Innovation:

Options Before Corporations

Niraj Kumar

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Revenue from new products…

• More than 25% of the revenue and profits comes from new products (last 3 years):

10% Top 25%

% of revenue from 27% Average

new product
36% Bottom 25%

10%
% of profit from
new product 25%

32%
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Source: BCG Report, 2013
Relationship between Investment and return

Financial
Success

Investment in
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R&D
Relationship between Investment and return

Financial
Success

Investment in
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R&D
Relationship between Investment and return

Financial
Success

Investment in
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R&D
Relationship between Investment and return

Financial
Success

Investment in
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R&D
Relationship between Investment and return

Financial
Success

Investment in
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R&D
Relationship between Investment and return

Financial
Success

Investment in
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R&D
The most innovative companies

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The most innovative companies

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What do executives think about Innovations ?

• Where does innovation rank in your company’s strategic priority

% of respondents

45

26 23

06
Top priority Top 3 Top 10 Not a priority
priority priority
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Satisfaction about Innovations ?

• Satisfaction with the financial return on investment in Innovation

% of respondents

52 55
43

2008 2009 2010

niraj@dmi Source: BCG Innovation Survey ,2010
Measuring success of Innovations ?

• How does your company measure success ?

% of respondents

45
40 35
29 27 26 26 25 20 15

Customer Overall %age of Higher New Time Patent

satisfaction revenue sale from margin product to
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product ratio
Source: BCG Innovation Survey ,2010
Hurdles in getting benefits of Innovations ?

• What are the biggest hurdles in generating ROI in Innovations ?

% of respondents

31
30
26 24 22 22 21 21 21 20

Risk Lengthy Difficulty Inability to Not Not Insufficient

averse development in measure enough enough support from
niraj@dmi culture time selecting performance great customer leadership and
right ideas insight management
ideas
Source: BCG Innovation Survey ,2010
Approaches…

• The way we think

• Exploitation

• Exploration

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 The way we think…

Ray Ewry, Olympic Gold Mildred McDaniel, Olympic Gold Richard Fosbury, Olympic Gold
Medal; London – 1908; Medal; Melbourne – 1956 Medal; Mexico – 1968
World Record: 1.98 mtrs World Record: 1.98 mtrs World Record: 2.24 mtrs
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The way we think…

• The Flip Camera

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The way we think…

• The Flip Camera

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The way we think…

• GE’s Electrocardiogram

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The way we think…

• GE’s Electrocardiogram

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 The way we think…

• Electrocardiogram

A sophisticated medical instrument

an electronic consumer product

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The way we think…

• Vijay Govindrajan (a Professor at Tuck School of Business, USA)

“ Reverse Innovation ”

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The way we think…

• Jugaad Innovation ?

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 Exploitation v/s Exploration

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Basic Premise…

• Balancing Short-term Profitability with Long-term Sustainability

Profitability Sustainability

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Meaning

• Exploitation: from what you have

• Exploration: From something new created

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Origin

March, James - “ Exploration and Exploitation Organisational

Learning” Organsation Science, 2 (1), 71-87, 1991.

• Exploration: Captured by term “search, variation, risk taking,

experimentation, discovery, innovation > radical and disruptive
innovation
• Exploitation: Captured by term “ refined, choice, efficiency,
selection, implementation, execution > incremental, performance
improving innovation
niraj@dmi Source: March (1991)
Exploitation & Exploration

Exploitation Exploration

Strengthening and Creating a new

extending the core

Existing Business New Business

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Exploitation & Exploration

Exploitation Exploration

Strengthening and Creating a new

extending the core

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Exploitation & Exploration

Exploitation Exploration

Strengthening and Creating a new

extending the core

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The Question…

• How much weightage on Short-term Profitability and how much

on Long-term Sustainability ?

Profitability Sustainability

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Barbie is back …

• Barbie as super-hero

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But ….

• Sale continues to suffer and…

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But ….

• Sale continues to suffer and…

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What should Mattel do ?

or

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 Ambidexterity

• Ability to hold to opposite idea in the mind at

the same time, and still retain the ability to
function.

and

• Ability of the company to work simultaneously

both on exploration and exploitation.
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Hurdles in getting benefits of Innovations ?

• What are the biggest hurdles in generating ROI in Innovations ?

% of respondents

31
30
26 24 22 22 21 21 21 20

Not
Risk Lengthy Difficulty Inability to Not Insufficient
averse in enough support from
development measure enough
niraj@dmi culture selecting great leadership and
time performance customer
right ideas management
insight
ideas
Source: BCG Innovation Survey ,2010
Hurdles in getting benefits of Innovations ?

• Answers ..

% of respondents

31
30
26 24 22 22 21 21 21 20

Not
Risk Lengthy Difficulty Inability to Not Insufficient
averse in enough support from
development measure enough
niraj@dmi culture selecting great leadership and
time performance customer
right ideas management
insight
ideas
Source: BCG Innovation Survey ,2010
In A Typical Organisation

14%
38% Exploration
61%

86%
62%
39% Exploitation

Type of Launch Revenue Profit

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Source: PDMA study, 2010

In the end…

• Exploration is profitable, but more assumption based and un-

predictable – Higher Risk

• Exploitation is less profitable but knowledge based and more

predictable - Lower Risk

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Answer lies in “Better Balance of Both”
 Thank You !

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