Innovation and Risk Taking - A Disciplined Approach

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INNOVATION AND RISK TAKING A Disciplined Approach By Heather Barnhouse, Partner Dentons Canada LLP 22 October 2013 Dentons Canada LLP

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In this presentation, Dentons' Heather Barnhouse discusses the following topics in relation to innovation and risk taking in business: - What is Innovation; What is Risk? - Benefits of Innovating - Process of Innovating - Opportunities for Innovation - Putting it all together: A disciplined approach

Transcript of Innovation and Risk Taking - A Disciplined Approach

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INNOVATION AND RISK TAKINGA Disciplined Approach

By Heather Barnhouse, PartnerDentons Canada LLP

22 October 2013

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Overview

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• What is Innovation; What is Risk?• Benefits of Innovating• Process of Innovation• Opportunities for Innovation• Putting it all together: A disciplined approach

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What is Innovation?

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• For such a pervasive element in society, difficult to agree on standard definition

• “Something different that has impact”

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Innovation is Not

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• Technology• Invention• Creativity

• Successful innovation incorporates technology, inventiveness and creativity, but it is distinct from each of those elements.

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What is Risk?

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• [Probability of something happening X Resulting Cost or Benefit if it does]

• Danger• Hazard• Potential for Loss

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Benefits of Innovation

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Game Changing Innovation

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• Apple (Steve Jobs)• iPod• iPhone • iPad• Microsoft: various software (Bill Gates)• Facebook (Mark Zuckerberg)• Virgin Group: Richard Branson

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If Innovation Were Linear…

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• Who was best positioned to invent Facebook?

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Facebook Innovation

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• Kodak was famous for memorializing things-think photo albums; in hindsight, the next logical innovative step would be to put photo albums online and allow people to connect

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Benefits

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• Innovation allows organizations to gain a competitive advantage

• Responsiveness to customers needs

• Evolution

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Necessity for Innovation

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• “Everyone has plan, until they get punched in the face.”

- Mike Tyson

• Businesses are no different: to remain competitive, need to adapt and be flexible

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Process of Innovation

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• Common Approach in many organizations

“Innovation Island”-corporate retreat, facilitated by others focused on creating.

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What Happens on Innovation Island?

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• Brainstorming;• Creativity;• Inspiration;• Problem Solving;• Teamwork;

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What is Missing on Innovation Island?

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• Expectations• Deadlines;• Budgetary constraints;• Profit and Loss statements; bottom lines;

• Corporate or organizational politics

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Travel Back from Innovation Island

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• Turbulent;• Difficult to integrate process into daily work life;

• Daily tasks become important and take priority;

• Failure to integrate emerging opportunities into established corporate culture

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Process Redefined

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• Ideas are only the beginning.• Challenge for managers is to find ways to incorporate innovation into daily rituals and practices of workers; to foster the spirit of innovation

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Six Steps in Process

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• Focus• Connect• Tweak• Select• Stealthstorm• Persist

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1. Focus

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• Scientists have repeatedly determined that the majority of ideas generated by humans are bad ideas

• Need a process of refining ideas and cultivating the good ones

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Why are Ideas Bad?

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• Bias• People are poor judges and overestimate the importance and impact of their ideas, while simultaneously discounting the effect of others’ contributions to projects

• Fun Example: How likely are the following individuals to get to Heaven?

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How Likely to Get to Heaven?

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• Bill Clinton, former President of the United States of America:

People surveyed said he had a 52% chance of getting into Heaven

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How Likely to Get to Heaven?

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• Mother Teresa: Saint• People surveyed indicated that she had a 79% chance of getting into Heaven

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How Likely to Get to Heaven?

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• YOU?

• People surveyed, on average, reported that they personally had an 87% chance of getting in Heaven

• BIAS

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Focus: Example

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• Lonza: Swiss company, major supplier in the life industry.

• In 2011, achieved sales close to $3B, with 8,300 employees.

• Experienced price pressure on one of its key products

• Lonza had a culture of acceptance of new ideas

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Lonza Continued

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• In 2011, management tried to capitalize on ideas, by strategically focusing their generation: challenged employees to provide ideas that would do two things:

• (a) improve the manufacturing process of the product in question; and

• (b) deliver cost savings of at least 30%.

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What Happened?

