Successfully Embedding Innovation Strategies and Tactics

BEST PRACTICES REPORT
SUCCESSFULLY
EMBEDDING INNOVATION
Strategies and Tactics
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ISBN-10: 1-60197-141-9
ISBN-13: 978-1-60197-141-8
STATEMENT OF PURPOSE
Te purpose of publishing this report is to provide a reference point for and insight into the processes and practices associated with certain
issues. It should be used as an educational learning tool and is not a recipe or step-by-step procedure to be copied or duplicated in any way.
Tis report may not represent current organizational processes, policies, or practices because changes may have occurred since the completion
of the study.
* Te IBM Logo is a registered trademark of IBM in the United States and other countries and is used under license. IBM responsibility is
limited to IBM products and services and is governed solely by the agreements under which such products and services are provided.
Project Team
Marisa Brown, program manager,
innovation and R&D
Gerry Swift, project manager
Paul Penaloza, project team
APQC
Subject Matter Expert
Dr. Kevin C. Desouza
University of Washington
Special Advisers
Yukika Awazu
Te Engaged Enterprise
Mark L. Fox
Sly as a Fox
Editors
Krystl Campos
Lauren Trees
Designer
Connie Choate
A best practices report from
P O L l C A T l O N S

In collaboration with Research Champion*
SUCCESSFULLY EMBEDDING INNOVATION
Strategies and Tactics
2 Successfully Embedding Innovation: Strategies and Tactics
Contents
Sponsor and Partner Organizations
A listing of the sponsor organizations in this study, as well as the best-practice (partner)
organizations that were benchmarked for their innovation activities. 4
Executive Summary
A birds-eye view of the study, presenting the study focus, the methodology used throughout
the course of the study, key ndings, and a prole of participants. Te ndings are explored
in detail in the following sections. 7
Study Findings
An in-depth look at the ndings of this study. Te ndings are supported by quantitative
data and qualitative examples of practices employed by the partner organizations. 15
The ABCs of Collaborative Innovation by IBM 65
Driving Operational Innovation Using Six Sigma by IBM 79
Partner Organization Case Studies
Background information on the partner organizations, as well as their innovative
practices in project management. 95
Contents
Successfully Embedding Innovation: Strategies and Tactics 3
Sponsor Organizations
Accenture
BD
Boeing Commercial Airplanes
Deloitte & Touche USA LLP
Fisher-Price Inc.
Northrop Grumman Corporation
Occidental Petroleum Corporation
Praxair Inc.
Aramco Services Company
Siemens AG
U.S. Army, Army Research Laboratory
U.S. Army, ARDEC
U.S. Army, TARDEC
U.S. Department of State
U.S. Government Accountability Ofce
U.S. Navy, Carrier Team One
Sponsor Organizations
Partner Organizations
Partner Organizations
Air Products and Chemicals Inc.
Boston Scientic Cardiovascular Division
Computer Sciences Corporation
Ethicon Endo-Surgery
Hewlett-Packard Company Imaging and Printing Group
This page is left blank intentionally for double-sided printing
Executive Summary
I
nnovation, innovation, and innovation. I challenge the reader of this report to examine the
strategic direction of any organizationsmall or large, based in the U.S. or elsewhere, a
nonprot or a prot-seeking entity, an incumbent or a new entrant. Peruse the speeches given by the
organizations senior executives or look at the notes found in its annual report, and you will notice
that the word innovation is front and center. Organizations today must innovate, and they must do
so at a pace that is consistent and sustainable. As competition becomes ercer and the marketplace
changes more rapidly, spurts of innovation are no longer sucient. Te bottom line is that
organizations that fail to innovate will nd themselves out of business.
Tis APQC study, Successfully Embedding Innovation: Strategies and Tactics, investigates how
leading enterprises have embedded innovation into their organizational fabrics. Te best-practice
partners that were chosen for the study do not simply experience spurts of innovation or employ a
few geniuses. Rather, these organizations have established track records of innovation that in many
instances, such as that of HP Labs, date back to their founders. Studying organizations that have been
successful at innovating has pointed us to several interesting ndings. Te chapters that follow explore
these ndings in detail; I will highlight three of them.
First, the best-practice partners understand the criticality of innovation and do not just give it
lip service. Tese organizations have embedded innovation into their mission statements, rewards
and performance systems, resource allocation programs, and even into how they engage with their
customers and business partners.
Second, these organizations have transparent processes for managing innovationroles and
responsibilities are clear and, consequently, accountability is explicit. Whereas some best-practice
partners maintain a decentralized approach to innovation, others have chosen to centralize it.
Regardless of the strategy adopted, the entities responsible for innovation are given the necessary
resources to achieve their objectives.
Tird, best-practice organizations use a multitude of communication tools and vehicles to get
the word out about innovation. Tey communicate with all their stakeholders, and they do so often.
Tey also ensure that ideas can be conveyed and exchanged eectively; feedback channels to the idea
creators are well-dened. Rewards and recognition for innovating are publicized so that they act as
positive reinforcements and incentives for future eorts.
Executive Summary
It has been a privilege to serve as a subject matter expert for this study, and I hope that you will
enjoy reading the report. Te report represents a signicant contribution to the eld of innovation
literature, and more importantly, the ndings will help enterprises improve how they embed
innovation into their organizational fabrics.
Dr. Kevin Desouza, assistant professor, University of Washington
In the current business climate, organizations are feeling increasing external pressure to show
continued growth, and many CEOs are turning to innovation to drive that growth. As Kevin Desouza
points out, the term innovation is ubiquitousits in news headlines, on the covers of magazines, and
written about in books. But what does innovation encompass? APQCs denition, rened in its 2005
research project and report Innovation: Putting Ideas into Action, includes four key elements.
1. Product/Service innovation: Tis type of innovation results in products or services that can be
priced and sold externally.
2. Operational innovation: Tis is internal innovation focused on making the business more eective
and/or improving the customer experience.
3. Business model innovation: Tis is innovation that combines new strategy, processes, and
organizational models to create entirely new ways of doing business. Such innovation typically
relates to business relationships such as joint ventures; licensing agreements; and partnerships with
universities, suppliers, customers, or competitors.
4. Innovation enablers: Tis category of innovation includes tools, structures, and cultural
fundamentals that create an environment where innovation can thrive.
It takes time and focused eort for enterprises to shift their paradigms and integrate innovation
into their business strategies and cultures. What does an organization do when employees cling to the
way things have always been done? How can leaders convince employees that innovation represents
something other than more work? Tis APQC study seeks to answer these questions. Te study team
and participants set out to investigate how best-practice organizations achieve success in innovation,
ingrain it into their organizational cultures, and make it part of each employees job. Te research
also examines technologies, applications, and other tools being used to support innovation, as well as
methods of measuring innovation performance.
Marisa Brown, innovation and R&D senior program manager, APQC
STUDY SCOPE
Te objectives of this study focus on the enablers of innovation:
How do organizations successfully embed innovation into their cultures?
How can organizations overcome resistance from employees who cling to the way they have
worked in the past?
How can organizations shift to a perspective in which employees view innovation as the way
business is done?
Executive Summary
In support of these objectives, the study team worked with the subject matter expert to identify
organizations with proven successes in the following scope areas.
1. Creating a strategy to embed innovation
2. Dening roles and structures to support innovation engagement
3. Understanding the cultural and technical enablers
4. Designing ongoing communication and change management tactics
5. Evaluating key innovation measures
Te organizations selected for deep, detailed study through structured data collection and site
visits (aka partners) demonstrate superior performance in one or more of the study focus areas. Te
goal of the project was to examine organizations that excel in one or more aspects of the scope and
to identify the best practices from all the researched organizations. To achieve this goal, the APQC
study team selected potential best-practice partners that had demonstrated excellence and a history of
success in the scope areas above. Project sponsors formed the nal list of partners by choosing from
among the candidates.
Overview of Findings
Te study team discovered 15 principal ndings from studying the best-practice partners. Tese
ndings have been organized into the following chapters, which map closely to the study scope. Each
chapter explores key ndings and supports them with brief examples from the best-practice partners;
additional details on the best-practice partners can be found in their respective case studies at the end
of this report.
Chapter 1: Creating a Strategy to Embed Innovation
1. Overarching cultural frameworks and strategic guideposts help establish the foundation for an
innovative culture.
2. Clearly articulated strategies and road maps can provide transparency and direction for innovation.
Chapter 2: Defining Roles and Structures to Support Innovation Engagement
3. Establishing innovation specialty groupsin addition to centralized ownershiphelps to
broaden engagement.
4. Internal events and competitions provide recognition for innovative thinking and behavior.
5. Organizations are deliberate in how they allocate resources depending on the amount of
risk involved.
6. Collaborating through internal and external alliances can strengthen innovation and
idea generation.
