1. INNOVATION FOR GROWTH
KNOWLEDGE FOR
INNOVATION
Professor George Day

2. The Organic Growth Challenge
Organic growth is at the top of CEO agendas in 4 of 5 public companies
Only 29% of senior managers in large-cap firms were highly confident they would reach their organic growth target*
Topics
Why is superior organic growth hard to sustain?
Managing organic growth as a strategic process
Balancing risk and reward in an innovation portfolio
Building an innovation capability
Supported by a robust culture
* 65% of these managers were only “somewhat” or “not at all” confident about their ability to stimulate innovation (McKinsey Global Survey, October 2007.) 2

3. The Innovation Spectrum
small i BIG I
Exploitation
Incremental innovation
Red Ocean
Low risk – small rewards
Exploration
Discontinuous/disruptive
Blue Ocean
High risk – large rewards
Innovation* is the design, invention, development and/or implementation of new or altered products, services, systems or business models for the purpose of creating new value for customers and financial returns for the firm
*Advisory committee on Measuring Innovation in the 21st Century Economy

4. How small i Displaces Big I Innovation
Ambitious growth objectives are not supported with resource commitments
Short-term incentives subvert long-term objectives
Urgent demands from customers and salespeople absorb scarce development resources
Lack of accountability when growth targets are missed
Payoffs from BIG I innovations are risky and distant 4

5. Balancing Risk and Reward along the Growth Path
New to Company
Adjacent
Present
P(F)=
P(F)=
P(f)=
BIG I
Product/
Technology
P(F)=
Expansion into
adjacencies
Small i
P(F)=
Present Adjacent New to
Company
End-Use Market*
P(F) = Probability of Failure
*Market means customers, not geographies

6. MEETING THE GROWTH CHALLENGE: GE’s “Imagination Breakthrough” Program
Set stretch goals for organic growth
Growth rate target boosted from 5% to 8% per year
Signal commitment with resources
Align the organization to growth
Growth leaders vs. professional managers
Diversify top ranks and cut mobility
Tie incentives to innovation
Assign lead role to marketing team in each business
Invest in organizational capabilities
Manage growth as a disciplined process 6

7. MEETING THE GROWTH CHALLENGE: Building an Organizational Capability
Lesson One:
A supportive culture is the most essential ingredient:
Ensuring organizational alignment
Accelerating execution 7

8. MEETING THE GROWTH CHALLENGE: Attributes of Innovative Cultures
Perceived Importance of Cultural Attributes
Strong identification with the customer and an overall orientation toward the customer experience
Passion for and pride in the products and
services offered
Reverence and respect for technical talent
and knowledge
Openness to new ideas from customers, suppliers, competitors, and other industries
Culture of collaboration across functions
and geographies
Sense of personal accountability for any and all contributions to the innovation and product development process
Tolerance for failure in the innovation process
MEAN RANKING OF IMPORTANCE 8
Source: Booz & Company (2011 survey of 600 senior managers and R&D professionals in 400 companies

9. MEETING THE GROWTH CHALLENGE: Building an Organizational Capability
Lesson One:
A supportive culture is the most essential ingredient:
Ensuring organizational alignment
Accelerating execution
Lesson Two:
It takes growth leaders to realize ambitious growth objectives:
Willingness to take risks 9

10. MEETING THE GROWTH CHALLENGE: Attributes of Growth Leaders
Operational
Leaders
Outside-in perspective
Seek diverse views:
network widely
Strategic foresight: probe for
second-order effects
Embrace uncertainty
Learn from experiments
Enablers: create a culture of discovery
Inside-out perspective
Limit networks to
familiar settings
Predictable thinkers
Avoid uncertainty
See failure as an error
Controllers: permit little slack 10

11. Growth Traits of GE Leaders
“Creates an external focus that defines success in market/industry terms…
Is a clear thinker who can simplify strategy into specific actions…
Has imagination and courage to take risks on both people and ideas…
Can energize teams through inclusiveness and connections with people…
Develops expertise in a function or domain, using depth of knowledge as a source of confidence to drive change.”

12. MEETING THE GROWTH CHALLENGE: Building an Organizational Capability
Lesson One:
A supportive culture is the most essential ingredient:
Ensuring organizational alignment
Accelerating execution
Lesson Two:
It takes growth leaders to realize ambitious growth objectives:
Willingness to take risks
Lesson Three:
Highest payoff areas of investment in organizational capabilities are:
Designing organization structures to address weak links in the innovation process
Aligning metrics with individual and group incentives
Nurturing open networks of partners that extend the innovation capability 12

13. Organizing to Innovate
“Weak” link
in innovation process
Specific innovation challenges
Strategic requirement
Possible structures
Identifying opportunities
Ideas are insufficient to achieve growth goals.
Most ideas are incremental.
No common language of innovation exists.
External perspective or awareness is limited.
Stimulate innovation
Resource organization; external advisory board
Prioritizing and resourcing opportunities
The organization has a “small I” mind-set.
Growth ideas lose traction.
Resources are routinely pulled from growth efforts.
New growth initiatives are passed up to focus on the core.
Shepherd innovative ideas
Growth council; intrapreneur fund

14. Organizing to Innovate
“Weak” link
in innovation process
Specific innovation challenges
Strategic requirement
Possible structures
Shaping and building new businesses
Major ideas fail to reach their full potential.
An inability to manage uncertainty foils growth attempts.
Good ideas routinely fail to become good businesses.
Spearhead new growth businesses
Incubator; autonomous growth group
Launching businesses and leveraging strengths of others
It is difficult to scale up new ventures.
A lack of capabilities limits success.
External alliances and partnerships are underused.
The organization’s market position makes value capture difficult.
Strengthen external innovation efforts
Corporate venturing unit; business development group

15. MEETING THE GROWTH CHALLENGE: Avoiding Innovation Metrics Pitfalls
Pitfall One: Emphasizing results over diagnostic insights
Using what is available versus needed
Pitfall Two: Encouraging small i innovation
Susceptibility to gaming and manipulation
Pitfall Three: Lack of accountability for moving the innovation dial
Individual incentives are not linked to improving some aspect of innovation process
*Source: Joint Wharton-McKinsey study of innovation metrics (November 2008)