Pipeline Construction Innovation Steve Markham North Carolina State

Pipeline Construction Innovation Steve Markham North Carolina State University Center for Innovation Management Studies Copyright 2007 Markham

Introduction Personal Introduction • Professor at North Carolina State University • Research Foundation President for the Product Development and Management Association • BP’s Innovation Board • IBM’s Innovation Council • Nortel’s Business Venture Group • Innovation consultant for numerous fortune 500 companies • Founder/Director of 8 high technology startup companies • CFO for 5 startups, VP Product Development • Research: innovation, champions • Former Director of CIMS Copyright 2007 Markham

Introduction CIMS is a virtual research center • CIMS network includes over 100 research investigators at 55 universities involved in CIMS research programs • CIMS is located on the Centennial Campus of NC State • First national research center (NSF sponsored IUCRC) devoted exclusively to research on the management of technological innovation • The International Association of Management of Technology (IAMOT) rated the College of Management 1 st in Technology Management • Journal of Product Innovation Management article ranks College of Management 11 th in the Management of Technology/ Innovation. Located in the Research Triangle Park (RTP) CIMS is in one of America’s most dynamic technological environments Copyright 2007 Markham

Introduction Agenda The Case for Innovation § Growth § The Innovation Cube Definitions § Innovation, Invention, Management, Ideas, Opportunities, Radical, , Incremental Objectives § Community: Individual/company/inter-company Championing Projects § Building the case § Relationships Selling Ideas § Rational Ignorance § Getting Approvals Copyright 2007 Markham

Making the Case Phil Hopkins, Technical Director, Professorial Fellow at the University of Newcastle We must not always value experience above other attributes, such as a willingness to learn, a willingness to change, and new knowledge. Copyright 2007 Markham

Making the Case The Case for Growth! • Growth is dominating discussions in boardrooms around the world 1 • Barriers to competition have fallen precipitously… • 50% of sales of “successful” companies come from new products/services… over 60% for “most successful” 2 • Next round of competitive positioning will be based on innovation • Only innovation increases the size of the pie – making its mastery vital 1. 2004 Global CEO Survey, IBM Business Consulting Services 2. PDMA Handbook of New Product Development Copyright 2007 Markham

Making the Case Management is waking up to innovation April 24, 2006 edition of Business Week magazine Copyright 2007 Markham

Making the Case Unfortunately managers may be better at controlling costs • Companies have invested considerable resources and energy in becoming leaner and more nimble • The quest for productivity, quality and speed has launched a number of management tools: TQM, Reengineering, Six sigma, Outsourcing, etc. • Senior management is frustrated by their inability to translate gains into sustainable, profitable growth • The products and services of these firms are indistinguishable Bit by bit these tools have taken companies away from viable competitive positions Copyright 2007 Markham

Making the Case But just “how to” innovate can be a difficult and complex problem To get ahead of the pack, managers at leading companies are asking: • How can they move beyond producing only incremental products and create more radical innovations? • Which emerging technologies have the potential to be disruptive and generate breakout financial results? • Are there adjacent markets where they can leverage existing platforms? • What internal capabilities do they need to be successful innovators? Copyright 2007 Markham

Making Innovation Easier CIMS IM Framework provides a systematic way to think about managing innovation Levels: • Firm • Industry • Macro-environment Dimensions: • Strategy • Organization & Culture • Process • Techniques & Tools • Metrics Competences: • Idea Management • Market Management • Portfolio Management • Platform Management • Project Management It breaks IM down into elements that can be learned, practiced, measured, and improved i. e. managed Copyright 2007 Markham

Determining IM Competence IM Assessment Tool – Maturity Model Definitions Five levels of maturity separate ‘Ad hoc’ companies from those that are ‘Optimized’: 1. Ad hoc - Initial state; results from having no concerted focus on innovation. 2. Defined - Organization makes innovation a strategic imperative; resources are dedicated to improving the firm’s IM proficiency. 3. Managed – Manager’s actions reinforce the desired new behavior; their goal is to institutionalize the new innovation business model. 4. Leveraged - Synergies occur; company involves people / competencies from outside the boundary of the firm. 5. Optimized - New innovation model is fully internalized; business results are repeatable and predictable (This state represents CIMS knowledge of leading IM practice). Copyright 2007 Markham

Your Questions & Challenges What are your company’s innovation enemies? Source: April 24, 2006 edition of Business Week Copyright 2007 Markham

