Introducing Systemic Innovation The Holistic Approach for the Intelligence-Driven Technology-Based Company From: Wolfgang Runge: Innovation, Research and Technology Intelligence in the Chemical Industry Fraunhofer IRB Verlag, 2006

Fundamentals Systemic innovation is people-centric in “open systems” and focuses on the complex interactions between many individuals, organizations, their corporate-internal operating environment (the “core”) and the external environment (the “shell”) of “drivers” and the overall available resources defining the “innovation configuration”. Systemic innovation is a non-linear corporate-wide work process based on ideas and imagination, interconnections, sharings, combinations, coordination and communication including feedback – and interfaces between corporate internal sub-systems and internal and external systems. It is interwoven with intelligence (= knowledge and foreknowledge) on many levels and with many processes. Systemic innovation is a future-oriented offerings and business development (open systems) framework. It comprises technical and organizational (behavioral) innovation; “structured” and “unstructured” innovation. Copyright 2006 Wolfgang Runge

Systems and Intelligence The Systems Approach: How systems and sub-systems are organized (a “core-shell model”) and the means by which they receive, share, store, process and recall information, and the way they behave, respond and adapt to different “triggers” or “inputs” from their environment. It refers to the “intelligence-based company” which is a two-strands model: “Tangible assets” are managed efficiently according to “best practice”. Managing “intangible assets” is seen as the fundamental differentiator for sustainable competitive advantage and growth. The “intelligence-based company” is people-based and culture-oriented. The “innovation climate” is the balances between creativity & control, initiative & achievements. Beyond the current business model(s): start thinking of the company as a combination of tangible and intangible assets and competencies. Copyright 2006 Wolfgang Runge

Intelligence in Technology-Oriented Companies “Intelligence is knowledge and foreknowledge of the world around us - the prelude to Presidential decision and action” (CIA Definition). Business world: “competitive intelligence” (CI) Technology Intelligence (TI) – (which, how, when; by whom) technology meets markets (demands); actionable knowledge arising from a systematic process involving gathering, analyzing, and disseminating information on external scientific or technological opportunities, threats or developments that may affect a company’s competitive position (defined by its strengths and weaknesses). Information & Communication Technology (I&CT): supporting systemic innovation, particularly via intelligence processes and intelligence products. Copyright 2006 Wolfgang Runge

The “Core”: The Company Variables GOVERNANCE: Stakeholder Approach rather than Shareholders First The “Shell” People: Employees, Leaders Corporate Culture Core Competencies, Intelligence; other Intangible Assets Strategy Organization (Businesses, Functions etc.); Business Model(s) Tangible Assets Work Processes Copyright 2006 Wolfgang Runge

The “Shell”: Current and Future OFFERINGS (SUPPLY) DEMAND (Actual, “Latent”) Technology, Production Markets, Customers Applications (Civil, Military) Political Incentives, Subsidies, Funds The “Core” Strategy Scientific Disciplines Norms, Political Regulations Societal Values and Attitudes Resource Options (Research Cooperation Licensing, etc.) Infrastructure Input: Raw Materials and Intermediates FOCUS: Chemical Industry Copyright 2006 Wolfgang Runge

Learning and Motivation – A Glue between Innovation and Intelligence Behavior (Decision Making, Action, Feedback) LEARNING - MOTIVATION Purpose FOREKNOWLEDGE Context Intelligence KNOWLEDGE INFORMATION DATA Learning is essentially “learning for the future”! Copyright 2006 Wolfgang Runge

Intangibles for Innovation and Some Related Management Processes Intellectual Properties Learning Intellectual Capital Adaptability Learning from Success and Failure Improving Skills, New Skills Attitudes Behavioral Change Intelligence Creativity, Imagination Problem-Solving Experience, Know-How (Processes, Customers, Experts) Judgment Skill Sets Leadership Personal Traits Communication Culture Information Handling Patents Trade Secrets Designs, Systems Licenses Trademarks Technical Reports Copyright External Technology & Relationships Managing Patents, Licenses, Marks R&D People Management R&D Project Management R&D Management Resources Management Intelligence (Knowledge) Management Copyright 2006 Wolfgang Runge

