40 years. Dr. Anil Khurana Partner PwC Middle East PwC conducts numerous global and regional studies focusing concentrating on numerous industries on strategy, supply chain, governance, regulation and many other topics. We also conduct industry specific research. Our global study on innovation is published bi annually. 4
Kennedy s View: PwC s PRTM Is a Growth & Innovation Leader Within the Consulting Industry Kennedy Information: PwC's PRTM Is #1 for Methodological Strength of R&D Strategy and PSD Consulting Approach #1 (tied) for Innovations Solutions across All Consulting Areas #1 for Product and Service Launch Operations PwC's PRTM has been an industry leader in product development acceleration for decades, having conducted more than 1.250 product innovation engagements over the firm s lifetime PwC's PRTM s proprietary Product And Cycle-time Excellence (PACE ) framework is the single most robust blueprint for successful product development and commercialization in the marketplace The firm and its Product and Service innovation practice are among the most results oriented of consultancies and build strong ROI cases into its offering * * Kennedy Information R&D Strategy and Product & Service Development Consulting Marketplace 2009 2012 High Methodological Strength Low Low Consulting Excellence Frontier ABeam Altran CSC Accenture PA Capgemini IBM KSA PRTM A.T. Kearney PwC Roland Berger ZS Associates Solution Breadth and Depth Deloitte Clarkston Booz & Co. BCG Monitor Bain McKinsey High 5
PwC s PRTM Developed the Product And Cycle time Excellence (PACE) Reference Model Our Product Innovation Framework Stage 0 Informal Management Stage 1 Functional Excellence Stage 2 Product and Project Excellence Stage 3 Portfolio and Platform Excellence Stage 4 Extended Enterprise Innovation or Open Innovation Managing Within the Function Managing Across Functions Managing Across Projects and Products Managing Across Portfolios Based On an Industry Standard Evolved over 30 Years from Over 1,000 Engagements The model is empirical and has expanded to the right as new advanced business capabilities and development practices have become more widely used The higher the stage of maturity the more agile, open and able to drive game change Stages model is used to diagnose performance gaps and to implement best practices missing at the company 6
Framing Innovation it starts with strategy results in growth How you innovate determines what you innovate 7
PwC s 2013 global innovation survey 8
Insights from PwC s 2013 Global CEO Pulse Survey 9
Part of the reason for this significantly increased emphasis on innovation are the megatrends at work These megatrends are causing disturbances to heritage businesses and creating new opportunities for growth. 10
PwC s 2013 global innovation survey More than 1,700 Board level executives from 25 countries and 30 sectors provided their insight on innovation: 1. How are companies using innovation to drive growth and what is the return on the investment? 2. How are approaches to innovation changing? 3. What are the best practices and critical success factors that deliver tangible business results? 11
PwC s 2013 global innovation survey The size of the 1700+ companies ranged from a small a couple of million dollars revenue per year to large well over $70 Billion per year. This is the largest and most comprehensive study of its kind exploring growth and innovation from a global, multi sector perspective. The Middle East had slightly more than 150 respondents. 12
PwC s 2013 global innovation survey Middle East cut 13
Innovation enables sustainable growth and is transforming businesses 79% of the most innovative companies in our study have well defined innovation strategies Over the next 5 years, the most innovative companies are set to grow at twice the pace of the global average, and three times of the least innovative companies Top innovators treat innovation just like any other business or management process that can be disciplined and successfully scaled. Only 1/5 of the most innovative businesses manage innovation informally. The most innovative companies collaborate more often (34%) than the least innovative (10%). Leading innovators are targeting a higher proportion of breakthrough and radical innovations, particularly around products, services, technology and business models. 14
The road to growth (1/2) Leading global innovators are each anticipating an extra 6% per annum in growth on average. What are they doing differently? 15
The road to growth (2/2) We conducted a correlation and regression analysis for the ME to look at what sets successful innovators apart from other companies. This highlighted six important ingredients. Innovation strategy Customer focus Innovation culture and risktaking Innovation investment Co development with partners Measurement of progress and results The first 3 ingredients explain >75% of the performance variance 16
Driving growth requires a balanced portfolio incremental and breakthrough innovations (1/3) Leading innovators greatly expand value creation The top 20% of the companies have a strategy that greatly expands their value creation. Leaders have much higher amounts of breakthrough innovation in their portfolios. But even more importantly, leaders are not just innovating in the traditional product, service, and technology arenas, but also changes to the business model, business systems and processes, and the customer experience. 17
