The Challenges of Innovation - · 5 IBM Innovation Day – Zurich – November, ... IBM BCS...

© Copyright IBM Corporation 2006

IBM Global Business Services

The Challenges of InnovationManaging Product Innovation to improve R&D effectiveness

Bruno FernandezAssociate Partner – GBS France

IBM Innovation Day – Zurich – November, 14th 20062



Even Product & Services Innovation isn’t the only source of Innovation, CEOs have highlighted specific objectives in this area

0% 20% 40% 60% 80% 100%

Faster Response toMarket Needs

New Products/ServicesDevelopment

DifferentiatedProducts/Services

OperationalEfficiency/Effectiveness

OrganizationalGovernance and

Electronics

All Industries

2004 CEO Survey

2006

CE

O S

urve

y

High priority market factors for CEOs

2006

CE

O S

urve

y




The amount of money spent on R&D does not correlate with business success

R&D Spending versus Total Shareholder Returns in the Electronics Industry (1994–2003)1

Source: Thomson One Banker; IBM Institute for Business Value analysisNote: (1) Includes 98 companies categorized by S&P as communication equipment, healthcare equipment, and industrial conglomerates, as well as companies in the IBM BCS

segment “Industrial – Electronics.”

40-

30-

20-

10-

0

10

20

30

40

50

60

0 5 10 15 20 25

Electronics IndustryMedian R&D Spending: 7.9%Median TSR: 10.5%

Ann

ualiz

edTS

R(%

)

Dell

Intel

ASML

Nokia

Siemens

Texas Instr.

Lexmark

JabilCircuit

Ericsson

Avaya

Apple

Novell

VeritasSoftware

AgilentTechnologies

Sun

Cisco

Maxim Integrated Products

Hon Hai

HP

IBMQualcomm

EMC

Motorola

10 Yr average annual R&D

spending (% of revenues)

MicrosoftOracle

ATI Techn.

Samsung

DanaherTyco GE

Canon

Philips

Taiwan Semi

Sony

Sharp

Fuyitsu

Minebea

Invensys

Cookson

TDK

NEC

Adobe

BMC Software

LucentToshiba




Building capabilities in innovation management is the foundation for profitable growth

IBM’s Innovation Management Model

TechnologyPlanning

Platform Management

1. Driving the right innovations

Market Planning

Pipeline Management

PortfolioManagement

2. Doing innovation projects right

Source: IBM Innovation Management Business Competency Model, U.S. Patent Pending

- Increased revenue growth - Increased gross margin growth- Speed to market - Focused R&D expense- Risk reduction - R&D effectiveness

The combination of these capabilities create substantial value:




Innovation Management and Engineering Management

Source: IBM Business Consulting Services, 2002

Top- Down and Bottom-Up approach

1. Larger capability to analyze multiple projects: Increased ideation from improved Market Planning

2. Faster convergence on the right projects (go/no go): Improved investment decision from Portfolio Management

3. More projects successfully addressed Increased innovation: yield flexibility from Platform Management

4. Faster end-to-end throughput: Faster Time-to-market from Pipeline Management

5. Efficient Engineering Operations: Improved Productivity from Engineering Management

1

4

3

Strategy Engineering OperationsTop DownUp Bottom

Product Innovation Management

Opportunities Product Design Chain Product Fulfilment - ServiceAfterSalesOpportunities Product Design Chain Product - ServiceAfterSales

Market Planning Concept Design Production Planning Manufacturing ServiceAfterSales End of life Market Planning Concept Design Production Planning Manufacturing ServiceAfterSales End of life

2

5

1-Market Planning involves getting the right products for the right opportunities to the right market segments

4-Pipeline Management means efficiency in the total life cycle, from concept to service, including people, processes and technology

2-Portfolio Management targets the right investments in development tied to ROI, strategic direction, risk

3-Platform Management means the right architecture to deliver more products and leverage development and procurement expenditures

5-Engineering Management to support the 4 above processes means efficiency or the Engineering teams in the various Engineering disciplines, Top/Down and Bottom/Up flow of information, Reuse/Risk Management/Component Management

IBM BCS Product Innovation Management Diagnostic Framework assess five key capabilities




Product Innovation Management DiagnosticsMarket Planning

The PIM-Market Planning provides essential market linkage and strategy to drive key product development decisions.

This offering provides a diagnostic and prescriptive review of the client's Market Planning process, technology and governance necessary for effective operation.