Chapter 3: Understanding the Cultural and Technical Enablers
7. To strengthen the innovative culture, organizations are hiring employees who meet criteria
outside of functional capabilities.
8. A critical ingredient to get innovation to stick is visible participation and active involvement
from leadership at all levels.
Executive Summary
9. Designating physical and/or virtual spaces dedicated to innovation can encourage creative
thinking.
10. Encouraging risk taking is essential for innovation to thrive.
11. Encouraging employees to collaborate with those outside their specic peer groups can facilitate
idea generation and problem solving.
12. Proper selection of software tools can facilitate the innovation process.
Chapter 4: Designing Ongoing Communication and Change Management Tactics
13. Employing a diversity of communication vehicles is necessary for a relentless focus on innovation.
14. Knowledge and change management techniques can facilitate the embedding of innovation.
15. Oering both formal and informal training courses improves internal competencies related to
innovation.
Chapter 5: Evaluating Key Innovation Measures
Although all the organizations studied are evaluating and measuring innovation in some form or
fashion, a common dashboard for innovation metrics did not emerge.
Chapter 6: Lessons Learned
Tis chapter will review each of the studys best-practice partners and their lessons learned in
successfully embedding innovation. Tis chapter includes enablers, barriers, critical success factors,
and future plans.
STUDY METHODOLOGY
Developed in 1993, APQCs consortium benchmarking study methodology (Figure 1) serves
as one of the worlds premier methods for successful benchmarking. It was recognized by the
European Center for Total Quality Management in 1995 as rst among 10 leading benchmarking
organizations models. It is an extremely powerful tool for identifying best and innovative practices
and for facilitating the actual transfer of these practices.
Phase 1: Plan
Te planning phase of the study began in mid 2006.
During this phase, APQC conducted secondary research to
help identify innovative organizations that might participate
as best-practice organizations (the partners). In addition to
this research, APQC sta members and the studys subject
matter experts identied potential participants based on
sponsor recommendations and their own experiences.
Each recognized organization was invited to participate in
a screening process. Based on the results of the screening
process, as well as organization capacity or willingness to
participate in the study, a nal list of partner candidates
was developed.
Executive Summary
APQCs Benchmarking Model:
The Four-Phased Methodology
Figure 1
A kicko meeting was held in October 2006, during which the sponsors rened the study scope,
gave input on the data collection tools, and indicated the organizations they would most like to study.
Five organizations were selected for site visits from the original list: Air Products and Chemicals Inc.,
Boston Scientic, Cardiovascular Division, Computer Sciences Corporation, Ethicon Endo-Surgery,
and Hewlett-Packard Company.
Finalizing the data collection tools and piloting them within the sponsor group concluded the
planning phase.
Phase 2: Collect
Tree tools were used to collect information for this study:
1. screening questionnairequalitative and quantitative questions designed to identify best practices
within the partner organizations;
2. detailed questionnairequantitative questions designed to collect objective, quantitative data
across all participating organizations; and
3. site visit guidequalitative questions that parallel the areas of inquiry in the detailed
questionnaire, which serves as the structured discussion framework for all site visits.
Four of the ve partner organizations selected for continued participation in the study responded
to the detailed questionnaire. Te ve best-practice partners also hosted half-day site visits attended by
sponsors, other partners, and members of the study team. Te APQC study team prepared a written
report (case study) of each site visit and submitted it to the partner organization for approval. Tese
case studies are located at the end of this report.
Phase 3: Analyze
Te subject matter expert, special advisers, and APQC analyzed both the quantitative and
qualitative information obtained through the data collection tools. Te analysis concentrated on
examining the challenges that organizations face in the study focus areas.
Te analysis of the data, as well as case examples based on the site visits, is contained in this report.
Phase 4: Adapt
Adaptation and improvement, stemming from identied best practices, occur after the readers
apply key ndings to their own operations. APQC sta members are available to help readers create
action plans appropriate for their organizations.
PARTICIPANT INFORMATION
Figure 2, page 12 depicts the industry distribution for the 18 organizations that responded to the
detailed questionnaire.
ABOUT APQC
A recognized leader in benchmarking, knowledge management, measurement, and quality
programs, APQC helps organizations adapt to rapidly changing environments, build new and better
ways to work, and succeed in a competitive marketplace. For 30 years, APQC has been identifying
Executive Summary
best practices; discovering eective methods of improvement; broadly disseminating ndings; and
connecting individuals with one another and with the knowledge, training, and tools they need to
succeed. APQC is a member-based nonprot serving more than 500 organizations around the
world in all sectors of business, education, and government. Learn more about APQC by visiting
www.apqc.org or calling 800-776-9676 or +1-713-681-4020.
APQC has a long history of identifying best practices in the area of R&D and innovation.
Te following best-practice reports are available on this topic.
Portfolio Management: Optimizing for Success (2006)
Innovation: Putting Ideas into Action (2005)
R&D Productivity: Understanding the Drivers and Enablers (2004)
Improving New Product Development Performance and Practices (2003)
Using Knowledge Management to Drive Innovation (2003)
New Product Development: Gaining and Using Market Insight (2001)
Managing Innovation for New Product Development (1998)
Strategic Collaboration for New Product and Service Development (1998)
Marketing Research for New Product Development (1996)
SUBJECT MATTER EXPERTISE
Dr. Kevin C. Desouza
Kevin C. Desouza is an assistant professor in the Information School at the University of
Washington, as well as an adjunct assistant professor in electrical engineering at the College of
Engineering. He serves as the director of the Institute for National Security Education and Research,
an inter-disciplinary university-wide initiative, and he is a founding faculty member of the Institute
for Innovation in Information Management (I
3
M). Desouza has authored six books and more than
100 articles on the topics of knowledge management, strategic innovation, crisis management, and
competitive and government intelligence assignments.
Executive Summary
Industry Percent of Participation
Aerospace/Defense 21%
Chemicals/Petroleum 39%
Computer hardware/Software 25%
Consumer goods/Services 7%
Energy 7%
Government 21%
Healthcare/Pharmaceutical 50%
Manufacturing 7%
Professional services 21%
Figure 2
Participant Industry Representation
Executive Summary
Yukika Awazu
Yukika Awazu is the president of Te Engaged Enterprise, a global research and consulting
organization. Awazu has worked for organizations in the United States and Japan. She has
co-authored Engaged Knowledge Management (Palgrave Macmillan, 2005), published more than 20
articles, and presented her research at major academic and industrial conferences. Awazu is currently
completing her doctoral degree at Bentley College in Waltham, Mass.
Mark L. Fox
Mark L. Fox focuses on teaching practical creative thinking techniques for business. Some of his
accomplishments include receiving NASAs highest recognitionLaunch Honoreeand being
the youngest person promoted to chief engineer on the space shuttle program. Fox has held positions
ranging from management and operations, to sales and marketing, and research and development.
RESEARCH CHAMPION
With consultants and professional sta in more than 160 countries, IBM Global Business
Services is the worlds largest consulting services organization. IBM Global Business Services provides
clients with business transformation and industry expertise, as well as the ability to translate that
expertise into integrated, responsive, innovative business solutions and services that deliver bottom-
line business value. IBM Global Business Services oers industry-leading transformation consulting
skills and delivery capabilities across a range of areas, including human capital management, nancial
management, customer relationship management, R&D management, supply chain management,
and strategy and change. For more information, visit www.ibm.com.
Study Findings
Study Findings
Chapter 1 Creating a Strategy to Embed Innovation 17
Chapter 2 Dening Roles and Structures to Support
Innovation Engagement 25
Chapter 3 Understanding the Cultural and Technical Enablers 35
Chapter 4 Designing Ongoing Communication and
Change Management Tactics 45
Chapter 5 Evaluating Key Innovation Measures 51
Chapter 6 Lessons Learned 59
Chapter 1
C
onsider how a restaurant creates a unique culinary
experience for diners by hiring an appropriate mix
of chefs and providing each with the necessary setting,
ingredients, materials, and tools to produce a culinary delight.
For the restaurant to achieve a coherent menu, it must create
an environment in which all the chefs are working toward
a common vision. An organization that wants to embed
innovation must begin with a similar high-level plan for success.
Strategy is the starting point for both types of endeavors. Before
measuring any ingredients or ring up the oven, a chef must ask,
What is my objective? Is he creating a ve course meal for 20
people or just experimenting with a new recipe? Are there time
or budgetary constraints? Will each chef in the kitchen highlight his or her individual skills, or will
the focus be on collaboration? Organizations in all areas of business and government that wish to
be innovative also face the question of strategy. Te rst chapter of this report examines how
the studys best-practice partners create strategies to embed innovation and ingrain it into their
organizational cultures.
CULTURAL FRAMEWORKS
Overarching cultural frameworks and strategic guideposts help establish the foundation for an
innovative culture.