Driving growth requires a balanced portfolio incremental and breakthrough innovations (2/3) Interestingly, more ME respondents expect to emphasize breakthrough and radical innovations than globally! 18
Driving growth requires a balanced portfolio incremental and breakthrough innovations (3/3) Focus group: Oil and Gas, and Chemical companies Oil and gas executives are already expecting between 32% and 47% of their innovations to be major advances in every area we looked at with the exception of products, where innovation primarily applies to companies operating downstream. These levels of breakthrough and radical innovation are a major departure from historic portfolios that generally contained 10% 20% breakthrough and radical innovations. Although chemical companies don t expect as much breakthrough and radical innovation in products, the latter are still the number one innovation priority. Top 20% innovating companies (sample of 359) Oil and gas companies (sample of 66) Chemical companies (sample of 66) Bottom 20% innovating companies (sample of 395) 19
Types of innovation Innovation is of different types the definition we used While the most obvious innovation relates to either product or service and technology, others, related to processes (manufacturing or business), channels, operating models, and business models also play a role. 20
The growing importance of understanding the customer and their experience Also, more ME respondents emphasize the importance of customer experience 21
Leadership and healthy risk tolerance are key elements of the innovation culture (1/2) Focus group: Oil and gas companies 22
Leadership and healthy risk tolerance are key elements of the innovation culture (2/2) Focus group: Chemical companies 23
The importance of collaboration and partnering Collaborating for Innovation Collaboration is a core competency of innovation leaders there are a billion IQ points outside of any company that can be harnessed to drive successful innovation. The survey shows that innovation leaders (top 20%) collaborate more than the average company across a range of partnerships with strategic partners, customers, suppliers, and academics. With which of the following do you have a plan in place to collaborate over the next 3 years, to deliver innovative products and services? Strategic Partners Customers Suppliers Academics Further, innovation leaders work hard to be the Partner of Choice in their innovation ecosystem. Competitors Top 20% Bottom 20% 24
The importance of collaboration and partnering Focus group: Oil and gas companies In the oil and gas sector collaboration is especially important due to the high cost and long lead times associated with oil and gas advancements. Joint projects between oil majors/super majors, oil field service operators and strategic partners, suppliers or universities are becoming the norm rather than the exception. And cooperation is spanning the globe. 25
Best practice examples: Open innovation Focus group: Oil and gas companies Canada Oil Sands Innovation Alliance (COSIA): Consists of 14 companies which joined forces to improve the oil and gas environmental impact. Launched in March 2012, members have shared 446 distinct technologies and innovations with a development value of $700+ m. 180 projects are being executed under COSIA. Shell s Game Changer program: Started in the down cycle for oil and gas in the 1990s during times of pressure for R&D costs Combines open innovation, incubators and corporate venturing. Assures that ideas that drive business forward long term don t disappear. More than $250 m have been invested, turning 3,000 ideas into 300 commercial projects Partners with universities in the US and Europe Central x business team listens to ideas and decides on whether they should be developed into a formal proposal which is followed by a panel consisting of 3 Game Changer team members and 3 technical experts. Evaluation and decision are made on the spot. Statoil s Innovate portal: Discussion group which hosts innovation challenges and accepts free form ideas. 26
Best practice examples: Shaping the innovation portfolio around megatrends Focus group: Chemical companies Many chemicals companies have been proactively looking to shape their business portfolio around megatrends big issues having a global, long term impact, like the shift to alternative energy, urbanisation and the need for better nutrition. BASF: A third of BASF s R&D investments on projects for increased energy efficiency and climate protection Dow Chemical: Dow Chemical has developed a new POWERHOUSE Solar Shingle which is expected to become a disruptive innovation for homeowners as well as the building industry in terms of performance, aesthetics and simplicity of installation. It s the primary reason that Dow Chemical was identified in the field of Energy and Materials as one of 2013 s 50 Disruptive Companies on MIT Technology Review s annual list of the world s technology companies whose innovations are having the biggest impact 27
Ultimately, innovation is about people being able to, and being free to try out new things, taking some risks, and talking to each other, and having frequent successes 28