Innovation by Legacy Firms Does Not Have to Be an Oxymoron* Yoram (Jerry) Wind The Lauder Professor and Professor of Marketing Director, The Wharton SEI Center for Advanced Studies in Management windj@wharton.upenn.edu PCI IT Conference New Orleans, LA April 4, 2017 1
Objectives I. Explore why legacy firms can rarely come up with breakthrough innovations Page: 3 II. III. Discuss the innovation challenges facing the participants Suggest the importance of challenging one s Mental Models & 10 guidelines to enhance/reinvent the innovation engines of legacy firms 15 16 IV. Develop a set of action plans for the individual participants and their companies. 39 2
I. Why can t legacy firms come up with breakthrough innovation? Forbes, Breakthrough Brands, December 2016. 3
The Innovation Challenge of Legacy Firms Fortune 500 in 1955, but not in 2015 88% Fortune 500 in both 1955 and 2015 12% In addition, there are a number of Fortune 500 firms in 2015, which were not in 1955 including: Perry, Mark. Fortune 500 firms 1955 v. 2016: Only 12% remain, thanks to the creative destruction that fuels economic prosperity. AELdeas, Dec 13, 2016 4
Consider: Cell Phones Old New By the Numbers: Blackberry s stock reached a peak market value of $83 billion in 2008, just after the arrival of the Apple iphone in 2007. By June 2015, Blackberry was worth only $5 billion and Apple made $60.3 billion from iphone sales in 2016 alone. Source: Statista 2017 5
Consider: Hotels Old New Source: Yahoo Finance/CB Insights, https://www.theatlas.com/charts/hyjvbqfd, July 12, 2016 6
Old Consider: Photography New Smartphones and tablets Feb 24, 2017 7
Consider: Grocery Stores Old New Five-Year Stock Performance AMZN vs WMT Amazon.com Wal-Mart Stores Yahoo Finance, February 2017 8
Consider: Shopping Old New $240b 9
Old Consider: Movie Rentals New Source: Hub Research, What s TV Worth, April, 2016 10
Consider: Car Service Old New Source: Todd W Schneider, Taxi, Uber, and Lyft Usage in New York City. <http://toddwschneider.com/posts/taxi-uber-lyft-usage-new-york-city/>, 2017. 11
Consider: Cars Old New Google car 2017 Tesla Source: SiddharthDalal, seekingalpha.com, 2016 12
Consider: Music Old New 13
Why Can t Legacy Firms Be the Breakthrough Innovators? Protecting the past Risk avoidance and lack of understanding of the real risk Old Mental Models Lack of sense of urgency Arrogance W W Other? 14
II. What Are Your Innovation Challenges? 15
III. Guidelines for Shattering the Shackles 16
Challenge and Change your Mental Models Let s consider Robbery at Knifepoint Updated July 1, 2016 8:55am What just happened? 17
Beliefs, behaviors and actions are driven by our Mental Models, not reality. 18
The Power of Mental Models Inner City Alternative Medicine Democrat 86% Independent 51% Republican 11% Roger Bannister breaks the 4 Minute Mile on May 6, 1954 Source: Gallup Daily, April 2016 http://www.gallup.com/poll/politics.aspx 19
What is common to these innovations? Microsoft Xbox 360 Kinect $2000 Car Samsung SGH-E760 Apple ipad Napster Google Glasses MIT s Media Lab $100 laptop They changed the mental models of their industries 20
The Key Points: Mental Models Are Critical To Success Without changing our pattern of thought, we will not be able to solve the problems we created with our current pattern of thought. - Albert Einstein 21
What is your Mental Model of Breakthrough Innovation? 22
Should we challenge your Mental Model of Breakthrough Innovation? 23
Approaches for Challenging Mental Models 1. Look for customer and employee insights and engage them 2. Set stretch objectives 3. Develop an idealized design Industry Sector Disruptors 4. Bring the radicals in 5. Destroy your brand 6. Redefine your competitors 24
10 Guidelines for Shattering the Shackles 25
1. Manage innovation as a portfolio encompassing all three innovation horizons New III Exploration into new world markets Existing d II Adjacent growth I Markets Current Improvements, extensions, variants, and cost reductions Current Existing New OFFERING/ BUSINESS MODEL / TECHNOLOGY 26
2. Challenge Your Business Models and Leverage Your Dormant Networks Business models and multipliers High x8x+ 5x 4-5x Multiplier Low 1-2x Asset builder 3x 2-3x Service provider Service provider Technology creator Technology creator Network orchestrator Network orchestrator Low Scalability High 27