When beginning preparations for a meal, a chef may opt to adhere to a certain theme. For
example, if the chef works in an Italian restaurant with a long history of serving traditional Sicilian
cuisine, then this history will inuence all of the chefs creations. Similarly, each best-practice
organization leverages its strong sense of institutional memory and connection to corporate history to
act as a framework for its innovation activities.
When an organization cannot trace its innovative origins to an inuential founder, as many of
this studys best-practice partners can, it must nd another way to build the necessary framework for
innovation. In some cases, a cataclysmic event can inuence an organizations core values and shape
its identity. For example, one enterprise that participated in a previous APQC study says that its
foundation for innovation is built on the organizational memory of the day the enterprises stock price
Creating a Strategy to
Embed Innovation
1. Overarching cultural
frameworks and strategic
guideposts help establish the
foundation for an innovative
culture.
2. Clearly articulated strategies
and road maps can provide
transparency and direction for
innovation.
Chapter 1 Best Practices
fell by half and it realized it had to innovate to survive. Another technique that APQC has observed
involves adopting a distinctive visual icon or value statement to encapsulate or symbolize an attitude
toward innovation. Such icons or statements serve as visual cues and reminders for employees,
reinforcing the organizations commitment to innovation and educating employees about how
innovation aligns with overall strategic objectives.
A strong sense of corporate history is evident at Hewlett-Packard (HP). Michael Menke, chief
portfolio advocate for strategic planning and modeling, identies cultural innovation as one of HPs
most distinguishing attributes. Te entire culture of HPreferred to as the HP Wayis based
on the vision of the original founders Bill Hewlett and David Packard. Te HP Way articulates
ve enduring organizational values, all of which are supported by corporate objectives. Te ve core
values are:
trust and respect,
a high level of achievement and contribution,
uncompromising integrity,
teamwork, and
fexibility and innovation.
According to Menke, these values were considered fairly radical when they were formalized in
the 1950s. However, in recent years, similar philosophies have been adopted by many Silicon
Valley organizations.
HPs culture of innovation is further supported by the Rules of the Garage, which are guiding
principles designed to encourage innovation across the organization. Te rules are as follows.
Believe you can change the world.
Work quickly, keep the tools unlocked, work whenever.
Know when to work alone and when to work together.
Sharetools, ideas. Trust your colleagues.
No politics. No bureaucracy. (Tese are ridiculous in a garage.)
Te customer defnes a job well done.
Radical ideas are not bad ideas.
Invent diferent ways of working.
Make a contribution every day. If it doesnt contribute, it doesnt leave the garage.
Believe that together we can do anything.
Invent.
Ethicon Endo-Surgery, a division of Johnson & Johnson, has dened a similar set of highly valued
principles that form a strategic framework for its innovation activities. Te organization points to the
Johnson & Johnson Credo as its underlying philosophy and foundation. Written in 1942, the credo
acts as a guidepost that helps employees understand priorities and make sound decisions. Te credo
stresses the organizations responsibilities to its customers, employees, community, and stockholders.
Ethicon Endo-Surgery is proud to note that most employees are well versed in these principles and
can easily discuss the meaning of the credo. Below is an excerpt from the credo that illustrates the
organizations philosophy:
Creating a Strategy to Embed Innovation
Chapter 1
We believe our rst responsibility is to the doctors, nurses and patients,
to mothers and fathers and all others who use our products and services.
In meeting their needs everything we do must be of high quality.
We must constantly strive to reduce our costs
in order to maintain reasonable prices.
Customers orders must be serviced promptly and accurately.
Our suppliers and distributors must have an opportunity
to make a fair prot.
Innovation has a prominent position in Ethicon Endo-Surgerys vision statement, which is
Transforming patient care through innovation. Te organization notes that, although it does not
have a separate innovation department, this vision statement emphasizes the notion that innovation is
everyones job.
Air Products and Chemicals Inc. has documented its core guiding values in a one-page vision/
mission statement entitled Deliver the Dierence, which outlines how the organization plans to
grow and what it must do to achieve its desired level of growth. Te document lists the following key
values and activities, of which innovation is one:
AccountabilityEach one of us feeling its up to me.
InnovationIts cherishing new ideas and translating them into actions.
IntegrityIts behaving ethically and being true to our words.
RespectIts teams, achieving their full potential through the contributions of each individual.
Safety, Health, and the EnvironmentIts responsibly caring for each other, our communities,
and the global environment.
As these examples demonstrate, the best-practice partners consistently promote values such as
trust, achievement, exibility, respect, and personal accountability. By emphasizing these overarching
values, the organizations strengthen their commitments to innovation and help it thrive.
INNOVATION STRATEGIES, GOALS, AND ROAD MAPS
Clearly articulated strategies and road maps can provide transparency and direction for innovation.
Once a chef decides on a direction or theme, he will often refer to a detailed recipe before
preparing a particular dish. Although some cooks do not believe in following clearly outlined recipes,
others realize that writing and following instructions can help them achieve reliable, replicable results.
Te best-practice organizations in this study employ a similar methodology in developing strategies
or road maps to support their innovation eorts. Tey do not simply tell their employees to go forth
and innovate. Tey give them guidance, direction, and goals.
Dening a clear strategy and translating it into action via a documented innovation road map
is not an easy task. However, a strategy can be a powerful tool for communicating an organizations
overall intentions. All of this studys best-practice partners indicate that they have some form of
articulated innovation strategy. Furthermore, the partners make sure that their commitments to
innovation go beyond mere lip service and that they mobilize their employees in a clear direction.
When asked to evaluate the extent to which their innovation strategies incorporate dened goals and
objectives, the best-practice partners collectively rate themselves as a 5.8 out of a possible 7 (where 1 =
no dened innovation goals or objectives and 7 = very much so). Te partners also rate themselves
highly (6 out of a possible 7) in terms of the degree to which their innovation agendas have been
formulated, communicated, and embedded.
Why do many of the best-practice organizations regularly map out the major initiatives needed
to ensure execution of their innovation strategies? An organizations innovation road map provides
step-by-step guidelines to steer innovation activities. Employees know where to look for direction,
and consistency is maintained across departments and divisions. An eective road map promotes
individual accountability and empowers employees to innovate while ensuring that they operate
within a framework set by the organization. Organizations should update their road maps frequently
to keep activities in alignment with current strategy.
To describe the extent to which the partners map out major developments and initiatives,
Figure 3 breaks down responses according to the three main types of innovation: product/service,
operational, and business model. As the gure shows, the best-practice organizations create these
maps for all the major innovation categories (although business model innovation, which may be the
hardest to predict, remains a challenge).
0%
Partners (n=4)
How Often Does Your Organization Map Out the Major
Developments and Initiatives Needed to Achieve Your
Strategies for the Following Types of Innovation?
Frequency of Response
0 20%
Very often
Not at all
40% 60% 80% 100%
Figure 3
50% of the time
75%
25%
50% of the time
Not at all 0%
50%
Product/service innovation
Very often
50%
Very often
100%
0%
50% of the time
Not at all
0%
Business model innovation
Operational/process innovation
Chapter 1
Boston Scientifics (BSC) strategy and road mapping activities focus on technology road mapping,
which has beneted the organization in numerous ways. Te mapping process:
helps to focus innovation eforts,
ensures that connections exist between business strategy and innovation,
facilitates the alignment of innovation with the new product development portfolio process,
serves as a systematic and objective process for managing innovation,
ensures that all R&D activities are connected to customer needs, and
functions as a communication tool between R&D and marketing.
BSCs chief technology ocer championed the implementation of technology road mapping
to support innovation. At his urging, BSC decided to leverage both in-house expertise and outside
resources (including industry best-practice contacts, academia, and consultants) in an eort to build
and maintain software solutions that could evolve with the organization. As the enterprise expands,
it creates dierent types of technology road maps. For instance, industry road maps are frequently
used as strategy tools, whereas market and product road maps are incorporated into product portfolio
planning. Te organization also generates road maps for individual technologies.
Figure 4, depicts Boston Scientics general model for technology road mapping and directing
innovation. To drive product-related innovation, BSC tries to determine its next product by
evaluating what will motivate the customer, predicting what competitors will do, and then
considering these factors in the context of the technologies that BSC has or needs. To determine
whether the organization is creating technologies that will help it meet its product innovation goals,
BSC develops a portfolio of its technology investments. Tis portfolio directs innovation in the
organization and keeps it strategically aligned.
Figure 4
BSC Technology Road Mapping
General Model
Core
Road Mapping
Directed
Innovation
Novel
Road Mapping
Customer
Needs
Competitive
Threat
R&D
Technology
Project Portfolio
Map
BSC has developed a unique approach to categorizing dierent types of innovation; it divides
innovation into two categories: novel and core. Novel innovation, in BSCs view, includes both
breakthrough and disruptive innovation because both can enable fundamental changes in the basis
of competition, while core innovations are those related to core products. In terms of product
planning horizons, core mapping helps the organization decide how best to make platform technology
investments, whereas novel mapping guides decisions about investments in breakthrough/disruptive
technology. Te core road map begins with what customers want, whereas the novel road map
begins with what customers need, coupled with an evaluation of the size of the opportunity.