Scope• Market/environmental analysis• Market segmentation• Business strategy, alignment, optimization• Market-driven business plan management

• Definition of current market planning process, technology and governance

• Issues analysis • Best practices comparison and gap

analysis• Economic justification for action• Strategic roadmap development

Content

Market Market PlanningPlanning

STRAGTY – KDA´sCorporate & Business Unit MaximsProduct Innovation & TechnologyBusiness Technology ManagementCapability Change Management

ORGANIZATION – KDA´sTeam-Based ManagementOrganizational TrainingResource Planning & Management

PROCESS – KDA´sMarket UnderstandingMarket/Product Opportunity AnalysisMarket Attack PlanProcess DefinitionProcess PerformanceRisk ManagementProject PlanningProject Monitoring & Control

TECHNOLOGY – KDA´sOptimized Capability Architecture Capability Digitization




Product Innovation Management DiagnosticsPlatform Management

Common Building Blocks (CBB) integrates the elements of strategic sourcing (SRM) with the engineering power of platform architecture, design simplification and risk reduction.The initial offering in this area will focus on creating a CBB strategic roadmap.

Scope

Content

PlatformPlatformManagementManagement

STRAGTY – KDA´sProduct PlatformsReference Architecture StandardsPlatform ModularityCommon Building Block OptimizationBusiness Technology ManagementCapability Change Management


PROCESS – KDA´sProduct Family PlanningPlatform/Module Development PlanningProcess DefinitionProcess PerformanceRisk ManagementProject PlanningProject Monitoring & Control


• Part/product rationalization (SRM)• Part catalogues and content mgmt (SRM)• Management councils (SRM partial)• Platform architecture and process• Design for reuse/preferred parts• Early design decision support tools• Integrated design/sourcing

• Best practices analysis of current process, organizational and technology capabilities to drive part reuse and engineering efficiency.

• Cost implications of current level of engineering practice for platform architecture, design for reuse and integration

• Strategic roadmap to achieve an integrated CBB approach and cost justification for investment.




• Program and project standards• Scalability of development process for

programs and projects• Management interaction/intervention• Shape of the development funnel• Decision check point structure• Team-based Management

Product Innovation Management DiagnosticsPipeline Management

Pipeline Management addresses efficiency in the total product or service life cycle – from initial concept through launch, after sales servicing, and end-of-life.The initial offering in this area will focus on creating a pipeline management strategic roadmap.

Scope

Content

PipelinePipelineManagementManagement

STRAGTY – KDA´sScheduled Management InterventionIntegrated Financial ManagementBusiness Technology ManagementCapability Change Management


PROCESS – KDA´sTough Go/Kill DecisionsIntegrated project Information Product Lifecycle InformationProcess DefinitionProcess PerformanceRisk ManagementProject PlanningProject Monitoring & Control


• Best practices analysis of current process, organizational and technology capabilities to drive efficient and effective development.

• Strategic roadmap to achieve pipeline management excellence with cost justification for required investment.




Product Innovation Management DiagnosticsPortfolio Management

Portfolio Management ensures that the innovation resources of the enterprise are balanced with respect to the stated strategy of the firm, the resources available, the market conditions, and other internal and external factors.The initial offering in this area will focus on assessing a firm’s portfolio management capability.

Scope

Content

PortfolioPortfolioManagementManagement

STRATEGY – KDA´sPortfolio Value MaximizationPortfolio Strategic AlignmentPortfolio Strategic BalanceBusiness Technology ManagementCapability Change Management


PROCESS – KDA´sPeriodic Portfolio ReviewsIntegrated Go/Kill DecisionsProcess DefinitionProcess PerformanceRisk ManagementProject PlanningProject Monitoring & Control


• Strategic fit of development projects/programs• Strategic priorities and balance assessment• Resource management• Team-based management• Portfolio review process• Portfolio management decision support tools

• Best practices analysis of current process, organizational and technology capabilities to drive portfolio optimization.

• Strategic roadmap to achieve excellence in the portfolio management discipline –including a cost justification for the improvement initiative




Integrated Development Process (IPD) in the IBM framework for new product / service introduction designed on Industry Best Practices

Project Development Teams

Concept Plan Develop Qualify Launch Life Cycle

Profit

Satisfied Customers

Integrated Portfolio Management Team (IPMT)

Understand the Market-place

Perform Market Segmen-tation

Perform Portfolio Analysis

Develop Business Strategies& Plans

Align & Optimize BusinessPlansacross BusinessUnits

Manage Business Plan and Assess Performance

Investment Review Board (IRB)

Resources AllocationInvestment PrioritiesCorrective ActionsPerformance Data

Offering

Past strategies

Market information

Customer feedback

Competitor information

Technology trends

Current product portfolio

Offe

ring/

Solu

tion

Bus

ines

s Pl

an

Market CharacterizationCustomer requestPricing/ Term strategyDistribution strategyIMC strategySupport strategyFulfillment strategyPerformanceRisk assessment

