Agenda Bank of America Nokia Return on Innovation Office Hours Tomorrow 12 noon to 2pm, front patio of Harvard Faculty Club

Bank of America Service Innovations

Discussion Questions: How would you characterize (describe) Bank of America’s new system for developing services? Focus on its process, organization, management and culture. Compare Bank of America’s approach to other product development systems. What are the differences? What are the similarities? Does it matter if it is a product or service that is being developed? What is the role of experimentation? How can companies maximize their learning from experimentation?

Innovating at BoA Structured 5 stage process Idea conception Planning & Design Implement Test Recommend Cycle time emphizes speed and learning Off-site rehearsals to find problems early Use of control branches to minimize noise Emphasis on measurement Customer satisfaction as proxy for value of experiment Cost versus benefit analysis before large-scale rollout Uses proven scientific method

Culture Zero defect mentality Mistrust concepts such as failure Banking is about minimizing risk Strong focus on variable incentive systems One convinced, don’t want to go back Reluctant to try radical experiments People don’t respond to 30% failure target Conservative business environment

Service Innovations Intangible Customized to individuals High cost of failure Protecting the results

Cost of experimentation Customer perception Operating Budget versus R&D Budget Assessing in context Learning from failures

Success? Committed 1% of sales (typically allocate 10-15% of sales to R&D) Tolerance for failure (who had higher tolerance: employees or management) Operate and innovate simultaneously Enhancing success versus minimizing loss Adoption, tolerance for change

Innovation and Efficiency Nokia Innovation and Efficiency

Discussion Questions: 1. How did Nokia manage the tension between exploration and exploitation? How, and using what mechanisms, did Nokia provide incentives for both innovation and efficiency? What problems do you think the system might run into? 2. What are the problems of providing incentives for innovation and efficiency? Why not simply use a system where rewards depend on some combination of how innovative and efficient a person or a team is?

Culture of Nokia Finland is a high-technology country Collective, Belief in the good of people Intrinsically motivated

Strain of Growth Informal, organic to formal, structured organization NVO as skunk works, separate budget Change in knowledge flow and mobility Value-based to fact-based leadership Homogenous to highly diversified culture Chaos to Control Decentralized decision making to centralized Focus on operating profits changed to market share Follower strategy to leader strategy Independent in-house development to network development From Divas to Dance Partners

Return on Innovation ROInn

How do you measure return? Cost of development or acquisition / Revenue realized Transaction cost and market response based formulas Does this apply to measuring return on innovation?

ROInn What are the direct costs? What are the indirect costs? How do you account for lag between learning and performance? How do you measure customers who left before buying?

Evaluation Desired Outcomes Appropriate Measures Source and type of data Interpretation Leveraging results for improvement E-I-O Model of Assessment