Ethicon Endo-Surgery also has a strategic initiative underway that specically addresses innovation.
Under this initiative, the organizations strategic planning processes dene enterprise-wide innovation
objectives, as well as innovation activities for the various business segments. Innovation is also
promoted through innovation groups (technology development teams and technology assessment
teams) embedded within the product pipeline functions. Te strategic planning process includes the
creation of technology road maps to determine future innovation projects.
Innovation strategy is further inuenced by the ve strategic imperatives included in the Ethicon
Endo-Surgery mission statement. Tese imperatives focus on solutions, stakeholders, portfolio, global,
and fast/exible business processes; the imperatives are often referred to as lenses since they are not
tasks or objectives, but rather ways for the organization to look at its overall business. Identifying
and collaborating with multiple stakeholders (e.g., patients, physicians, providers, and insurance
companies) is one of the strategic imperatives, and Ethicon Endo-Surgery notes that understanding
stakeholder needs is a part of all decision making.
At Computer Sciences Corporation (CSC), it is the Oce of Innovation that is responsible for
the promotion and implementation of innovative practices and processes. Tis oce develops
enterprise-wide innovation programs and works with individual business units and employees on their
innovation agendas. CSC has a written innovation strategy that aligns with the organizations overall
goals and provides operational guidelines for the Oce of Innovation. Te strategy also provides
business units with suggestions on how to include innovation practices as they serve their clients.
Te Oce of Innovation uses information about client needs and business trends to hone
innovation practices and guide the development of new solution oerings at CSC. Additionally, CSC
creates solution road maps that include technology road maps provided by suppliers. CSC builds its
road maps from identied client needs and leverages appropriate strategies for upgrading technology
internally and externally for its clients.
Hewlett-Packard (HP) has no formal, documented innovation strategy at the corporate level, but
the Imaging and Printing Group (IPG) maintains clearly dened growth strategies that address the
creation of new business. Jim Cook of the IPG new business program oce stresses the importance
of innovation to HPs overall strategy, saying, We can build on our core and emerging businesses by
developing new business models and annuity streams in adjacent markets. According to Cook, this
approach guides individual creativity within IPG.
Whereas IPG strives for a certain percentage of its business to come from the new business
category, HP Labs (which is part of the Oce of Strategy and Technology) aims to make at least three
to ve distinct contributions to HPs business each year. At the corporate level, HP executives set
specic annual targets for innovation, including the number of new businesses that will proceed to a
certain phase and how many initiatives will be recommended for funding.
IPG collaborates with its R&D team to align innovation goals with market and customer
demands. Tis process begins when the marketing, nance, and R&D teams create a market
landscape identifying potential areas for growth. Business units or new business teams then investigate
each area to determine the viability of HP entering the market. Once goals are identied, IPG further
landscapes the market to determine how it can grow its business by addressing customer needs within
the particular market segments. To accomplish this, IPG examines market trends and uses a prot
pool analysis. Tis process evaluates where prots currently are and where they may be in the future
(about ve years forward) in order to ensure that the prot pool will not be depleted by the time IPG
enters the market. IPGs recent moves into commercial digital printing and retail photo solutions are
examples of initiatives that emerged from this process.
Although Air Products and Chemicals Inc. does not have a formal written innovation strategy,
it has taken signicant steps toward the formation of one. Te organization has clear goals around
its innovation activities. In 2001, it determined that only 75 percent of desired future growth
would come through existing businesses. Te remaining 25 percent would need to come from new
opportunities propelled by innovative thinking.
Te organization is also working to establish forward-looking road maps for entering and
competing in new markets. Air Products categorizes its business innovation opportunities in relation
to its current organizational structure in the following manner:
Whitespacebetween the domains of existing businesses
Greyspaceoverlapping multiple businesses but longer term
Bluespaceout there
For example, nanotechnology is considered greyspace because it exists beyond the current
capabilities of any business unit in terms of both organization and technology. Air Products
corporate development oce creates road maps to establish where nanotechnology will reside in
relation to businesses both inside and outside the organization and to make sure that the components
necessary for future success are outlined and set in place.
CONCLUSION
Getting started can be a daunting task no matter what the endeavor. Just as a chef needs a focused
objective and a well-dened plan to create a culinary masterpiece, the best-practice partners drive
innovation by dening clear goals that align with overall business strategy and specifying precise
processes for innovation activities. Tis chapter examined the strategic importance of overarching
cultural frameworks, guideposts, clearly articulated strategies, and road maps to entrench innovation
in the organization.
Chapter 1
B
reaking through individuals established patterns of
behavior and work in order to encourage innovative
thinking requires infrastructure that cannot be commanded
by a simple at to innovate. Te best-practice partners in this
study recognize this fact, and to facilitate innovation inside of
their organizations, they have taken steps to design, establish,
and ne-tune the desired infrastructures. Tey leverage both
centralized and decentralized elements to allow freedom
and autonomy while retaining a degree of coordination and
management. Beyond the creation of additional roles and oces,
structures also include collaborative programs to engage the
general employee population in creative thinking.
Best-practice organizations do not stop with the completion
of their innovation infrastructures; they also take steps to use
those infrastructures eectively. Tey allocate resources to
innovative projects and explore both internal and external
alliances to meet overall innovation goals.
INNOVATION SPECIALTY GROUPS
Establishing innovation specialty groupsin addition to centralized ownershiphelps to
broaden engagement.
Rather than concentrate innovation eorts into a single corporate structure, the best-practice
organizations proled in this study have developed hybrid structures that involve central innovation
teams (with overall thought leadership responsibility) coupled with innovation specialty groups.
Tese specialty groups are responsible for certain innovation functions or aspects and operate
somewhat independently of the centralized body, frequently in collaboration with business units.
Examples of specialty groups in hybrid models include new business development groups, emerging
technology groups, and applied research groups.
Partner organizations innovation eorts are typically owned by more than one individual. In
many of the partner organizations, innovation is jointly owned by the vice president of R&D and
another person inside the organization. However, other partners assign ownership to one or more of
Chapter 2
Dening Roles and Structures to
Support Innovation Engagement
1. Establishing innovation
specialty groupsin addition to
centralized ownershiphelps to
broaden engagement.
2. Internal events and competitions
provide recognition for
innovative thinking and behavior.
3. Organizations are deliberate in
how they allocate resources
depending on the amount of
risk involved.
4. Collaborating through internal
and external alliances can
strengthen innovation and
idea generation.
Dening Roles and Structures to Support Innovation Engagement
the following: organizational president, CEO, chief operating ocer, business-unit manager,
or business-unit level vice president. Te fact that there is no common owner for innovation across
the board should not be surprising; innovation is an activity that cuts across multiple parts of an
organization and impacts many, if not all, of the organizations business functions and processes.
Ownership will depend on the organizations overall business model, pre-existing conguration,
and leadership structure.
Figure 5 details the extent to which internal groups are integrated into the innovation process.
One of this studys conclusions is that the best-practice organizations have taken steps to establish
innovation as a unique function or high-level entity inside the organization rather than simply
establishing it as an adjunct, subset, or sub-process inside of R&D or product development. In
doing so, the best-practice partners are ensuring that all parts of the organization, including groups
historically excluded from the innovation discussion, recognize the role innovation can play in
improving all aspects of the business. A considerable part of this process is training all employees to
view innovation as more than just a new product or service. To that end, the partners often include
non-traditional functions, such as nance, in discussions around innovation.
Hewlett-Packard (HP) has a multi-part innovation structure. Within each of the business units, the
executive vice presidents who report to corporate are responsible for innovation inside of their own
segments. Tis responsibility is shared with the segments chief technical ocers. In other corporate
organizations such as HP Labs, a unit of HP, innovation is central to their roles. Key innovation
groups can also be found within the business units themselves. Te New Business Organization,
which exists within the Imaging and Printing Group (IPG) of HP, is part of IPGs R&D organization.
Te employees in this section of the lab have nancial, marketing, and engineering backgrounds,
and this group investigates business opportunities that leverage core businesses capabilities to address
customer needs in adjacent markets. It also encourages all IPG employees to innovate by hosting an
employee idea forum, running business plan competitions, and conducting employee poster fairs.
Funding for innovation at HP comes both from the corporate level and individual businesses.
About 4 percent of HPs $3.5 billion R&D budget is set aside for innovation at HP Labs. In
addition, HP allocates certain portions of the business units budgets to fund innovation and new
business creation.
At Air Products and Chemicals Inc.where Innovate is one of the organizations 13 global
processesa multi-unit innovation structure is also employed. Elements of this structure include the
Growth Board, the corporate development oce and its new business development organization, as
well as business technology managers inside individual business units.
