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					Leadership Scenarios for
    Europe’s Future
  Innovation as a Base for
      Europe’s Future
                          Udine,14/02/08




+   TODAY: NEW SCENARIO
          Fractured oligopolies      ...   Competitive "anarchy"
Heightened customer power            ...   Reduced pricing power
 Disaggregated value chains          ...   Diminished control
    Deregulation & de-scaling        ...   Falling barriers to entry
    Ultra-low cost competitors       ...   Margin pressure
        Disruptive technologies      ...   Risk of obsolescence
Distracted & fickle consumers        ...   Rising novelty premium
    Cynical & wary customers         ...   Demand for authenticity
  Splintered markets & media         ...   Inaccessible customers
            Knowledge leveling       ...   Commoditized capabilities
       Collapsing value chains       ...   Shrunken industry profits
              Digital distribution   ...   Threats to property rights
        Easily available capital     ...   Well-funded challengers
              Anti-globalization     ...   Challenges to legitimacy
1
    Accelerating
    change
                Physical


     Biological


    Cultural


Technological


      Intellectual
           Getting     Getting
           Better      Different
           Creating
                       Creating
           Learning

Balance                Learning
 of Time

           Executing
                       Executing
 Music companies
 Phone companies
   Broadcast TV
Department stores
Pharma companies
  Airline operators
     Advertising
    Newspapers
  French vintners
 Cinema operators
The world is becoming
 more turbulent faster
 than companies are
   becoming more
       resilient.
             IBM’s Net Income
                   ($ millions)

8000
6000
4000
2000
   0
-2000
-4000
-6000
-8000
        90   91   92   93     94   95   96   97
 Automatic

Spontaneous

 Reflexive
 Leadership Challenge 1
  How do you create a
company that is as nimble
    as change itself?
1
    Accelerating
    change

2
    Intensifying
    competition
Falling entry barriers
         Deregulation
          Digitization
        Venture capital

Low-cost competitors
         China, India
   Legacy-free cost structures
     New business models


  Customer power

        Zero search costs
      Neutral information
    Falling transaction costs
   Ignorant consumers     Neutral data

     High search costs    Froogle, etc.

      Transaction costs   Zero spreads

 Knowledge arbitrage      On-line know-how

     Captive attention    Ad-skipping

Distribution monopolies   Digital delivery
Leadership Challenge 2
 How do you create a
 company capable of
everywhere, all-the-time
     innovation?
1
    Accelerating
    change

2
    Intensifying
    competition

3
    Diminishing
    differentiation
       Offshoring
    IT Outsourcing
Contract manufacturing
  Industry consortia
      Consultants
 Leadership Challenge 3
How do you create more
value per capita than any
   of your competitors?
1
    Accelerating
    change

2
    Intensifying
    competition

3
    Diminishing
    differentiation
How do you build a company
  that is significantly more

          Resilient
        Innovative
         Engaging
     than its competitors?
Engaging
Passion      120 %
Creativity   100 %
Initiative    80 %
Intellect     60 %
Diligence     40 %
Obedience     20 %
Passion
Creativity   Engaged
Initiative
Intellect
Diligence    Present
Obedience
"A business is a community of
people working together to
create value for other people--
customers, team members,
shareholders and communities."
                   John Mackey,
                   Founder and CEO,
                   Founder and CEO,
                   Whole Foods Market
                   Whole Foods Market
       Meaning
   Interdependence
Radical decentralization
       Openness
       Fellowship
     Egalitarianism
   Passion
 Creativity
  Initiative
  Intellect    Bureaucracy


 Diligence
Obedience
                 Aggregating
                       Effort
               Bureaucracy        Community

  Exchange      Contractual         Voluntary

     Loyalty   Dependency           Affiliation

 Supervision     Managers             Peers

    Control    Policies & MBO     Goals & Values

Coordination   Role Definitions    Meta-Rules

Contribution     Prescribed        Unbounded

   Rewards        Extrinsic          Intrinsic
Innovative
 Innovation myths:
1. Innovation is optional.
The only thing that really
matters about a strategy
is how it’s different from
  every other strategy.
1. Does it have the power to
   change customer
   expectations?
2. Does it have the power to
   change the basis for
   competitive advantage?
3. Does it have the power to
   change industry economics?
 Innovation myths:
1. Innovation is optional.

2. Innovation is risky.
                                        Critical
                                        Decision
                                         Zone
    Substantial



                          Millions of                Millions of
Resources                 $s won’t
                           make it
                                                     $s won’t
                                                      let you
                          happen                     catch up



       Limited

                  Short                            Long
                            Elapsed Time
 Innovation myths:
1. Innovation is optional.

