Building an Innovation Engine: The Making of the New Rob Munro, Innovation Director www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Hi everyone – I’m Rob, Director of Innovation at System Growth Consulting. I’d like to share my perspective on how innovation drives business. Rob Munro Surveys reveal business leaders’ concerns like Growth, Capability & Competitiveness. The new Business Leader must become both efficient and lead creatively*?! So it’s understandable to be confused about what innovation is and how to do it right. Fortunately, we can read the clues about how to create and organize innovation activities. Building an Innovation Engine is the key to unlock high innovation performance - repeatably and reproducibly… The word Innovation is everywhere & every business wants to be “innovative”. After the financial crisis, companies and governments need “To Make New”. At its heart, innovation is a critical business process that creates enduring commercial success - after all innovation activities create 50% of all growth. We’ll Learn About… www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

The Top 7 Reasons for the an Innovation Performance Gap The State of The Innovation Nation What it means to Companies and for Economies Why Innovation Matters Key Lessons from Real World Concerns What Can We Learn from The Great and the Good? The Power of Systemic Innovation Let’s Think About Our Systems Lead + Strategy + Tools + Collaborate + Culture The 5 Keys to High Performance Innovation What You Can Do to Improve Call to Action www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

The State of Innovation What is Innovation, Anyway? The Innovative Opportunity… The word Innovation seems to be everywhere and we all want it. But there is also a lot of confusion about what innovation is and how to do it! We need to go deeper. Very simply, innovation renews businesses (and economies) and keeps them healthy over the long term. Recent keys findings… 85% of CEOs ranked innovation a top-three concern (BCG). CTOs expect revenues from innovation to double by 2020 (ADL). UK firms are not investing enough – and only 31% of firms are active on innovation (BIS). Top innovators reap the rewards – 6mpa more for a 100mpa company. “The OECD estimates that $1trillion is spent yearly on the creation of new knowledge.” The State of Innovation www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Innovation can be a risky business and needs to be carefully managed. Do Innovation projects go wrong? How are you managing risk (which comes with the territory)? Do new offerings fail to deliver the promise? Are your staff skilled with Innovation Tools and Techniques? Write this down – it’s an essential foundation of great performance! In the era of collaboration, are your open innovation projects delivering? Is creative leadership something you do round here? It’s a key skill for the New Leader. 7 Current Issues Innovation Management Do you seek transformation, growth and greater ROI? After years of the squeeze is your new product line is running on empty? Do your strategies pull in different directions, give mixed signals, or exist in open conflict? How is your Innovation Culture? Does it work for or against the organisations mission? Mind the Gap www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Q1: What do you understand by the word INNOVATION? Q2: Innovation, Discovery or Invention? Process Innovation Knowledge Invention Development of ‘float’ glass Pilkington, St Helens, 1953 The Universal Machine Alan Turing, Cambridge, 1930 Product Innovation Technique Invention Mallard - fastest steam train in the world North East England, 1930 X-ray crystallography Lord Bragg, Leeds, 1910 Product Discovery Service Innovation? Graphene - the thinnest material known University of Manchester, 2000 World Wide Web - connecting the planet Tim Berners-Lee, London, 1990 Examples: Making New www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

A Shared & Common Language “The process for creating something new and valuable” Latin, Innovare – “to make something new” Innovation “The process of finding information, a place, or an object, especially for the first time, or the thing that is found”, (Cambridge Dictionary) Discovery “something that has never been made before, or the process of creating something that has never been made before”, (Cambridge Dictionary) Invention Innovation is… A high level business process critical to the enduring existence of a company. Innovation Management is… “disciplines, tools and approaches that create new growth and maximize the productivity and predictability in investments in innovation“, Scott Anthony, CEO Innosight A Shared & Common Language www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