Te Growth Board is a centralized high-level structure staed by executives such as the chief
operating ocer, the chief technology ocer, and the chief nancial ocer. Tis group sets the tone for
the organization by acting as a portfolio manager and selecting only the most promising projects to fund.
Reporting to the Growth Board is the corporate development oce and its new business
development group. Te new business development group acts as a specialty incubator oce,
developing new ideas, pulling resources from other business units, and then handing o developed
ideas to the business units for further exploitation.
Te New Business Development Group largely works with what Air Products identies as grey-
space opportunities. Tese are opportunities that are too large or too technologically advanced for
one business unit, or yet-to-be-created markets that overlap the current scopes of several business units.
For opportunities that are more squarely located inside one particular business unit, development
and incubation is handled in conjunction with that business units business technology manager. For
example, with the help of its business technology manager, the Packaged Gases business unit created
new products from existing oerings.
Boston Scientific Cardiovascular Division has also adopted a hybrid model of centralized and
specialty groups to drive innovation. Te director of emerging technologies and new market
development is responsible for maintaining a balance between the management of existing business
and technology innovation for future business. Te division also allocates funding directly to an
internal research group called the Applied Research Group, which is charged with out-of-the-box,
Chapter 2
7.0
To What Extent Are the Following Internal Groups
Integrated Participants in Your Innovation Process?
1 = No External Collaboration - 7 = Extensive External Collaboration
1.0 2.0
Supply chain
Strategic planning
3.0 4.0 5.0 7.0
Figure 5
Senior executives/management
4.8
4.0 Human resources
Unions
7.0
Sales
4.0
R&D 7.0
2.0
6.0
Quality groups 5.5
Marketing 7.0
IT 4.8
Finance 7.0
Customer/Consumer research 7.0
Customer service
4.0
breakthrough thinking. Focusing on external developments (whether outside market opportunities or
outside technology) is another specialty oce, the New Business Development Group.
Computer Sciences Corporations (CSC) organizational structure has been described as a federation,
where each of CSCs 28 business units reports to a central organization but has the authority to make
many of its own decisions. Two years ago, the organization realized that, when it came to innovation,
it was missing vital thought leadership and synergy. Te organization elected to create the centralized
Oce of Innovation, which pulled together many existing groups into one corporately funded and
managed specialty oce. Te innovation oce operates as a support function and does not compete
with business units for client time and dollars.
Te oce consists of the Leading Edge Forum (LEF), a custom research network, global alliances,
and global solutions. Te LEF is concerned with both management and technology innovation, and
works with internal and external partners to create models and implement processes. Te oces
customer research arm delivers custom and commissioned research and analysis. Global alliances is an
oce that concentrates on go-to-market relationships with external partners like Sun and Intel. Te
global solutions oce develops ideas and solutions that have wide applicability to the rest of CSC and
that arise from either the innovation oce or from other business units.
Ethicon Endo-Surgerys innovation practice is largely housed within its product development
group, similar to those in other organizations. However, in addition to the standard R&D group,
Ethicon has also created a smaller franchise development group (with approximately 100 employees.
Te franchise development (FD) group acts as an internal startup within the larger Ethicon
organization by using small teams, fostering an open collaborative environment (that also includes
an open physical environment), and using numerous reward mechanisms to encourage performance.
Ethicon notes, however, it does not oer the same risk/reward ratio of an actual small startup
organization. FDs role is to produce those rst to market medical devices and other new growth
platforms. Ethicon developed this approach after benchmarking determined that most breakthroughs
in the medical device eld either came from individual inventors or small startups before being
integrated into larger organizations.
EVENTS AND RECOGNITION
Internal events and competitions provide recognition for innovative thinking and behavior.
In almost every area of life, people value signs that they are doing good jobs, and positive
reinforcement is a powerful motivator. Recognizing this very human need for recognition and public
acknowledgement of achievements, many of the best-practice partner organizations have taken steps
to foster innovation through the use of internal competitions and events. Te partner organizations
established these events not only to encourage and reward friendly competition among employees, but
also to inspire the larger employee population. Partner organizations feel that, while rewards bestowed
for new discoveries and other innovations directly impact those who have received them, the process of
telling and retelling the winners stories inspires others to attempt to their own innovations.
Ethicon Endo-Surgery uses traditional reward methods to encourage breakthroughs. Engineers and
others vie to earn a place on the Wall of Fame, a prominent display of the best and brightest within
the organization. Rewards go further than just bragging rights; nancial rewards have also been
established, with some developers supplementing their income 25 percent to 40 percent in monetary
awards based on innovations resulting from their everyday work.
Chapter 2
Te organization fosters innovation on a scale wider than just individual rewards. Events such
as the Battle of the Masterminds and Invent-o-rama build an innovative culture among all
participants by encouraging creative teamwork. In the Invent-o-rama, which lasts two to ve days,
teams of employees compete to create the best prototype. Promising creations are handed o to other
teams to explore commercialization. Te Battle of the Masterminds is a similar event, in which
teams compete against each other to solve a problem creatively. Te battle diers in that frequently the
teams are called upon to solve non-medical device problems. Here the exercise is simply to encourage
teamwork and develop creative skills among the participants. Te rationale is that the organization
will ultimately benet from its employees honing these skills.
Computer Sciences Corporations innovation oce administers organization-wide awards. CSCs
major recognition avenue is through its Award for Technical Excellence. Te award has tremendous
prestige inside of the organization and even nominations are considered honors. Although the
innovation oce administers the award, it does so with input from the rest of the organization.
Nominations come from across the enterprise and are then ltered by the chief technologists of each
of the 28 business units. Finalists and winners are chosen by the innovation oce with the help of
several hundred adjudicators organization-wide.
Te oce also conducts a call for papers, open to all employees and clients. Participants are
asked to submit papers on ideas and developments in both the managerial and technical realm.
Similar to this is the grants program, which rewards recipients with resources and time to tackle a
preferred development.
Winners of all these awards are proled extensively throughout CSC in newsletters, Webcasts,
conferences, and other public venues, and they are encouraged to tell their stories to other employees.
At Air Products and Chemicals Inc., innovation events are also promoted. Te organization
makes wide use of innovation symposia to recognize achievements, and more importantly for the
organization, allow the winners to speak about their developments and encourage other employees.
Air Products Chairmans Award for Excellence is the highest award within the organization. Winners
are recognized nationally and internally for their achievements and share approximately $70,000 in
cash and stock.
Hewlett-Packard Imaging and Printing Group (IPG) has also established rewards and recognition
for innovation. Similar to Ethicon, IPG uses a variety of standard reward and recognition methods,
including e-awards, stock options, and salary increases. Employees with new patent applications
and issuances are also eligible for nancial rewards. Besides nancial rewards, employees may also
be awarded resources, such as time or funds in order to pursue a project that holds personal interest.
HP holds light-hearted competitions in the form of poster fairs to recognize good ideas and keep
employees motivated to submit ideas. Winners of the poster fairs are also eligible to receive small
nancial rewards and other recognition.
ALLOCATING RESOURCES BASED ON RISK
Organizations are deliberate in how they allocate resources depending on the amount of risk involved.
When allocating resources for development, organizations are not only weighing the potential
promise of a new service, product, or business model; they must also weigh the potential downside
and risk involved. Te best-practice partners have, in their risk assessments, made a deliberate linkage
between the amount of resources that may be committed and the risk involved in the project.
At Hewlett-Packard, risk and resources are taken into consideration using the organizations
portfolio management techniques. Te Imaging and Printing Group (IPG) uses a stage-gate process to
formally manage and justify investments in innovation. Tis pipeline management tool ensures teams
investigating ideas are getting guidance and support along the way by requiring review meetings and
approval to pass from one stage to the next. Te reviews give the teams chances to present and receive
guidance relative to the current state of their investigations from an experienced group of managers
and peers. On an individual level, HP Labs also makes use of an individual researchers history; for
those engineers who have a successful record of development, management is more comfortable
allowing them to take greater risk and pursue less concrete developments.
Air Products and Chemicals Inc. uses its business development oce in conjunction with the
Growth Board to make allocation decisions. While the Growth Board has the ultimate say in the
allocation of resources and can kill or fund a project at its discretion, the business development oce
also plays a signicant role. For those projects that fall outside of a business units expertise or that
may be too risky for any one business unit to undertake, rather than let the opportunity languish until
conditions change, the new business oce will incubate and nurture those projects until they can
be integrated into a business unit. In this way, the organization ensures that those projects with the
greatest risk are being developed by the oce with the ability and expertise to do so. Safer and more
certain opportunities are developed inside the business units.
Boston Scientific Cardiovascular Division uses its technology road mapping process to allocate
resources and consider risk. Te organization maps core and novel technologies on separate road
maps but includes both in its portfolio. Te core road map is intended to provide a look at where less
risky, incremental development and research is leading the organization, while the novel road map is
concerned with riskier, breakthrough and disruptive innovation investments.
