Innovation there is no option

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• Innovation there is no option
• Alistair Keddie
• WIMRC Seminar, 27 February 2007

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Innovating Companies

• Grow faster than non-innovators
• Are much more profitable
• Sustain higher performance
• (From an analysis of 500 listed companies by
  Geroski Machin)

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Definitions

• Innovation the successful exploitation of new
  ideas
• new products, services and processes driven by
  customers and markets
• enabled by science, technology, design and new
  business practices
• creates wealth, improves wellbeing, uses
  resources more efficiently/productively
• Value added
• Wealth created by companies/organisations
• Measured as sales less cost of bought-in
  materials, components and services

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Levels of Innovation
Zone 3 Transformational Innovation
Zone 2 Relative Innovation
Zone 1 Incremental Innovation
Minor product or service enhancements eg the new
LandRover Discovery Coke with lemon
Improved customer care
Innovations that build on existing
products/services Taking existing products to
new markets eg Dyson cleaner Carphone
Warehouse Supermarket on-line shopping
New concept products or services, Breakthrough
value propositions and business models eg mobile
phone, I-Pod, Low cost airlines, Web-based
banking
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Some quotes

• The fundamental characteristic of a modern market
  is not price, but innovation.technological
  superioritythe best technology wins, the second
  best loses
• Innovation is as much an attitude of mind as a
  scientific or practical exercise (Sir Paul
  Girolami, Chairman, Glaxo, 1993)
• Innovation is the key to growth because it
  delights our customers
• We are managing in chaos, and this is the right
  way to manage innovation..in reaching our goals
• (William Coyne, Senior Vice President RD, 3M,
  1996)

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Some Quotes

• Innovation drives profits and improves the human
  experience
• Principles of successful innovation
• Hire the best and let them lead you, regardless
  of title or department
• Create communities with partners, customers and
  business groups that allow collaboration and open
  innovation
• Create small groups and give them autonomy task
  forces, not steering committees
• Allow public debate, but know when the debate
  should end and then move quickly to focus
  resources
• Have the courage to make the hard decisions
• Great companies and leaders pursue projects with
  dramatic potential
• Innovation is a messy business
• (Jonathan Schwartz, CEO and President, Sun
  Microsystems, 2006)

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Global Pressures - Examples

• Exports of manufactured goods from developing
  countries
• 2005 25 è 2025 50
• Graduates produced per year
• 2 million in both China and India
• Growth in RD investment
• 15 per year in Singapore
• Environmental issues
• Climate change
• Waste minimisation

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Global RD Growth Rates, 2000 2005 (From
Booz Allen Hamilton, 2006)
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Value Added by Knowledge Based Services and
Industries
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DTI Innovation Report Economic Message

• UK Businesses will only achieve long-term success
  in global markets by focusing on greater value
  added as their competitive edge.
• Innovation is the key to achieving this.
• Businesses need to keep innovating to stay ahead
  of the competition.

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DTI Innovation Report Key Conclusions

• UK innovation performance accounts for
  significant part of productivity gap
• Weaknesses in innovation and productivity
  performance affect all sectors
• Need more innovation in business and a larger
  number of innovative businesses more high value
  added activity
• Government has significant role to play by
  influencing behaviour of business and other
  participants in the innovation system

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Critical Success Factors
Innovation
Regulatory environment
Access to finance
Sources of new knowledge
Customers Suppliers
Capacity to absorb and adapt new knowledge
Competition entrepreneurs
Networks collaboration
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Business Innovation
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Public Policy Context for Business Innovation

• Enablers
• Intellectual property framework
• National Measurement System
• Technical standards

• Advice and Support
• Best practice
• Programmes
• Support for
• Developing new
• Technology
• Help for accessing
• Finance
• RD Tax Credits

• Opportunities
• Public procurement
• Regulations

Business innovation

• Building blocks of innovation a supportive
  climate
• Macroeconomic stability
• Competition policy
• Education, training and skills
• Science and technology
• Physical and IT infrastructure

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Characteristics of Innovative Businesses

• An innovation culture with corporate leadership
  that expects growth through development of new
  products and services.
• A worldwide focus, often requiring early
  expansion overseas.
• A balanced growth strategy, with a majority of
  organic growth and targeted acquisitions to enter
  new markets or acquire critical expertise.
• A focus on what really matters to the customer.
• Above average investment in market-led research
  and development.
• Above average investment in physical and business
  processes
• Sources DTI analysis of company reports to
  compile Value Added and RD Scoreboards,
  reporting on the performance of major UK and
  European companies. The analysis has identified
  successful companies that invest heavily in
  innovation.