Definitions First, some definitions… Innovation Defined • Invention is a new device or method derived through experimentation. Often confused with ‘innovation’ • Innovation is turning ideas into a business success; it must always be user focused. Innovation is much broader, it is ‘the commercially successful use of inventions’. • Innovation Management is a multidisciplinary process that involves Strategy, Marketing, Finance, Economics, Logistics, Operations, etc. to create new and valued products, services, and business models. • Idea is the recognition that something has a commercial advantage • Opportunity is an idea grounded in needs and capability to deliver • Incremental vs Radical Few words are so ubiquitous…its on the minds of CEOs, government officials, and academic leaders as they search for a way to survive. Sam Palmisano, IBM CEO Copyright 2007 Markham

Definitions For incremental innovations, problems are structured at the corporate level and information flows outward to the organization Boundary Interface Gate-keeping Interface Project Interface Problems and opportunities are identified and directed to individuals/small groups for information search Macroenvironment Boundary Spanners Gatekeepers Corporate Decision Makers Project-level Decision Makers Small Groups of Individuals You are here Front End of Innovation Reid and de Bretani, The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model. Journal of Product Innovation Management, May 2004. Copyright 2007 Markham

Definitions However, for breakthrough innovations information flows inward and decision making is individual and fragile Boundary Interface Gate-keeping Interface Search for new technologies; intuit unaddressed markets Macroenvironment Boundary Spanners Project Interface Determine value to organization; reduce uncertainty Gatekeepers Greatest source of discontinuous technologies/ideas Corporate Decision Makers Project-level Decision Makers Small Groups of Individuals Idea Management Reid and de Bretani, The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model. Journal of Product Innovation Management, May 2004. Copyright 2007 Markham

Definitions Opportunities for Partnership Difficulties • One partner has interest in radical innovation the other wants incremental • One partner wants to talk about ideas, the other wants to talk about opportunities § Neither partner knows the difference • A partnership agreement includes a “development” project that could be an invention or an innovation project • How Partners ability to go at the same speed differs • Boundary Spanners and Gatekeepers do not know their roles – can’t talk to their partners or internally to their own companies Copyright 2007 Markham

Agenda The Case for Innovation § Growth § The Innovation Cube Definitions § Innovation, Invention, Management, Ideas, Opportunities, Radical, , Incremental Objectives § Community: Individual/company/inter-company Championing Projects § Building the case § Relationships Selling Ideas § Rational Ignorance § Getting Approvals Copyright 2007 Markham

Objectives Build an Innovative Community Around On. Shore Pipeline Construction § Innovation at this conference § Innovation between companies § Innovation inside your company Copyright 2007 Markham

Objectives Innovation at this Conference Innovation in the next 36 hours – How do we use our relationships to increase value by jointly benefiting each other through adoption of new practices? § § § § This is not a detailed technical discussion Not creativity by itself. . . But may Not invention alone include all of these Not just new “ideas” Nor is it a “what are all the problems” session This is not just a brainstorming workshop This is a “how do we collaborate” discussion – Individually, company, collectively Copyright 2007 Markham

Objectives Individual Participation at this Conference Innovation is a difficult choice we make § Open discussion – Offer ideas without fear of being assigned to do it – Talk about innovation without fear of competition – Suggest how we can work together without fear that your company can actually deliver it – Talk about early concepts without fear of looking bad – Think about future opportunities without skepticism of the past – Participate without worrying about language barriers – Help set expectations about what can be done Copyright 2007 Markham

Objectives Innovation Between Companies Requires a community (This meeting? ) § Mutual interest § Willingness to share Requires trust § Setting and meeting expectations § Reassess what is competitive and what is cooperative Requires a strong reason for doing things differently § Risk § Resources Discussion: What do you hope to get out of this meeting? – System approach – not just doing things good for your company but shifts problems/costs to others – No use to do it alone – needs other parts of the supply chain to make an innovation work – Innovation Partners? Copyright 2007 Markham

Objectives Innovation in Your Company Know what is needed to participate in the community What is the advantage for your company § Not obvious at first – Automotive (Paint) / Electronics (SRC) Identify what is negotiable and what is not “Sell” innovation (building a community) to others in your company § Discuss the obstacles – Trust – Risk – Resources / Priority Copyright 2007 Markham

The Problem. C The Valley of Death Resources Decision space between discovery and development Existing Research Resources (Technical and Market) Discovery Early Development Level of Development Existing Commercialization Resources Commercialization Used by permission Copyright 2007 Markham