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• Multiple ideas generated, • Results: - Drastic simplification of the manufacturing process, resulting in increased productivity by a factor of 100, and - Reduction in manufacturing cost by 75%

• With the right lens with which to focus, employees were able to generate helpful results

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How to Assist with Focus?

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• Clarify objectives• Define the sandbox• Shift the search space

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2. Connect

• Create opportunities for unexpected individuals to meet, both formally and informally

• Encourage free flowing ideas

• Design of office space to facilitate interaction

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3. Tweak

• Mad scientist who toils away in the lab for hours with no input, “perfecting” the idea, only to have the idea fail spectacularly when it finally sees the light of day.

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Tweak Example

• Pixar: “Dailies”• Concept of daily sharing of concept, no matter what stage it

is at.• Continuous feedback and input• Don’t invest money in something that will not be well-

received

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Wheeled Luggage Example

• 1972: Bernard Sadowstruggled through the Puerto Rico airport with wife, two kids and 2 27 inch suitcases

• He saw an employee stroll by with a cart that facilitated carrying goods

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Wheeled Luggage Cont’d

• The wheel existed since 3500 BC- no new techonology

• In 1987, Robert Plath improved on the Sadowconcept by adding a telescopic pole to the luggage, to facilitate dragging, and became a multi-millionaire as a result of the simple innovation

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4. Select

• Much like the Lonza example, after the ideas have been generated, focused and tweaked, choose one or more that will be worthwhile pursuing.

• Human experience is the greatest of persuaders: encourage hands on experience in refining and selecting an idea.

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Stealthstorming

• Refers to the hidden politics that the new product must navigate in order to emerge from within the corporate ranks.

• Story telling is a powerful tool to adopt a product.

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Persist

• Persistence on a daily basis.• Find ways to incorporate innovation into daily routines, don’t reserve it for Innovation Island on rare occasions.

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Opportunities for Innovation

• Spend time with your customers• Study your customers: how they use the products, and how they interact with the products

• Two moments of truth: (1) when the customer selects the product; and (2) when the customer uses the product

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Finding Opportunities

• Opportunity lies where the customer experiences pain points with the current products; wherever frustration is felt when interacting with a product lies an innovative opportunity

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Seven Opportunities

1. Unexpected occurrences;2. Incongruities;3. Process Needs;4. Industry and Market Changes;5. Demographic Changes;6. Changes in Perception; and 7. New Knowledge.

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Unexpected Occurrences

• Ford Edsel example• Many companies dismiss unexpected occurrences, meaning that there is an opportunity for those paying attention.

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Incongruities

• Cataract surgery was incongruous for many years due to one old fashioned step around slicing the enzyme-Alcon Laboratories capitalized on innovating around this incongruity.

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Process Needs

• Development of Linotype, coupled with the social innovation of advertising allowed the growth of today’s media.

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Industry and Market Changes

• Critical figure suggests that approximately 40% change within a decade provides real opportunities to reconfigure the market place structurally.

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Demographic Changes

• Japan is ahead of the world by at least a decade in the field of robotics as a result of having paid attention to demographic shifts where other countries (subject to the same shift) ignored it.

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Changes in Perception

• In 1983, despite recent advances in healthcare, resulting in fewer diagnosed diseases, the fastest growing company in the US was a company providing indoor exercise equipment.

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New Knowledge

• Slowest of all opportunistic areas to develop innovative technologies- with a lead time of approximately 50 years.

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How to Innovate Responsibly

• Change the environment for the would-be innovators

• Don’t innovate in isolation• Tolerate risk in a responsible manner- work towards improvements, and identifying resources to match opportunities.

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Painkillers vs. Vitamins

• Venture Capitalist choose to invest in “painkillers”, that remove pain points, over “vitamins” that enhance existing concepts or products

• Invest in painkillers- find out where the pain exists for consumers

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Peter Drucker:

•“In innovation, as in any other endeavour, there is talent, there is ingenuity, and there is knowledge. But when all is said and done, what innovation requires is hard, focused, purposeful work.”

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Be Disciplined in Your Approach

• Be disciplined in your approach and persevere in the face of obstacles

Heather Barnhouse, PartnerDentons Canada [email protected]

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The preceding presentation contains examples of the kinds of issues that businesses dealing with innovation and risk taking could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique.

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