COLLABORATE INTERNALLY AND EXTERNALLY
Collaborating through internal and external alliances can strengthen innovation and idea generation.
During this study, the project team found that many organizations recognize that highly valuable
ideas can come from sources outside the organization. Collaborating with external partners such as
clients, suppliers, research institutes, and universities can be highly valuable. According to this study,
clients and customers are the most popular external sources of ideas, with the best-practice partners
stating that more than 30 percent of their ideations spring from this category of external sources. Idea
generation from competitorsthrough the use of market intelligence or moves by competitorsis
the next most popular source of ideation for the partners. Partnerships and suppliers are other
common sources of external ideas.
Many organizations also recognize that collaborating with external sources can raise a whole host
of potential problems. Issues such as intellectual property, revenue splitting, or risk sharing can scuttle
partnerships before they can become valuable and pay o. Te best-practice partner organizations
identify various barriers to external collaboration (Figure 6). Intellectual property issues top the list of
barriers, with risk sharing coming in a close second.
Despite the barriers to collaboration, the best-practice organizations continue to work with external
partners in many functions and processes. Figure 7 illustrates how externally collaborative the best-
practice organizations are in various functions. Te partners collaborate most extensively in areas such
as product and service development, marketing, information technology, and customer service.
Chapter 2
75%
Partners (n=4)
Which of the Following Have Been Major Obstacles
Encountered in Collaborating with External Partners?
0 20%
Risk sharing
Intellectual property
ownership
40% 60% 80% 100%
Figure 6
Governance
50%
25%
Revenue sharing
25%
4.3
To What Extent Do the Following Functions in Your
Business Entity Collaborate Externally?
1 = No External Collaboration - 7 = Extensive External Collaboration
1.0 2.0
Customer service
Operations
3.0 4.0 5.0 7.0
Figure 7
Sales
3.5
4.5 Information technology (IT)
Environmental health and safety
3.8
Marketing
4.5
Product and service development 5.0
4.0
6.0
Air Products and Chemicals, through its open innovation model, recognizes the importance
of external collaboration to develop new value. Te organization makes extensive use of external
partnerships in a variety of manners.
Te organization partners with universities, government agencies, and research entities in order
to work on innovative new approaches. Examples of this type of collaboration can be seen in Air
Products current work on developing hydrogen as a source of energy for transportation. Te funding
for this work comes through from the U.S. Department of Energy.
Te organization has also looked outside to non-research oriented entities in the search for new
value. Air Products makes use of venture capital funds and other investments in startup organizations.
An example of this is the development of Sonys E-Ink display technology. Initial development was
conducted by a small startup, and Air Products invested funding with the recognition that doing so
could create new opportunities. Today E-Ink is in production and makes extensive use of Air Products
as a supplier.
Hewlett-Packard also makes extensive use of external alliances and partnerships. Troughout
the organization, there is an understood rule for partnering with outside organizations. According
to Michael Menke, chief portfolio advocate, strategic planning and modeling, it is expressed in the
saying, Invent where we can make a dierence; partner for the rest. Te approach holds true in areas
where the organization can stake a competitive position, and it will keep development in house.
In areas where this is not the case, it will partner. HP has partnered with numerous rms such as
AMD, Intel, Microsoft, and Oracle.
In addition to HPs partnerships with outside rms for the purpose of creating product-related
innovation, the organization also collaborates with its customers through extensive focus-group
market research.
Like Air Products, Boston Scientific Cardiovascular Division is eager to look outside of the
organization to fund early eorts in a related sphere. In addition to these early investments, Boston
Scientic is willing to look outside the organization to gain competencies that it may not presently
have. To do this, it rst conducts an investment assessment to evaluate each opportunity. Boston
Scientic begins the investment assessment process by calculating the net present value of the
opportunity and then deciding whether it wants to pursue the opportunity further. When evaluating
potential investments, Boston Scientic also looks at criteria including the chance the endeavor will
lead to minimally invasive products, whether the opportunity will serve the organizations customer
base, whether it targets a new disease state opportunity, whether it brings an innovative approach to
an existing market, and the amount of risk involved.
When making the decision of whether to go outside the organization to pursue an opportunity,
Boston Scientic looks at a variety of factors such as market timing, the cost of keeping development
internal, and whether Boston Scientic has the necessary intellectual capital to make the development
possible.
Computer Sciences Corporations innovation oce maintains the organizations partnerships
through its global alliances oce. Global alliances develops go-to-market relationships with a wide
variety of vendors such as Sun, IBM, and Intel. Tese alliances dier from a standard procurement
relationship, as those are handled outside of the innovation oce.
Te organization is also developing alliances with clients, joint ventures in which the intellectual
property developed is shared between CSC and its clients.
Te innovation oce also has alliances with other organizations outside of vendors and clients.
An example of this can be seen in CSCs Collaborative Open Innovation Network (COIN). Tis
experimental relationship is with several universities and thousands of students in Indias Andhra
Pradesh. Te organization, in partnership with IBM and Sourceforge, is making selective portions of
its intellectual property available to the universities and students and, in return, receives access to the
schools developments and programs.
CONCLUSION
Tis chapter has outlined several of the common roles and structures created by the best-
practice partner organizations in an eort to instill a greater amount of creative and innovative
thinking throughout the organization. Te partner organizations have taken steps to create a
kind of innovation nexus within their respective organizations. Air Products and its new business
development oce is an excellent example of an internal organization created to manage dicult
projects that can arise outside of an organizations mainstream. Te partner organizations have also
worked to inspire innovative thinking among the general employee population through the use of
innovation contests and events. Hewlett-Packards poster fairs are a representative implementation of
this idea. Te intent of the fair is not so much to reward and recognize top performersalthough this
is certainly one of the main goalsas it is to encourage others to think creatively themselves. Partner
organizations have also created the structures necessary to allocate resources among competing ideas
while considering the potential risk involved. Finally, partner organizations are also making extensive
eorts to develop partnerships and alliances, recognizing that valuable ideas exist outside their spans
of control and can be eectively harnessed.

Chapter 2
T
he crux of this study is to examine how organizations
embrace innovation and bake it into their cultures.
What enables this level of acceptance? Organizational
atmosphere was found to be a critical success factor to driving
innovation. When people within an organization see the
importance of innovation and, sometimes more importantly,
understand their roles in achieving innovation success, goals and
objectives can be more easily realized. Terefore, organizations
must create a culture that both encourages creative thinking
among the employees and reinforces the importance of
innovation to the overall success of the organization. Te best
way to accomplish culture change is by making the processes,
tools, technologies, structures, and responsibilities part of the
regular course of business.
Te best-practice partners in this study recognize the
importance of culture as an enabler to embedding innovation.
As illustrated in Figure 8, page 36, 100 percent of partners list
culture as a critical success factor in their innovation eorts.
Furthermore, each partner cited unique cultural elements that
enabled it to embed innovation and meet innovation objectives.
Tis chapter examines these elements, which include hiring the
right people, involving senior leaders in an active and visible
way, designating physical and virtual space for innovation,
allowing employees to take risks, facilitating collaboration
among separate areas within the organization, and selecting
the appropriate tools and technologies to facilitate the
innovation process.
Chapter 3
Understanding the Cultural and
Technical Enablers
1. To strengthen the innovative
culture, organizations are
hiring employees who meet
criteria outside of functional
capabilities.
2. A critical ingredient to get
innovation to stick is visible
participation and active
involvement from leadership at
all levels.
3. Designating physical and/
or virtual spaces dedicated
to innovation can encourage
creative thinking.
4. Encouraging risk-taking is
essential for innovation to thrive.
5. Encouraging employees to
collaborate with those outside
their specic peer groups can
facilitate idea generation and
problem solving.
6. Proper selection of software
tools can facilitate the
innovation process.
NON-TRADITIONAL HIRING CRITERIA
To strengthen the innovative culture, organizations are hiring employees who meet criteria outside of
functional capabilities.
In business, the right mix of people can aect the entire culture of the organization. Merely hiring
qualied candidates is not sucient to achieve innovative results. Part of the on-boarding process
must include endowing each employee with responsibility and accountability for innovation.
Tis will empower employees and deter them from shifting the burden for innovative thinking onto
their colleagues.
Te importance of people was a common theme discussed by the best-practice organizations
during this study. Each best-practice partner stressed the importance of its current employees in the
innovation process. In fact, the best-practice partners in this study revealed that, on the average, 26
percent of their employees have at least one innovation goal tied to their annual performance reviews.
Te best-practice partners also stressed the importance of hiring new employees that would t well
into the existing culture and contribute to innovation objectives. To do this, the partner organizations
noted that they consider more than just functional capabilities in a candidate.