10 Types of Innovation Type of Innovation(1) What is it? Example Product Performance The incremental or radical improvement of products Johnson Matthey reducing platinum in a car catalytic convert by 100 times (1970- date) Product System Building “externalities” to the product: add-ons and networks Apple created the iPod + iTunes “ecosystem” (2003) Process The way in which something is manufactured Pilkington’s Float Glass manufacturing technology (1950) Service How a service is delivered or experienced. First Direct’s radical change to telephone-only banking (1990) Business (profit) model The way in which a company creates and captures value Rolls Royce Aero engines shift from only making to service “Power-by-the-Hour” Network Creating and harnessing massive consumer networks Google – “organization the world’s information” And, Don’t be Evil. Structure How you align your talent and your assets MacDonalds develop a unique and long lasting delivery system Channel How you connect offerings to your customers Dell Direct PCs cut out the middle man – disintermediation (1990s) Brand How you express offerings to your customers Virgin Group brings difference to existing industries Customer Engagement How you create an overall experience for your customers Harley Davison’s created a club for riders - the “Hogs” 10 Types of Innovation 1. Based on Doblin Consultancy’s Definitions www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Time Out What is Driving Your Innovation Agenda? Which of the Top 7 innovation problems apply to you? What Types of Innovation Matter to You? And, could you apply other types of innovation? What could do superbly well and consistently to make a dramatic difference to your innovation ROI? Time Out www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Lessons learned What Does Good Look Like? What Innovation Concerns Do CEOs Have? Are There Any Common Success Factors?? Lessons learned www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Innovation is Good? www.systemgrowthconsulting.com What happens to displaced low-skill workers? Negative/Neutral Wage Growth Disruption Destroys Entire Industries Opportunities to Automate rather than use Labour The Potential for Renewal – Survival of the Fittest Technology Benefits People, Profit, Planet Innovation Drives Productivity and Growth Opportunities to Rebalance Economies Innovation is Good? www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Trending: Our Survey Says… What Innovation Features are Trending in 2014? DevelopED countries seek better returns [BCG] Servitization and manu-service [KPMG] Collaboration and Open Innovation [KPMG] Best of the Best Have… Sophisticated Innovation Management Practices [Booz] Strategic Alignment, Great Leadership, Positive Culture, Well Organized [ADL] More of, Please… Managing for Today AND Tomorrow More investment in UK companies lagging peers [UK.GOV,] What Drives Innovation Performance? Deep Understanding of The Voice of the Customer Knowing Where & How to Compete Senior Management Driving the Innovation Agenda Trending: Our Survey Says… www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

3M, US ABB, CH Abbott, US Air Products, US Arkema, Fr Dow, US Abbott [Original List*] Abbott Gillette Circuit City Kimberly-Clark [Contenders*] Apple Johnson Matthey GEA Jacobs Sandvik [Patent Impact]* 3M, US ABB, CH Abbott, US Air Products, US Arkema, Fr Dow, US DuPont, US Shin-Etsu, JP [Output, Input, Competence*] [Returns]* Ecolab (33) Monsanto (74) Praxair (43) Air Products (80) Syngenta (95) *Sample www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

A unique approach we developed at System Growth incorporates the incredibly powerful idea of Systems Thinking. Be clear, we mean Systemic (processes) not Systematic (procedures). There are three parts to Systems Thinking that applies to our Innovation Engine. Part 1: It helps us think about messy human-based activities - just like innovation. So, it’s very useful to innovation leaders. Part 2: It helps us develop deep root cause solutions to problems about growth and performance. Helpful for companies struggling with growing pains. Systems Thinking also uncovers truths about How the World Works, when people get involved - which in companies, is all the time. Part 3: You assemble the components of your innovation system. Assemble them correctly, invest, refine and see how we can unlock performance that is more than the sum of the parts. Our creative side loves metaphors. Have you ever stood in a tropical rainforest… Think about the System www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Systems Thinking The Systemic approach for tackling real-world problematic messy problem situations - like innovation activities… The Need for Light, Rain, Soil – Management and Leadership Plant Life- Canopy, Vines, Shrubs and Fungi – Facilities & Infrastructure Animals, Birds and insects – The organization(s) Innovation Systems are Interconnected and created over time Companies comprising exemplary individuals on a personal mission to become individually excellent Build Organizations that Learn. And Remember! Innovation leaders are custodians of the Forest – Sustaining Growth and Nurturing the Good www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