The Systemic Innovation Configuration INNOVATION ARCHITECTURE (“Core”) Organizational Drivers, Strategy, Business Model(s) Managed Intelligence Processes Managed Learning Processes Managed Innovation Processes Value Drivers (External: Parameters) Megatrends Technology Forecasting Industry Foresight Market/Customer Insight (Actual and “Latent”) Managed Innovation Processes Sustainable Innovation Intelligence Insights & Understandings Work Processes Strategic Alignment Idea Generation & Opportunity Identification Project Assessment and Selection Resources Management Executing Implementation Learning from Project Success and Failure New Strategies New Business Models New Competencies New Relationships New Operational Practices New Markets New Products (and Other Offerings) - NPD New Businesses - NBD Organizational Drivers (Internal: Variables) Corporate Culture (including Learning) Human Resources Core Technical and Organizational Competencies Business and Functional Interfaces Operational Discipline System innovation is always “strategic” Copyright 2006 Wolfgang Runge

Contexts of Managed “Unstructured” and “Structured” Innovation Processes Creativity Exploration Serendipity Chance The Right People with the Right Information at the Right Time to Make Right Decisions Systematic Idea Generation and Opportunity Identification Steering (“Selection”) Committee - SC (Program Approval Committee) “Unstructured” R&D MFG MKTG FIN etc. Creativity Serendipity SC Stage Review: Gates Core Teams Structured Project / Development Process “Sponsor” R&D MFG MKTG/SALES Core Teams Temporary Assignments (Experts, Specialists, “Leaders”) Exploitation The Right People with the Right Information at the Right Time to Select Right (Effective) Projects and Run Efficient Project Execution Other Teams Copyright 2006 Wolfgang Runge

Market Orientation and Business Alignment Advanced researchers must have a working knowledge of the technology in the marketplace and the insight to develop new technology in line with market needs and demands. A culturally rooted strategic differentiation (“semantics”): Market orientation – external focus (“outside-in”), “more and other bubbles” Business alignment – internal focus (“inside-out”); “blow up existing bubbles”. Market orientation covers business alignment! Market orientation: present and future markets needs, actual and “latent”; markets new-to-the-firm, markets new-to-the-world. Business alignment: present offerings (markets); present offerings to new markets, present offerings for new applications. Customer-orientated versus customer-driven. Copyright 2006 Wolfgang Runge

The Fine Lines between “Customer-Oriented” and “Customer-Driven” Managed coupling versus strong bents. Demands and “latent” (unarticulated ) needs versus spelled-out demands. Spot the trends that are already changing, but have gone unnoticed; towards changing customer expectations. Imaginative understanding of customer needs (and future markets) and carefully listening versus the Voice-of-the-Customer (VoC). Customer Intimacy: an organized approach to customer needs. Value chain emphasis versus account management Customer loyalty (customer relationships as intangibles) Customers of customers; the “unique selling point” Partnership; Lead Customers Copyright 2006 Wolfgang Runge

Implementing Technology Intelligence Emphasize the Organization and Information & Communication Technology Systems approach: The Law of Requisite Variety The degree of complexity in a controller (here TI) must match the level of complexity in the environment (here the firm) in order for the controller to manage the environment. Corporate culture, leadership and organizational structure represent key (risk) factors for implementation. Copyright 2006 Wolfgang Runge