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Innovation and RD

• RD is only one measure of innovation performance
• RD is a measure of technological innovation it
  does not capture non-technological aspects
• RD accounts for about 40 of all investment in
  innovation
• RD intensity (RD/Sales) is a key benchmark of
  company investment in RD, especially in RD
  intensive sectors
• But a low RD intensity does not necessarily mean
  a firm/sector does not innovate, or does not
  generate substantial value added

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RD Performance of UK Based Firms

• Within any sector UK based firms have similar RD
  intensities to their competitors in the same
  sector
• But the UK has relatively few large firms and low
  economic activity in some high RD intensive
  sectors
• Hence overall UK business RD investment is below
  that of major competitors in terms of RD
  intensity (RD/Sales), 1.8 for the UK compared
  with 2.6 for France, 3.80 for Japan and over
  4.0 for Germany and the USA

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Challenge More Business RD in the UK

• Government wants to see total UK RD (business
  and public) increase in real terms from 22.5
  billion per year (1.9 of GDP) to 39 billion
  (2.5) between 2004 and 2014
• Business share of this would increase by 12
  billion per year, from 14.5 billion to 26.5
  billion
• How realistic is the ambition?
• What are the options for achieving it?
• Is there a better alternative to simply focusing
  on RD ?

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Grouping of Sectors by RD Intensity

• Group 1. High intensity ( 5.0 or greater).
  Pharmaceuticals biotechnology and health some
  chemistry-based sectors.
• Group 2. High intensity (5.0 or greater).
  Electronics and IT which include electronics
  electrical, IT hardware and software computer
  services.
• Group 3. Medium intensity (2.5 to 4.9).
  Engineering and chemicals. This group includes
  aerospace, automotive and chemicals.
• Group 4. Low intensity (1.1 to 2.4). Includes
  beverages, food producers and telecomms.
• Group 5. Very low intensity (up to 1). Includes
  construction, oil gas, mining and utilities.

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Performance of High-Leverage Innovators (From
Booz Allen Hamilton, 2006)
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HighLeverage Innovators Geographical
Distribution (From Booz Allen Hamilton, 2006)
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Examples of High-Leverage Innovators (From
Booz Allen Hamilton, 2006)

• North America
• Apple Computer, Black Decker, Caterpillar,
  Dell, Exxon Mobile, Google, Kellog, Par
  Pharmaceutical, Research in Motion, SanDisk, St
  Jude Medicical, Symantec, Yahoo
• Europe
• Adidas, Cadbury Schweppes, Christian Dior,
  Volvo
• Japan
• Casio Computer, Kobe Steel, Komatsu, Konica
  Minolta, Toyota Motor
• Rest of World
• AU Optronics, Hen Hai Precision Industry,
  Hyundai Motor, Mediatek, Petrobas, Samsung
  Electronics, Tata Motors, Teva Pharmaceutical
  Industries

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Case Study Grippel, Sheffield

• Product spring loaded wire tensor
• Markets agriculture, electrical and lighting
• Performance
• 30 growth per annum
• 90 exports
• 6.7 of revenues re-invested
• 27 stock turns per year
• 24 hour delivery
• 1.2 labour costs, reduced from 40 in 1989
• People
• 146 employees, 86 are shareholders
• All involved in continuous product and process
  improvement
• 7 of time on training
• Fun place to work

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Another Quote

• We dont want to manufacture because you end up
  running the plant rather than running the
  business
• (Tony Moloney, Co-founder, Anthony Allan
  Foods/WeightWatchers, 2007)

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A final quote

• He that will not apply new remedies must expect
  new evils for time is the great innovator
• (Francis Bacon, Essay on Innovation, 1625)

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Some Questions

• Can successful innovation be managed?
• Does the best technology always win?
• Is the Government objective of increasing UK RD
  investment from 1.9 to 2.5 of GDP by 2014
  realistic?
• Do the most successful business models exclude
  manufacturing?
• How long can the low wage advantage of emerging
  economies last?

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References

• Geroski and Machin, Business Strategy Review,
  Summer 1992, pp 79-90
• DTI Innovation Report, Competing in the global
  economy the innovation challenge, December 2003
• DTI Economics Paper No 11, RD Intensive
  Businesses in the UK, March 2005
• The 2006 RD Scoreboard, Commentary and Analysis
  Part 1, DTI and Company Reporting Ltd, October
  2006
• The 2006 Value Added Scoreboard, Commentary and
  Analysis Part 1, DTI and Company Reporting Ltd,
  July 2005
• The Global Innovation 1000, Booz Allen Hamilton,
  Special Report, 2006
• Manufacturing Excellence Awards, 2004

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