2. Innovation is risky.

3. Innovation can't be taught.
How have you been trained as a business
innovator?
Where do you to get experimental capital
to advance a new idea?
Where is innovation represented in your
personal performance metrics?
How do you find an innovation mentor?
How do your company's management
processes reinforce innovation as a core
value?
Resilient
Cognitive


  Blind to
   reality
              MP3 files are inferior to CDs
   Dismiss    Getting music online is clumsy

              They'll download only as long as its free
Rationalize   The whole model is based on theft

              We're going to sue those college kids
  Mitigate    We'll create an iron-clad DRM regime

              Digital downloads are the future
 Confront     We can create a new business model
Regard everything you believe
as no more than a hypothesis.
    Filter out the filterers.
  Find the bleeding edge of
           change.
 Be alert to strategy decay.
Cognitive    Strategic


  Blind to     Too few
   reality     options
                            Ideas
                    1,000
Number of options



                                    Experiments
                     100


                                                  Projects
                      10


                                                             Winners
                       1
Cognitive    Strategic   Political


  Blind to     Too few     Inflexible
   reality     options    resources
There are no “slack” resources.
  To lose resources is to lose
         political power
The resource allocation process
   is biased against new ideas.
       Gamechanger
1. Idea submission: Anyone, any time
2. Peer review: Within a week
3. Test & mature: Testing hypotheses
4. Expert review
5. First tollgate: Value proposition
6. Technical feasibility
7. Second tollgate: Business logic
Management Innovation
 The work of                   Management
management                      processes
Resources:                     Capital allocation
  Accumulating & Allocating
                               Strategic planning
Activities:
  Coordinating & Controlling   Training & development
Knowledge:                     Project review/monitoring
  Acquiring & Applying
                               Hiring & promotion
Objectives:
  Setting & Programming        Performance reviews
Effort:                        Product development
   Motivating & Aligning
                               Knowledge management
Relationships:
  Building & Nurturing         Internal communications
How do you
  accelerate
management
 innovation?
    Commit yourself to a worthy
1
    problem.
1. What are the perennial trade-offs
   that seem impossible to resolve?
2. Where do we see the biggest gaps
   between rhetoric and reality?
3. How is the environment changing
   and what new challenges will this
   pose?
    Commit yourself to a worthy
1
    problem.
    Deconstruct your
2
    management beliefs.
 1.   Change starts at the top.
 2.   It takes a crisis to provoke change.
 3.   Only a strong leader can change a large company.
 4.   To lead change, you need a clear agenda.
 5.   Most people are against change.
 6.   With any change there will be winners and losers.
 7.   Change management is a disciplined process.
 8.   Organizations can only cope with so much change.
 9.   You have to make change safe for people.
10.   Changing too early is as bad as changing too late.
    Commit yourself to a worthy
1
    problem.
    Deconstruct your
2
    management beliefs.
    Search for powerful new
3
    principles.
DNA
Standardization
                     Limits cross-boundary learning
                     and circumscribes opportunities


Specialization       Forgoes innovation in favor of
                     conformance


Hierarchy            Over-values experience and
                     under-values new thinking


Planning & control   Creates a dangerous illusion of
                     extrapolation-based predictability


Extrinsic rewards    Discounts the power of self-
                     organization and volunteerism
    Commit yourself to a worthy
1
    problem.
    Deconstruct your
2
    management beliefs.
    Search for powerful new
3
    principles.

4
    Learn from positive
    deviants.
              Freedom                        Discipline
W Foods:   Select your team members       Performance is very visible
           Decide on pricing, selection   Pay is tied to productivity
           Control staffing               Peer pressure to hit targets




Google:    70/20/10                       Experiment quick, fail fast
           Small, self-directing teams    Continuous peer feedback
           Broad span of control          Differentiated rewards
    Commit yourself to a worthy
1
    problem.
    Deconstruct your
2
    management beliefs.
    Search for powerful new
3
    principles.

4
    Learn from positive
    deviants.
    Re-engineer your
5
    management processes.
Management development: Made innovation a central topic
in the company's leadership development programs.
Capital spending: Set aside a substantial share of the capital
budget for truly innovative projects.
New product development: Required that every new product
contain "new to the market" innovation.
Employee training: Required every salaried employee to get
trained as a business innovator.
Measurement: Developed a detailed set of metrics to track
innovation inputs, throughputs & outputs.
Performance review: Made innovation a focal point in all
business review meetings.
IT: Built an innovation intranet site where employees can post
and discuss new ideas.

				
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