The 10 Principles of Network Success Technology Finance Strategy Values Leadership Customers Workers Metrics Innovation Governance Physical Tangible Operator Transaction Commander Consumer Employees Accounting Silo Board Digital Intangible Allocator Subscription Co-Creator Co-Creator Freelancers Big data Transparency Shared 28
3. Think Platforms Uber Facebook 29
And Consider: A digitally powered market network gives insurers access to the products they need to grow their business, by enabling them to sell a richer set of insurance offerings, without taking on additional risk. Brand Recognition Simplified Access Market Expansion Improved Customer Acquisition The Results From 2014-2016: Sales performance using the platform from 1,600 to 63,387 Premium flowing through the platform from 200 million to 1.4 billion Platform uses increases from 3,300 to 5,300 30
4. Foster Talent and Adopt a New Leadership Model Identify Recruit Develop Manage Retain creative talent Investor Network Orchestrator Co-creator 31
5. Adopt open innovation Innovation => Creating the 3 rd Dimension To help protect your privacy, PowerPoint has blocked automatic download of this picture. A million apps!* *http://www.apple.com/ipad/ Are you doing it? 32
6. Create a Creative, Agile and Engaged Culture SEI Investments, Oak, PA Bloomberg HQ, New York, NY Google HQ, Mountain View, CA Facebook HQ, Menlo Park, CA 33
7. Follow Best Practices and Get the Needed Buy In Prepare your people for change Maximize adoption of workday Generate positivity and excitement Open the lines of communication and engagement Limit resistance Drive commitment and ownership Elevate the quality of your solution Empower your people to make better decisions Proactive change management makes it possible Source: Accenture, Change Management, Accenture Technology on Slideshare.net, December 2015. Changing the Basis of Competition: Doing Anything (legally and ethically) that Upsets the status quov Changes the rules of the game Increases our value to the customer Thereby resulting in a novel and powerful competitive advantage that is difficult for competition to respond to "Story:Nike's Gameplan for Grow th That's Good for All." Nike's Gameplan for Growth That's Good for All Management Innovation EXchange. N.p., n.d. Web. 17 Mar. 2017. 34
8. Leverage the Forces of Change their Speed and Magnitude 5. New Business and Revenue Models 1. Disruptive advances in Science and Technology Uncertainties 2. Exploring Redefined and Enhanced Media Landscape Opportunities Threats 4. The disruptive Cultural, Social and Geo-Political Environments 3. Skeptical and Empowered Consumers 35
9. Align the Organizational Architecture A Culture & Values Vision Objectives Value Proposition Business models Strategies H Performance Measures & Incentives B Structure & Governance C Processes The Organizational and Network Stakeholders: Customers Employees Shareholders Partners Suppliers Government Communities Other G Technology F Resources D E People and Competencies Facilities Empower the Champions and focus on speed and urgency... and Provide Incentives, Recognition, and Rewards 36
10. Adopt Adaptive Experimentation Response Response x $ - - - - - - - - X X X ½x x 2x $ 37
Challenge your Mental Models and follow the 10 Guidelines 1. Manage innovation as portfolio encompassing all three innovation horizons 2. Challenge your business models and leverage your dormant networks 3. Think platforms 4. Foster talent and adopt a new leadership model 5. Adopt open innovation 6. Create a creative culture 7. Follow the best practices and get the needed buy-in 8. Leverage the Forces of Change 9. Align the organization architecture and provide incentives and rewards 10. Adopt adaptive experimentation Questions? 38
IV. Action Plans for the Individual Participants and the Company Align the organization architecture and provide incentives and rewards Leverage the forces of change Create a creative, agile and engaged culture Challenge Your Mental Models Think Platforms Foster talent & adopt a new leadership model What are the implications of the guidelines? (and the need to implement them) 39
Design an experiment to address your specific challenges and enhance your innovation capabilities 40
Reflections & Action Plans for You and Your Firm 41
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Based on Chapter in: For further information: windj@wharton.upenn.edu 43