PART 3 MAKING IT HAPPEN CH' 7, TARGETING INNOVATION

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PART 3 MAKING IT HAPPENCH. 7, TARGETING
INNOVATION

• By Stephen M. Shapiro

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• I. HOW TO EVALUATE MANY NEW IDEAS
• A. NEED GUIDELINES TO EVALUATE OPTIONS
• UPS conveyor belt shut down
• Nobody could figure out problem, called
  consultant
• Walked to electrical box
• Turned 1 screw
• 10,000 500 for turning the screw,9500 for
  knowing which screw
• Not enough resources to innovative everywhere
• B. DETERMINING PRIORITIES
• Insurance companies each differentiates
  different capability
• Underwriting
• Claims fulfillment
• Distribution network
• Customer service
• Depends on strategy

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• C. EVALUATING INNOVATION OPPORTUNITIES
• Big picture change in one area affects other
  areas
• Strategy rank Capabilities according to
  strategic importance
• Evaluation how much value does each add?
• Opportunity how well is Capability performing
  today?
• D. MACHINE TOOL COMPANY IN MIDWEST
• Innovators greatly improved electrical component
  assembly
• Created bottlenecks downstream
• Instead of demotivating innovators
• Sent them to Hawaii for 3 weeks
• Others worked out bottleneckswhile innovators
  gone

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• E. BELGACOM TELEPHONE COMPANY
• Easy to see where to target innovation
• Went from 1 year to install phone, to 40 days to
  5 days
• Went from 55 of repairs in 48 hrs, to 95 in 48
  hrs, 82 in 24 hrs
• F. MERGER CAN BE OPPORTUNITY TO INNOVATE
• GlaxoWellcome and SmithKline GlaxoSmithKline
• Reinvent critical product development Capabilities

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• II. NOT ALL CAPABILITIES CREATED EQUAL
• A. INNOVATION TARGETING MATRIX
• Transaction Capabilities
• Repetitive tasks, same way every time
• Require little human intervention
• Knowledge Capabilities
• Nonrepetitive
• Require human insight
• Strategic importance horizontal axis
• Differentiating Capabilities define firms
  special nature
• Core Capabilities critical to business, not
  differentiators
• Support Capabilities not peculiar to any one
  organization, HR, IT
• Position firms current activities on Matrix
• Position competitors on Matrix shows their
  strategies

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• B. MOVING BEYOND THE BOXES TO THE LINES
• Move activities from one position to another
• Down-skill a Knowledge based Capability and
  Transactionalize it
• Hire your customer
• Dell customer configures computer, frees up
  sales reps
• Up-skill a Transactional Capability and make it
  Knowledge-based
• Use nurses, engineers, or social workers in call
  centers
• Avoids using more expensive doctors, etc.
• Take a Support Capability and make it
  Differentiating
• Make a counterintuitive move outsource RD
• Think of something before competitors
• Stimulates discussion
• Differentiating Capabilities direct reflection
  of strategy
• Core Capabilities can be transactionalized
• Support Capabilities should be minimalized or
  outsourced

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• C. THE HUNT FOR EFFICIENCY
• Identifying opportunity for improvement
• Focus on potential for growth
• Avoid concentrating on cutting costs
• Avoid concentrating on operational improvements
• Look for ways to add more value to existing
  customers
• Reach untapped markets
• Target Differentiating Capabilities with high
  potential for improvement
• Extend some Capabilities continuing improvement
• Outsource Capabilities
• Support, not core
• Which offer big opportunity for improvement
• Nike outsources everything except RD
• Improving Capabilities no Capabilityshould be
  ignored

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• D. BEYOND THE STANDARD ITM
• Can be used for training organizations, like
  Accenture
• E. AVOIDING THE PITFALLS
• Playing It Safe trap
• Improve a Capability this is safe, easy to
  improve
• Proves nothing
• Squeaky Wheel trap
• Pick Capability most people are complaining about
• Rush to fix problem
• Assumes squeaky wheel needs the most oil
• Scarce resource, oil, not necessarily best used
  for squeaky wheels

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• III. CREATING VALUE
• A. QUANTITATIVE AND QUALITATIVE INFO
• Companies using subjective and objective measures
  of perf.
• Models available
• B. SENSITIVITY ANALYSIS
• Know the effect of a change in activity on
  shareholder value
• Change parameter 1, keep other parameters
  constant
• Bank 1 increase in noninterest expense-big
  impact
• Firm 1 reduction in COGS, 27 improvement in
  shareholder value

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• C. THE BIGGER PICTURE
• How change affects other Capabilities
• Improvement has 25 chance of improving overall
  business
• 50 chance of not affecting overall business at
  all
• 25 chance of having negative effect on overall
  business
• Is magnitude of change proportional to benefit?
• Cost of achieving change cant hurt other
  operations
• Insurance company improve customer service
• Pulled people from investment section
• Now in receivership
• Does the organization have capacity to change
• Need resources
• CEO demanded increase in sales
• Sales VP you cut my staff in half!
• Dependencies reduce cost of billing reduced
  paper
• Customers confused, called call center
• Overall costs rose

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• IV. A PORTFOLIO OF CHANGE
• A. RADICAL CHANGE V. INCREMENTAL CHANGE
• Aim for moon, not enough rocket fuel to reach
  moon
• US utility wanted 26 M cost reduction
• No new technology, organization orcompensation
• No resources for innovation
• What you reward, you get
• B. EACH FIRM HAS LIMITEDCAPACITY FOR CHANGE
• Incremental
• Radical, Evolutionary
• Radical, Transformational, Revolutionary