Candidate Projects

Portfolio Management

Market Planning

Platform Management

Pipeline ManagementBefore

540k

2%

5k

25%

12%

After

250k

59%

1.2k

1%

5.8%

Part NumbersPart Numbers

Parts ReuseParts Reuse

SuppliersSuppliers

Abandoned ProjectsAbandoned Projects

Development E/RDevelopment E/R

Resul

ts



The Challenges of InnovationFrom Product to Services Transformation

Bruno FernandezAssociate Partner – GBS France




Difficult to grow through products

Growth through Products is the ‘Lifeblood’ of manufacturing companies but many market factors are making It increasingly difficult

Globalization

Commoditization of once-unique products

Rapid information dissemination

Rapid product obsolescence

Rapid saturationof markets

Heightened customer expectations

Increased levels of risk

Innovation overload

Facing strong market challenges, providing Innovation and Business Solutions to Clients is becoming the new battleground in the Electronics Industry




These market dynamics are forcing most manufacturing firms to re-examine their strategic focus and to move to an integrated services model

• Product research and development

• Vertically integrated production and supply chain

• Cost reductions and economies of scale

• Services not designed into products

• Product research and development

• Vertically integrated production and supply chain

• Cost reductions and economies of scale

• Services not designed into products

ProductProduct--Based Based FocusFocus

New ServiceNew Service--Based FocusBased Focus

Drivers for ChangeDrivers for Change

• Products are being commoditized

• Product differentiation is difficult

• High levels of manufacturing assets

• Customers are increasingly demanding solutions, not products

• Products are being commoditized

• Product differentiation is difficult

• High levels of manufacturing assets

• Customers are increasingly demanding solutions, not products

• Products customized to customers’ needs

• Service offerings to differentiate products designed into products

• Partnerships with customers and suppliers

• Products designed for customization & agile manufacturing

• Products customized to customers’ needs

• Service offerings to differentiate products designed into products

• Partnerships with customers and suppliers

• Products designed for customization & agile manufacturing

Product commoditization and customer new behaviors push Electronics companies to move to Services and to provide business solutions.




The IBM transformation experience provides some insight into the key success factors in building a services business within product company

“I have worked in services companies and product companies. I will state unequivocally

that services businesses are much more difficult to manage… the skills required in

managing services processes are very different… the business model is different.

The economics are entirely different.

This is the kind of capability you simply can’t acquire. The bet you’re really making is on

your own commitment to invest both the years and capital, then build the experience and

discipline it takes to succeed”.

Louis V. Gerstner

Commit for long run to business and cultural change– Services profitable challenge, divisional boundaries need to

be overcome

Invest in people and processes to support them– Services depend on knowledge and active community

Align resources closely to customer demands– Build skills and solutions that are customer specific

Stick to core strengths and stay focused on strategy– Avoid distractions and understand brand permission

Build and leverage multiple value chains– Alliances and co-opetition become a way of life

Adapt, anticipate – be quick to innovate– Continuously review, refocus and regenerate portfolio

Based on our own experience, we have learnt some key best practices to be successful in Services transformation.




Some companies have failed because they mistook “services” for a simple growth strategy rather than a transformation

Poor Value Propositions

Although services are fundamentally differing, many manufacturers continue to relying on product centric information on customer’s needs and wantsLack of customer information leads to lack of insight on customer preferences, misunderstanding basic requirements or underestimation of expectations

Low barriers to entry in services leads to a tit-for-tat death spiral with competitorsCompanies end up running faster and faster, creating broader and broader offerings, without achieving their desired growth or margins

Many manufacturers, when forced to discount a bundled solution, typically occurs in the services area – typically the area of greater marginsServices then become the ‘free T-shirt’ for the larger, product portion of the deal

Services business models are so dramatically different from traditional product-centric models, the business distracts management and focusThe results are typically detrimental to both businesses

Many of these pitfalls can be avoided by having a strong grasp of the differences in services business model designs and the key requirements for execution

Easy to Duplicate Offerings

Ineffective Bundlingof Products-Services

Loosing Product Focus




Four primary Services business models are emerging within the Manufacturing sector

Product Centric Professional Services

Profit Mechanism

• After sales support• Warranty services• Maintenance

Offerings

• Problem solving expertise

• Functional or technology specializations

Outsourcing/ Alliances

• Lower salary and/or infrastructure cost

• Increased flexibility• Reduced headcount

Value Proposition

• Bundled with products

• Yearly fixed price or variable contracts

• Fixed fee contracts• Time and materials

contracts

• Multi-year, fixed contracts

OperationalApproach

• Integrated product/ services delivery

• No separate services organization

• Traditional Services engagement model

• Separate services organization

• New channels

• Headcount transfer • Mutualization• Separate

organization• New channels

Information Services

• Information based services for:

MaintenanceInventory MgmtSupply ChainTrading …

• Tiered, value-based pricing

• License fees

• Networked products• Remote monitoring

devices

Moving to Services successfully required to understand clearly the different Services business models in order to define the right strategy and roadmap.