Air Products and Chemicals Inc. realizes the importance of creating the right mix of people to
promote innovation. In particular, the corporate development oce (CDO) and the new business
development oce seek candidates who have more to oer than traditional skill sets. Candidates
with unique skills are being brought on board to help the organization think creatively. While less
Understanding the Cultural and Technical Enablers
100%
Partners (n=4)
to Collaborating with External Partners?
0 20%
Senior management
Intellectual property
40% 60% 80% 100%
Figure 8
Culture
100%
75%
Organization structure
100%
100%
Timing
Financial
25%
25% Legal
Technology
100%
Chapter 3
innovation-focused areas still value traditional functional skills, there is a growing emphasis on hiring
those who also demonstrate a strong sense of creativity.
Te same is true at Hewlett-Packard (HP); in fact, the Imaging and Printing Group (IPG) at HP and
HP Labs cite hiring practices as one critical success factor. Both groups actively seek out people with
diverse backgrounds and unusual career paths. According to the IPG and HP Labs, one of the most
important decisions in promoting innovation is hiring the right people. For example, a candidate with
a quirky sense of humor is viewed as good t for the IPG and HP Labs organizations.
Ethicon Endo-Surgery also considers hiring the right people a critical success factor for successfully
embedding innovation into the organization. As with Air Products and Chemicals, the organization
does not limit itself to evaluating just the technical or functional capabilities of a candidate; more
than 50 percent of the hiring criteria focus on people/leadership skills. To nd people with these skills
and ensure a cultural t, the organization uses a technique called behavior-based interviewing. Te
Johnson & Johnson Credo is the guidepost during the hiring process, and a candidate must meet or
exceed core competencies including specic technical skills, leadership ability, integrity/credo values,
customer focus, innovative solutions, and talent development before being oered a position within
the organization.
LEADERSHIP ACTION
A critical ingredient to get innovation to stick is visible participation and active involvement from
leadership at all levels.
In addition to hiring people who contribute to innovation from the front line, the best-practice
partners in this study also have strong participation from senior leaders and managers. In APQCs
2005 benchmarking study entitled Innovation: Putting Ideas into Action, one of the key ndings was
that for innovation to be a long-term strategy for the organization, corporate focus must be more than
lip service. It must be matched with visible commitments of money, processes, and people. In that
study, the best-practice organizations leaders demonstrated hands-on involvement in innovation.
Te same is true at the best-practice organizations in the current study. Leaders take an active role in
promoting and supporting an emphasis on innovation throughout the organization.
Tis top-down support, while not sucient by itself to successfully embed innovation, lays
the foundation for a creative and innovative environment. Additionally, senior leaders at the best-
practice partners take a visible, participatory role in innovation. Tis visible and hands-on support
demonstrates the importance of innovation to the rest of the organization and thus facilitates
organizational buy-in for innovation eorts.
Tis type of visible support is evident at Hewlett-Packard (HP), particularly in the Imaging and
Printing Groups (IPG) Power Up event. To ensure that employees were well-informed about the
latest products, IPG introduced this event during which groups within IPG travel around the world
to various HP oces, showcasing the latest IPG products (typically those introduced in the past year),
as well as future projects. Tis road show is only open to HP employees and has received very positive
feedback. Te event builds employee enthusiasm for IPG products, reinforces the philosophy that
innovation is everyones responsibility, and continues to promote innovation ownership across
the organization.
Another example of visible leadership involvement in HPs innovation process is HPs annual
technical conference. Each year, the organization calls for papers on the topics of innovation and
technology from across the enterprise. From the approximately 1,000 submissions, the top 40
are selected for oral presentation at the conference, and the next 80 are selected to give a poster
presentation. Approximately 600 to 700 employees attend this conference, ensuring that as many
employees as possible know the latest developments in R&D and technology at HP. Te conference
has also proven to be an excellent forum for networking and brainstorming.
HP leaders are also actively involved in IPGs poster fairs. Tese events, as mentioned in Chapter
2, provide employees with an outlet for contributing new and innovative ideas in one large forum on
the organizations campus. Tese fairs not only enable employees to receive recognition for their ideas,
but also provide exposure to senior leaders, who regularly participate in these events. Senior leaders,
as well as other employees, walk around the poster fair and discuss the ideas with the employees.
Winners receive recognition, and may receive a small award to begin work on a prototype.
Lastly, IPG also conducts regular business plan competitions, with senior leaders serving as
judges. Tese competitions typically involve small teams and can include areas outside of technology,
such as business model innovation. Te primary purpose of this competition is to recognize
good ideas and keep the new-idea generation active. Winners receive recognition throughout the
organization, attendance at an innovation program at MIT, and possible e-awards.
As mentioned in Chapter 2, Air Products and Chemicals Inc. sponsors events that provide
recognition for innovative thinking and demonstrate how leadership is actively involved in
innovation. One such event is the annual technology symposium. During this event, mid-level
employees across the enterprise have the opportunity to present their projects and ideas in front of the
entire organization, including senior executives.
Additionally, leadership at Air Products and Chemicals also takes a signicant role in innovation
by sponsoring the Chairmans Award for Excellence, which is the highest level of Air Products
Innovative Rewards and Recognition Program. As described in Chapter 2, this award recognizes
individuals and teams for signicant technical, scientic, commercial, or professional achievements
that contribute to the long-term success of the organization. Furthermore, it communicates nationally
and internationally the exceptional accomplishments and innovative talents of Air Products
employees. Te winners share $70,000 in cash and stock, which they receive at a formal awards
dinner attended by appropriate organization leaders and colleagues, and friends of the recipients.
Leaders also take a signicant role in innovation activities at Ethicon Endo-Surgery. As with the
other organizations, Ethicon Endo-Surgery conducts many events where leaders act as participants to
demonstrate the importance of innovation. One such event is the Invent-a-thon. Tis event typically
revolves around a given problem or problem statement, and members of the franchise development
(FD) team are invited to participate in a brainstorming session to oer possible solutions.
At Boston Scientific Cardiovascular Division, innovation has been signicantly driven by the
chief technology ocer (CTO). Soon after joining the organization, the CTO realized that the
organization needed to pare its portfolio of potential new products and technologies and cultivate a
more focused approach to innovation.
Tis realization led the organization to create a comprehensive strategy for embedding innovation
within the organization. Te strategy focused on:
leadership team infuence,
introduction of the technology development and product development stage-gate processes, and
dedicated resources for innovation.
Computer Sciences Corporation (CSC) points to the creation of the Oce of Innovation as a
primary example of senior management commitment to embedding innovation. To create this oce,
senior management invested the time to rearrange existing functions because it felt that innovation
deserved greater focus. Te Oce of Innovation strives to retain senior management commitment to
innovation by keeping the core oce headcount low and by maintaining a supporting rather than a
client-facing role.
INNOVATIVE SPACES AND PLACES
Designating physical and/or virtual spaces dedicated to innovation can encourage creative thinking.
To accomplish an objective, one must have an atmosphere that facilitates the process. Tis
chapter focuses on the ways in which the best-practice organizations establish climates that support
innovation. When asked to rank themselves with respect to how well their climates support
innovation and creativity, the partners collectively rated their eorts as 6.3 out of a possible 7
(where 1 = Not at all and 7 = Very much so). When the partners discussed creative thinking
and idea generation, they emphasized the importance of having a space, be it physical or virtual,
to facilitate creative thinking among sta members. Many of the partners wanted these spaces to
have an unstructured atmosphere that would place no inhibitions on those who were engaging in
brainstorming or other idea-generating sessions.
At Ethicon Endo-Surgery, the franchise development (FD) team stresses the importance of creating
a working environment that encourages creativity and innovation. Te organization hired external
consultants to design a space within the FD organization that would stimulate creative thinking.
Te result is an open space that has the feel of a warehouse, with fewer walls and less structure. In the
future, the organization plans to create a similar environment for its R&D function.
Hewlett-Packard (HP) also places importance on the physical environments role in supporting
innovation. After its merger with Compaq Computer Corporation, HP hired an external consulting
group to help the newly merged organization develop decision acceleration strategies and strengthen
its innovative culture. Te consulting groups ndings evolved into Garage-works, a meeting
environment and process designed to bring employees together and encourage innovative thinking.
Te Garage-works area contains various toys, costumes, and books to facilitate the creative process.
Te space has been particularly eective for dealing with conicts. More recently, the Imaging and
Printing Group (IPG) expanded on the Garage-works idea to construct a new business creation room.
Tis space was converted from conference rooms to provide an unstructured, creative environment in
which to discuss business concepts and brainstorm new ideas.
Computer Sciences Corporation (CSC), as with the other organizations, has created entities in order
to facilitate innovation growth. Te innovation center, a physical space created in concert with key
clients, is one example. Tere are a total of ve innovation centers within the organization, and each
houses a brieng center and prototype lab in order for clients and CSC employees to collaborate on
innovative solutions. Te Oce of Innovation has also established several centers of excellence, which
are physical spaces that allow users to concentrate deeply on one core subject or area and are settings
for experimentation.