The 5 Keys of Performance In 2012 we conducted research at Manchester Business School; the world’s largest innovation research unit. From examining the innovation performance of leading companies, we identified the key to higher than average returns on innovation investment. THE IDEA: Innovation Performance comes from the individual quality and interaction of Five Key Elements of any innovation system. Innovation Strategy that aligns activities. Leadership & Organization that creates a climate of performance. Competent use of Tools & Techniques. Fruitful collaborations with Partners. Supportive Innovation Culture. The 5 Keys of Performance www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Total Shareholder Return Strategy Lead Tools Partner Culture The Innovation System www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Strategic Alignment Strategy THE IDEA - Companies whose purpose and activities are aligned outperform those who are not. The innovation strategy of a business is a crucial integrating plan that harnesses commercial, operation and development activities. Jam Today? Overcome the tyranny of the successful. Companies need to operate for both efficiency today and for growth tomorrow by becoming both creative and disciplined. Know Where to Play, How to Play, Why to play? And Play to Win – the companies Innovation Mission. Strategy is not an optional extra. Crucially, they guide people about what they do every day. Strategic Alignment www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Leading and Organizing THE IDEA: Leadership provides the conditions, permission and incentives for innovation while organization structure and routines make it flow. We’re talking about Leadership at all levels: industry, organization, work team, individual and personal. And it’s the most pressing talent management concern for the next decade. Above all else, Creative Leadership is the differentiator - Jim Collins calls it Level 5 Leadership. The organization helps decisions, resources and knowledge flow effectively; it’s both formal and informal. So, what can Innovation Leaders do to tip the odds? Create favourable working conditions –not only buildings but places to interact and to think. Know your people – profile and provide means to exercise the creativity muscle. Build teams with the skills and behaviours for Innovation. Change the Language: from “that won’t work!” to “What will it take…?” Break the creative jam by using techniques to think differently and bigger. Leading and Organizing www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Tools and Processes Tools What can you do to perform well? THE IDEA: The use of innovation tools and techniques are an essential foundation of good innovation performance. Have you seen those F1 garages where the floors are super shiny and the walls adorned with all manner of tools on shadow boards? The truth is… that organizations who actively use tools, techniques and processes outperform those who do not. There are many – but you need to know about them and use them. What can you do to perform well? Read the external perspective: be active in seeking to understand the external world. Interpret that knowledge to feed your strategy. Create many ideas and use problem-solving techniques. Seek the right kinds of collaborations and manage them well. Effectively manage your resources and projects – ROI comes from delivering the right things, right! Tools and Processes www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Fruitful Collaborations Partner OI is good for firms wishing to break new ground, or undertake radical innovation. THE IDEA: We live in a world where innovation is increasingly done through collaborations between the best providers. We’d better become savvy. Henry Chesbrough popularized Open Innovation in his 2003 book (though it’s been around for a long time). And it’s become a mainstream reality in virtually all industrial sectors and in companies of different shapes and sizes. Companies openly innovate to To use facilities, access knowledge, resources. To increase the speed of innovation. Reduce risk between partners. To share costs and rewards. Maybe, to enter new markets. Our advice to would-be Open Innovators… Make a deliberate choice to become Open. Invest in the unique skills to innovate, openly. Create an Open Innovation infrastructure in your company. Manage the changes to shift the company to an open-style. Know that it needs some patience? Test-Learn-Improve – it’ll take at least 3 years. Invest in your supplier and user networks – your ecosystem. Fruitful Collaborations www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Culture That Works Culture What can you do to perform well? THE IDEA: The key job that leaders can do is to provide a framework of incentives for people throughout the organization. Innovation is a fundamentally a team sport played by people. And, when people get together, they develop patterns for “how we do things round here.” Innovation culture is the patterns, traits and behaviours involved in how a company innovates. As an innovation leader, work to build the positive and erode the negative aspects of your company culture. What can you do to perform well? Get the right people on board. Being open to & acting on new ideas is a strong predictor of innovation performance. Introduce appropriate risk-taking Create both a supportive and challenging working environment. Systems Thinking encourages personal mastery, team-based learning, the creation of shared vision and models of how the world and your business works within it. Culture That Works www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Conclusions INNOVATE OR FOLD – THE CHOICE IS YOURS Do you want your company to thrive over the long term or do you want to drive your firm to a better place? It is a choice and it’s not for everyone. Organizations must attend to today’s business and tomorrows future. CHOOSE THE INNOVATION PERFORMANCE YOU WANT We are free to choose the level of Innovation performance we want – the lessons from good-to-great teach us that characteristic leadership abilities can create the environment for creative discipline. The best firms choose sector leadership. BUILD AND CONTINUALLY REFINE YOUR INNOVATION ENGINE A series of interlocking building blocks are essential components of the innovation system. Get these right, and working together and the rewards will come, because you have already got the fundamental inputs correct. Conclusions www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

Time Out What is holding you back in achieving growth? What aspects of your innovation system are holding back the prospects of your company? Are your strategies aligned – do people know what they are doing, every day? Are you effectively using the innovation tool kit? Is your innovation culture working for you or against you? Are you winning for your business when you collaborate? Do you have the right leadership behaviours and are you organized for effective delivery? Time Out www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014

We sincerely hope you found this report valuable We sincerely hope you found this report valuable. We have worked hard to create our model of high performance innovation and believe it can change the game for those that engage us. System Growth Consulting works with high-value manufacturing businesses to build enduring innovation capability through coaching, consultancy and training. Our clients run businesses that operate within or serve the process industries and we are accredited coaches in the Growth Accelerator service and Manufacturing Advisory Service. Selected Services High Performance Innovation Growth EngineTM New Product & Process Development Project Selection and Management Open Innovation Technology Risk Assessment & Audit Contact Details System Growth Consulting Ltd. are based in Manchester, UK (W) www.systemgrowthconsulting.com (E) rob.munro@systemgrowthconsulting.com (T) +44 7896 128 878 Call to Action www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014 © System Growth Consulting Ltd 2014

Building an Innovation Engine: The Making of the New Rob Munro, Innovation Director www.systemgrowthconsulting.com © System Growth Consulting Ltd 2014