The capabilities required to successfully execute each model varies significantly

Product Centric Professional Services

Bottom Line

• Lower risk model• Entry business

model • Significantly

leverages existing assets and knowledge

• Intellectual capital and people are only assets

• Broad range of skills needed to scale business

Outsourcing/ Alliances

• Riskier business • Higher revenue,

lower margin business

• Strong operating model required

Information Services

• Need deep understanding of customer needs

• Highly scalable model once infrastructure in place

• Product knowledge• High service level

capabilities• Ability to leverage

existing sales channels

• Documented methodologies

• Knowledge management

• Services based culture

• Efficient operating models – superior cost economics

• Strong HR practice• Financing/risk mgmt

mechanisms

Capabilities Required

• Information capture mechanisms

• Installed product base

• Understanding of information value

Expanding from ‘selling products with a services component’towards ‘selling services with a product component’ implies a major shift, which has to be managed carefully




As they are focusing on new services offerings, many service GMsunderestimate the capabilities required to run their new business

Product Centric

Professional Services

Financials & Metrics

• After sales support

• Warranty services

• Maintenance Offerings

• Installation and support services

• Consulting services• Other professional

services

ServiceValue

Proposition

• Bundled with products

• Yearly fixed price or variable contracts

• Fixed fee contracts• Time and materials

contracts• Customer satisfaction• Engagement profit

Operating Model

• Integrated product/ services delivery

• No separate services organization

• Traditional leveraged engagement model

• Separate services organization

• New channels to market

Required Capabilities

• Offering development and packaging

• Business process knowledge

• Vertical market expertise

• Case studies

• Time and utilization tracking

• Engagement-level financial tracking

• Customer satisfaction measurement

• Solution selling capabilities

• Time and expense tracking

• Knowledge capital and asset re-use

• Project mgmt skills

Significant Gaps

• Channel system typically has manufacturers one step removed from customers

• Understanding of business process activities and economics

• Offering development either too stringent or too lax

• Utilization & engagement specific measurements non existent

• Lack infrastructure and reporting mechanisms

• Transactional sales skills vs solution and relationship selling

• Services pipeline management• Little or no information systems to

capture and share client knowledge capital

• Personnel programs still product-centric

The gap analysis between existing and required capabilities for a targeted Services business model is a good start to assess strengths and weaknessess of an organization.




Selling- local -

Manufacturing- global -

Yesterdayx-ware

IBM has transformed itself from Products to Service. This transformation has radically changed the IBM’s mindset & value proposition

Designed, sold, delivered- local & global -- with clients -

TodayServices




IBM has built a global organization to service clients where their markets are

Consulting & Application ServicesBusiness Transformation ServicesStrategic Outsourcing

Research LabsDevelopment LabsMajor Global Delivery Centers

Venezuela

Argentina

Romania

China

India

Philippines

New Zealand

Brazil

Costa Rica

Peru

Spain

South Africa

Ireland

Czech Rep.

Canada Slovakia

Hungary

Poland

Mexico

Australia

UK

Portugal

France

Japan

Israel

Zurich

Germany

Egypt

Italy

Russia

Taiwan

USA

This is the result of our proactive transformation “from products to services” and the rebalancing of our operations globally

Singapore




Over the last decade, IBM has aligned its offering to partner with its clients in their expectations and transformation journey




e-Business Hosting

Strategic Outsourcing

NetworkIntegrated Technology Services

Business Consulting Services

Maintenance

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

$15.0$16.8

$19.8

$33.2$35.0 $36.4

$22.3$24.9

$28.8$32.1

$42.6

$46.3

IGS overtookEDS to be world No. 1 in Services

27%

Global Services as a proportion of IBM

Building a services-led enterprise

48%

CreatedIBM

Global Services

IBMembrases

e-business

IGSbrand

adversiting

IBMlaunch

on-demand

AcquiredPWCC

BusinessTransformation

Services

B$

The Challenges of Innovation - · 5 IBM Innovation Day – Zurich – November, ... IBM BCS...

Documents

Transcript of The Challenges of Innovation - · 5 IBM Innovation Day – Zurich – November, ... IBM BCS...