A FRAMEWORK FOR THE SUCCESSFUL MANAGEMENT OF INNOVATION Seven essential components A generic framework based on researching management practices and policies of highly- innovative, idea-intensive, companies 1

Input to the framework White & Partners, with a view to sharing successful policies and management practices with interested readers, is in the process of developing a generic framework for the management of innovation. What are the policies and management practices common to highly-innovative, idea-intensive companies? We share our results to date. 2

Booz&co. The 2013 Global Innovation Study Booz&co. make an insightful observation about innovation management. For the ninth year in a row, we have found no correlation between how much companies spend on R&D and their financial performance. How companies spend their innovation dollars is much more important. Our studies have consistently shown that innovation investments in select capabilities, tools, talent, and culture which are tightly aligned with a business’s strategy are what drive sustained success. These comments lead directly to the need to develop a framework for the best practices for the management of innovation. The framework is not based on any single-factor but on multiple factors. But which factors are the most important and how should they be deployed in any one organization? Each organization is different and requires its own set of solutions. There is no silver bullet! 3

Culture Financial and human resource management Strategy Organization Technology development and market shifts Communication Performance management Delivering reliability Effective management of innovation Growth Profit Financial performance Earnings P/E ratio Stock price Our framework is based on the hypothesis that effective management of innovation gives rise to better-than-average financial performance over the long term. In turn, innovation brings results in increased earnings and ultimately an increase in shareholder value, albeit impacted by the whims and vagaries of the market as a whole and the overall economy. The simplicity of the framework belies the difficulty of doing it! 4

Seven essential components for the successful management of innovation 1. Performance management 2. Communication 3. Delivering reliability 4. Technology development and market shifts 5. Culture 6. Strategy 7. Organization We have researched in-depth a small number of highly-innovative companies and found that there are specific characteristics – policies and management practices common to most - which lead to innovation. Our in-depth research includes; Starbucks, Deere & Co., GE, P&G and 3M. On the assumption that one learns from mistakes as well as successes, we have also researched; RIM (now Blackberry), Massey-Ferguson, and HP, amongst others. 5

1. Performance management Strong financial performance provides stakeholders with a sense that the financial house is in order and that investment decisions, while satisfying clearly-stated and broadly-understood criteria, will be seriously considered for investment. Best example: Deere’s adoption of SVA A system of managing human resources which aligns individuals with the corporate goals, measures individual and group performance, and provides fully transparent team-based rewards throughout the organization. 6

2. Communication A focus on regular communication of corporate policies and management practices, appointments and matters impacting individuals and groups within the organization. Making people aware of new developments in the ‘how’ of management. Best example: Deere’s approach to communication. A company which values broadly-based input into decision making and values speed but not over careful evaluation of opportunities and risks. Cohesion and a commonly-held vision of the future is facilitated by meetings/gatherings of senior managers at key points in their development and that of the company. Best example; GE and its use of Crotonville 7

3. Delivering reliability Delivering what the company says it will deliver to customers thus building a sense of trust between company and customer. Best example: Deere’s customers are both dealers and workers of the land. The delivery of reliable products – products which perform under all likely situations. 8

4. Technology development and market shifts A consistency in the company’s spending and approach to investment in R&D. People like to work for an organization which has a reputation for its ideas, its innovations. Spending on R&D is one indication of this commitment. Maintaining a watch on developments at the customer and end-user level and carefully noting the demographic and economic shifts which eventually impact product/service demand. Best example: Starbucks controlled innovation Continually monitoring competitor developments and understanding the competitive situation globally. Worst example: RIM’s ignorance of Apple’s competitive actions Investing in new products/services and less so in ‘legacy’ products. Best example: 3M and ‘explicit’ calls for innovation 9

5. Culture Attributes of culture Tight centralized financial management with maximum decentralization and looseness throughout the organization. A healthy regard for the impact of culture on acquisition practices – making culture an element of the criteria for any potential acquisition. A healthy respect for traditions and even folklore. Avoiding a sense of arrogance (hubris) Worst examples: Nortel’s and RIM’s last years Of the companies researched in depth, 3M is, when it comes to the management of innovation, outstanding. Why? Because of the practises noted below. 10

6. Strategy A strategy which carefully considers but takes risks in growth markets Invests in new products/services and less so in ‘legacy’ products. Organic growth is preferred over growth by acquisition A Board and CEO perspective on both the short and long-term; achieving a balance between the two in major decision making. Making acquisitions which are essential to technology or market growth but where culture is an important part of the evaluation process. Best example: Starbucks with its ongoing controlled innovation and organic growth 11

7. Organization Having a CEO whose goal is for the organization to be best in class (Best of Breed), explicitly calls for innovation and has the support of the Board. Ensuring that industry knowledge and its complexity are well understood by a good percentage of the Board of directors. Suitable succession planning – mainly a Board responsibility. Worst example; HP’s hiring of outsiders – two in succession Continuity and longevity of senior management. At ease with adapting ideas from outside the organization through acquisitions or through mid-career hires. Best example: P&G’s ‘Connect and Develop’ initiative 12

Companies reviewed most recently CIOMAX reports; provide in- depth insight into management of innovation and information for investors Starbucks P&G GE 3M Deere & Co. Other research available at Glencore (Xstrata) HP Koch Industries Ltd. Blackberry (when RIM) Apple versus RIM Nucor DSM Google Massey-Ferguson 13

End Let us know what you think! 14