April 9, 2015 Innovation Everywhere NACFAM Annual Conference Stephen Ezell, Director, Global Innovation Policy Information Technology and Innovation Foundation

2 ITIF is a Washington, D.C.-based think tank that seeks to design novel innovation policies and examine how innovation will create new opportunities to boost economic growth and improve quality of life. We focus on:  Innovation “verticals”: energy, life sciences, telecom, manufacturing, and Internet and IT transformation  Innovation “horizontals”: trade, tax, talent, and tech policy  “Innovation economics” as an alternative to mainstream economics

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Innovation—The improvement of existing or the creation of entirely new products, processes, or services. (The Economist) Innovation—The transformation of existing conditions into preferred ones. (John Kao) 5 What is Innovation?

Why didn’t Western Union buy the telephone? Why didn’t Kodak commercialize the digital camera? Why didn’t IBM keep the operating system? Why didn’t Microsoft create the browser? Why didn’t AT&T create AOL? Why didn’t Sears create Wal-Mart? Why didn’t American Airlines create Southwest? Why didn’t Citibank create Paypal? It takes effort to stand in the future and see new possibilities. Just because you aren’t willing to disrupt your own business, doesn’t mean somebody isn’t willing to do it for you. Many companies don’t sense the need to innovate until it’s too late. Innovation Isn’t Easy…Some Puzzles to Ponder… 6

Competitive Separation Create separation from your competitive set Do something that customers value highly and that your competitors either cannot or will not do Thereby gaining bargaining power to earn revenues and margins * * Competitor 1 * * You * * Competitive Set Competitor 2 * Competitor 3 * © 2006, TCG Advisors LLC Used with permission Source: Jon Pittman, Director of Corporate Strategy, Autodesk

ImpossibleImpracticalPossibleExpectedRequired Innovation Continuum Source: Jon Pittman, Director of Corporate Strategy, Autodesk

ImpossibleImpracticalExpectedRequired Possible Breakthrough Innovation

ImpossibleImpracticalExpectedRequired Possible Sustaining Innovation

Breakthrough Innovation New Solutions Unexpected Surprises Experimentation Leveraging Trends Sustaining Innovation Constant Improvement Reliability Scale Responding to Trends

A Balanced Allocation of Innovation Resources/Efforts 12

13 Expected Returns from Innovation Investments

14 The Ten Types of Innovation How the enterprise makes money How you create your offerings How your products and services complement each other How you deepen relationships How you connect your offerings with customers and users How you convey your offerings and business How you enable optimal experiences How you differentiate your offerings: features, performance, functionality How you join with others to create value How you support and structure your business Source: Larry Keeley et al., The Ten Types of Innovation: The Discipline of Building Breakthroughs (April 2013)

Innovation in Practice Using Innovation Types Strategically Platform-Led extending capabilities and offerings to deliver value Business Model-Led configuring partnerships, revenue models, and assets to deliver value Customer Experience- Led providing and engaging customers in optimal experiences to deliver value 15

Volume of Innovation Efforts 16

Volume of Innovation Efforts 17

3–4 Types of Innovation 59 companies 5+ Types of Innovation 45 companies S&P 500 1–2 Types of Innovation 34 companies 5-Year Indexed Stock Price Returns of the Top Innovators vs. S&P Stock Price (indexed to 100) Source: Larry Keeley et al., The Ten Types of Innovation: The Discipline of Building Breakthroughs (April 2013) Integrating more types of innovation delivers superior financial returns 18

Quiz: Is This a Product or a Service? 19

Quiz: Which Has Superior Market Share? 20

Perhaps some comparative data will help you decide. Cleans best Rinses cleanest Best fragrance Cost-efficient bottle Lowest cost/ounce Best shelf placement Highest ad budget Market share ?? 21

Get Out Into the Field With Your Customers Macro Micro ExplicitLatent video ethnography Empathic and observational research market research focus groups budget distribution for most firms Adapted from Alan South, IDEO London key area for customer experience innovation customer satisfaction surveys Ethnography Psychography Anthropology 22

Why It Matters – The Smile Curve 23

Facebook: facebook.com/innovationpolicy Blog: Website: Follow ITIF: Thank You Stephen Ezell