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

2. Bank of America
Service Innovations

3. 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?

4. 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

5. 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

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

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

8. 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

9. Innovation and Efficiency
Nokia
Innovation and Efficiency

10. 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?

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

12. 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

13. Return on Innovation
ROInn

14. 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?

15. 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?

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