Technology and Research Strategy Technology Intelligence Driven by R&D and Related to Corporate Functions, Units and Key Processes Marketing/Sales R&D Production Knowledge Management Governmental Relations Future Legislation and Regulations University Relationships EH&S Regulations, (FDA) Product Registrations; EH&S Issues and Fines External Technologies NPD Technology and Markets (Future) Technology, Markets, Customers NBD InfoCenter Information Resources (external, some internal) Venturing Technology Intelligence (Internal info repositories) I&CT (IS) Department Tools JV M&A Research Computing Technical Services - CTSC IAM Patents, Trade Secrets, Branding Corporate Strategy Technology and Research Strategy Ideation Ideas, Opportunities Marketing and Market Intelligence Production Intelligence Copyright 2006 Wolfgang Runge

“Best Practice” Innovation Process? For multiple business companies there is no single “best” innovation process that fits all strategies, purposes and innovation types in the continuum from incremental to discontinuous and disruptive (“radical”) innovation. Key for the approach is meeting the fit between value drivers, organizational drivers, strategy and offering types and segments (product, service, system, etc.; plastics, specialty chemicals, fine chemicals etc.) and positioning. Be aware of corporate culture. Copyright 2006 Wolfgang Runge

New Development Direction Emphasizing Early Innovation Phases and Channeling into Established Processes Markets Basic Research New Development Direction Applied Research, Technology Launch Stage 1: Ideation and Opportunities Stage 2: Concept Shaping Stage 3: Analysis, Definition Stage 4: Development Stage 5: Demo, Prototyping Gate 3 Gate 4 Gate 5 Gate 2 Gate 1 Learning Feedback “Post-Launch Review” Uncertainty Low Resource Requirements High Copyright 2006 Wolfgang Runge

A Systemic Approach to Resources Management Openness: exchange and sharing, respectively, of resources and information/knowledge. Emphasize internal and external human, information and financial resources. Think of your company as a portfolio of (tangible and intangible) assets and competencies. Look at different competencies and assets, owned by different organizations (companies and non-profit organizations), that you can put together with the competencies and assets that already exist in your company. This will not even increase efficiency (“incremental innovation”), but induce a new offering or even disruptive innovation through combination by Lego-type approaches. The essence, hence, is not what you do; it is your ability to generate “implicit knowledge”. Incremental innovation can be done by many talented people, but discontinuous innovation - or disruptive (radical) change - tends to be done only by certain people! Copyright 2006 Wolfgang Runge

Human Resources and Culture, (Leaders, Sponsors, Gatekeepers, Teams) Resource Management for Innovation in Open Systems: From Linear to Cross-Flow Processes Basic Research Core Competencies, Technology Platforms External Information, Intelligence Contract Research, Cooperation etc. Contract Manufacturing Marketing/ Sales Agreements Build, Cooperate or Buy Research Production Marketing/ Sales Human Resources and Culture, (Leaders, Sponsors, Gatekeepers, Teams) Internal and External Information and Intelligence Resources, (Information & Communication Technology) Strategy and Resource Allocation Copyright 2006 Wolfgang Runge

Systemic Innovation and “Open Innovation” The “Want, Find, Get, Manage” ModelSM of “Open Innovation” * provides a “program structure” for just one resource management aspect of systemic innovation. “Open Innovation” – structured approach: The firm identifies the external high-value technology or resources it “wants” to access and utilize “Find”: tools and techniques suggested for finding “targets”; implies subsequent “build, buy, cooperate” decision making “Get”: planning, structuring and negotiating interactive and cooperative relationships “Manage”: combines, integrates and coordinates sub-processes and/or sub-units (for instance, IAM, Corporate Research, Technology Intelligence) Chesbrough, H. W. (2003): Open Innovation: The New Imperative for Creating and Profiting from Technology. Harvard Business School Press. Copyright 2006 Wolfgang Runge

Touch-Points Bundling complementary assets into an extensive menu for clients to pick and choose what they need. Drawing upon a variety of research topics and consulting disciplines and services. Creativity & Idea Management Patent and Intellectual Asset Management New Business Development RISCNet Innovation Program Structures Technology Intelligence & Patent Systems Innovation Programs Research Management Processes Technology (Competitive) Intelligence Management Emphasis: the chemical and related industries Copyright 2006 Wolfgang Runge