The Problem Championing Projects Resources Decision space between discovery and development Existing Research Resources (Technical and Market) Discovery Existing Commercialization Resources Use relationships to prepare case and sell the opportunity Early Development Level of Development Commercialization Used by permission Copyright 2007 Markham

Rational Ignorance People can’t be experts about everything § They are selective about what they care to be knowledgeable about Yet. . . People have opinions about everything § They manage the world by habit When people do not accept your ideas its because of rational ignorance § They don’t know the value of your idea Rational people protect their ignoranc e carefully Copyright 2007 Markham

Rational Ignorance Brilliant Idea Copyright 2007 Markham

Rational Ignorance . . . but who is Ignorant? Decision makers are rationally ignorant of the value of the idea The inventors are rationally ignorant about how decisions are made Effective selling requires knowledge of both sides of the decision Copyright 2007 Markham

Rational Ignorance Combined Ignorance ? should ey hat th t ? know hould kers n: a ys ussio ision m at the th ec Disc know on’t d d rs What ovato n § ? on’t in closed td a ps § Wh se ga e are th § How Copyright 2007 Markham

Selling Ideas Selling Closes the Gap All ideas must be sold to overcome rational ignorance § FIRST - Selling provides a reason to transfer an idea from a habit, relatively uninformed state, to an actively considered concept § SECOND – Selling provides salient information about the idea to decision makers. Requires both the decision maker and innovator to make sense. Copyright 2007 Markham

Selling Ideas Opportunity: Identify Your Company Needs Who is the intended customer Why is your IDEA a necessity to them § Cost savings, Production improvement, HSE. What is the decision process for adoption § Who, Criteria, Process, Timing Often there is an over emphasis on criteria Copyright 2007 Markham

Selling Ideas Why do they need it? Performance improvement (10 X) Cost reduction (30%) Something new and valuable Features vs Benefits Quantify in salient terms Copyright 2007 Markham

Selling Ideas Targets Who are the decision makers Talk their language § Not technical capabilities or features but benefits assuming it works; simplify your information Copyright 2007 Markham

Selling Ideas Selling Tools Your Company Need Selling Tools Opportunity: Identify Compelling Case • Explain so people can see the value • Provide whole picture to decision makers • Create an “object of support” • Get other people to help The Story – the idea as a: Benefit, Problem, Solution, Opportunity, Indispensable, Interesting, Dramatic. . . Selling tools Elevator Pitch • Explain their opportunity in less than 2 minutes • Selling Tactics • Target identification • Safety Tips Sell “Killer” Graphic • Make value obvious • Simple representation • Variables and relationships Value Proposition Compared to base line Copyright 2007 Markham

Selling Ideas Safety Tip Never go into a meeting to get an approval § The meeting must be a formality of the decisions that have already been made – Get buy in from decision makers before meeting – Count votes before the vote – No surprises Don’t beg, grovel or tantrum § Be willing to walk away § Keep being genuine Copyright 2007 Markham

Conclusion Breakthrough Innovation - Objectives Innovative companies will be able to: ü Create and evaluate innovative product ideas that are based upon unique technology capabilities, and link these to partners. ü Research both the technology and the partner opportunity efficiently utilizing an information-gathering hierarchy. ü Research and evaluate the business opportunities on operational and strategic dimensions to uncover ‘fatal flaw’s at an early stage. ü Develop a business model and commercialization strategy for the best opportunity. ü Build an appropriate business case for innovations, venture, alliance or new line of business, with the case tailored to the appropriate decision-makers. Copyright 2007 Markham

Conclusion Result = acquiring new behaviors - collectively • Work as a project team -- locally or remote. Coordinate multiple, interdisciplinary tasks in order to achieve innovation in an action-oriented business setting. This includes familiarization with critical management issues such as governance and performance measurement. • Conceive, develop and market innovations. Lead innovation projects including the design of the innovation team and use of effective performance metrics. This includes proficiency in quantitative and qualitative techniques in market research, technology commercialization, and portfolio optimization. • Wire the organization for success. Participants will be able to assess the drivers of an organization’s culture, determine corrective actions, and facilitate organizational change. This includes dealing with the tougher HR issues that are often pushed under the rug. • Create the case for change. Initiate the development of specific execution strategies to better align innovation activities with the firm’s business strategy. This includes being able to objectively assess the maturity of their own organizations IM competence. i. e. you will be able to increase your organization’s capacity to innovate. Copyright 2007 Markham

Your Questions & Challenges Thank You! Copyright 2007 Markham