Chapter 3
RISK TAKING
Encouraging risk taking is essential for innovation to thrive.
Te nature of risk can be problematic. Te freedom to experiment is necessary for progress, but
the experiment often is bounded by established guidelines. With innovation, taking risks is essential.
Te best-practice partners realize that allowing employees to explore new ideas and take risks is what
leads to idea generation and successful innovation activities. Te dedicated spaces mentioned in
the previous nding are examples of venues in which this riskier exploration can occur. Te overall
viability of the organization should not be compromised in the process, but it is also important
for organizations to be unafraid to step across the risk threshold and stretch themselves into new
arenasat least part of the time. Adopting the nomenclature of Boston Scientic, organizations
should not be afraid to step into the novel arena as long as the core areas are still being covered.
Te fear of failure is not something unique to the organizations in this research study; it crosses
all industries and types of entities. Even organizations such as the National Football League face
this challenge, according to Senior Vice President of Consumer Products and Marketing Lisa Baird.
She states, In terms of innovation, our success is the hardest obstacle to overcome. If youre in a
successful company, that has a successful business model, its hard to create and go somewhere new
because people are very afraid of disturbing that success.
1
Many of the lessons learned from the
best-practice organizations in this study can counteract this fear: Use a portfolio approach to ensure
dedicated funds for dierent types of innovation, look externally for ideas and partnerships, and
allow failure.
Allowing employees to take riskseven if their initiatives sometimes failis another way in
which Hewlett-Packard (HP) promotes innovation. Imaging and Printing Group (IPG) managers give
employees some latitude to take chances as they pursue ideas. However, this freedom is balanced
with prudent oversight at key stages of the innovation process. When investigating the viability of an
opportunity, IPG attempts to quickly determine whether pursuing the new idea represents the best
use of available time and resources before proceeding.
HP Labs also strongly encourages risk taking. One of the most signicant enablers to innovation
within HP Labs is the freedom for employees to pursue new ideas. If an HP Lab employee has an
idea, he is allowed 10 percent of his weekly hours to work on this idea using lab resources.
Ethicon Endo-Surgery notes that the most signicant challenge to embedding innovation is
learning how to take more risks; however, the organization feels it is building this competency. One
way that it is addressing this issue is to rotate sta between the franchise development (FD) and R&D
groups. Approximately 30 percent of the two groups sta rotate between them and participate in
both FD and R&D projects. Additionally, these groups collaborate on various projects, especially
as projects transition from FD to R&D. Te rotation between these teams and the collaboration
program enable those involved to take more risks as they collaborate.
To help embed innovation in its organizational culture, Computer Sciences Corporation (CSC),
also encourages a certain amount of risk taking. Te organization has created certain settings and
initiatives, some described earlier in this chapter, to accomplish this goal. Te innovation centers with
prototype labs, as well as other dedicated spaces available for experimentation, give employees a safe
1
National Football Intrigue. Te Hub. January/February 2007, p. 19.
place where failure and learning from failure is allowed and encouraged. Te Oce of Innovations
grants program, outlined in Chapter 2, also serves a similar purpose, rewarding and encouraging
employees to take risks in their work.
COLLABORATION
Encouraging employees to collaborate with those outside their specific peer groups can facilitate idea
generation and problem solving.
When asked about their level of internal collaboration, the partners collectively rate themselves
6.5 out of a possible 7. Te organizations often have various internal disciplines working together on
innovation activities, and they encourage the creation of cross-functional teams to resolve specic
problems or perform specic tasks related to innovation. Tis type of cross-fertilization among
employees who have dierent competencies and areas of expertise facilitates the idea-generation and
problem-solving processes.
A good example of this type of collaboration exists at Air Products and Chemicals Inc. Te
director of business development holds that strong networks among colleagues in the same function
can eventually hinder innovative thinking. Working only within strong networks, he says, often
leads to intellectual inbreeding and only incremental improvements. In order to generate major
innovation breakthroughs, employees are encouraged to build weaker networks, or relationships
with those outside the organization or outside their own functions. Tese weak networks can result
in unexpected experiences that can mean the dierence between an incremental improvement and
a game-changing innovation. To help employees build weaker networks, the director authorizes
employees to attend meetings and conferences that no one at Air Products has previously attended
and that may be only tangentially related to an employees job, as long as the employee feels that
attendance would benet Air Products.
As mentioned earlier in this chapter, at Ethicon Endo-Surgery approximately 30 percent of the
franchise development (FD) and R&D sta rotate between the two departments to encourage
internal collaboration. R&D sta members are also embedded in the FD group, and the two teams
participate in a co-op program wherein they brainstorm new ideas and collaborate on various projects.
Tis rotation and the co-op program provide employees with exposure to those with dierent areas of
expertise and, thus, may result in an innovation that would not have been created otherwise.
Hewlett-Packard (HP) also recognizes the importance of involving external partners in the
innovation process. As mentioned in Chapter 2, HP limits its innovation eorts to areas in which the
organization can claim a competitive position. In cases where an outside party can make a valuable
contribution to an initiative, HP will pursue the collaboration.
HP points to its collaboration with customers as one example of external alliances that contribute
to innovative ideas. Te organization conducts a signicant amount of market research through
customer focus groups. It also solicits customer input through its technology customer advisory
board, which meets on a quarterly basis to discuss new opportunities and identify areas in need
of improvement.
Chapter 3
TECHNICAL ENABLERS
Proper selection of software tools can facilitate the innovation process.
Whereas the majority of this chapter has focused on the cultural enablers of embedding
innovation, technical enablers are also an important consideration. Te tool must match the goal.
Starting with a relatively simple tool or tools familiar to the majority of users can shorten the learning
curve and often lead to greater initial adoption and use of the tools. Implementation of more
sophisticated tools should parallel the organizations advancement.
Te best-practice partners use a variety of tools and technologies to support innovation, most
notably enterprise resource planning software, which all of the partners indicate using (Figure 9).
Seventy-ve percent of the partners also cite using idea management software, product lifecycle
management software, and in-house developed systems to support innovation.
100%
Partners (n=4)
Which of the Following Tools and Technologies Does
Your Organization Use to Support Innovation?
0 20%
In-house developed system
Enterprise resource planning software
(e.g., Oracle, SAP, etc.)
40% 60% 80% 100%
Figure 9
Product lifecycle management
software
75%
50%
Innovation labs
75%
Idea management software
75%
Boston Scientific (BSC) emphasizes the need for using the most appropriate tools to support
innovation. Te organization stresses that success does not depend upon the specic tools that
are used; the key is to include all stakeholders in the processes and to document, discuss, and gain
consensus on the data and decisions. Tere are a lot of tools and methods out there. You need to
make them t your organization, says the R&D manager and DFSS program lead for the Design
Systems divisions. Also, the organization believes in selecting tools that can evolve with its growth and
in only moving to more sophisticated tools when it has outgrown the less complicated ones.
To that end, BSC migrated its road mapping and portfolio planning processes from Microsoft
Excel and PowerPoint to a more sophisticated database in 2007.
Chapter 3
One of BSCs overarching goals is to be one with the customer. When it comes to involving
customers in innovation, BSC employs a number of quantitative and qualitative customer research
tools to ensure that its innovation eorts correspond to customer needs and desires. Tese tools
include target customer advisory boards, observation of user ow, interviews, and surveys.
BSC also has piloted multiple other innovation tools and software solutions, including innovation
trend analysis, TRIZ, House of Quality (Six Sigma cockpit software), De Bono (parallel and lateral
thinking), and Pugh Concept Select Matrix (Goldre software). All the tools can be found on the
organizations internal Web site, where employees can access additional information. Te organization
is also creating knowledge bases that are corporate (e.g., patents) and personal (e.g., lessons from
conferences) to ensure that the organization retains, communicates, and transfers innovation related
ideas eectively.
To embed innovation, Computer Sciences Corporation (CSC) relies on several technical enablers and
software tools. Te primary tools are portal applications such as WebSphere for its innovation portal
and knowledge community pages. Oce suite tools such as Lotus Notes are used for e-mail and its
Request for Assistance (RFA) database. Microsoft Oce tools are used for general desktop solutions,
and Sametime is used for instant messaging and Web conferencing. CSC is also experimenting with
various ideation and collaboration tools that it hopes to integrate in the near future.
Ethicon Endo-Surgery does not rely very heavily on software applications to enable or embed
innovation; the organization does use certain tools such as Microsoft Project and mind-mapping
software, such as Mind Manager to break ideas down for analysis. Te organization also uses certain
packages to manage IP submissions and keep track of new ideas submitted by employees. However,
the organization notes that it hopes to improve in this area. Instead, according to the organization,
it depends on its ability to share ideas visibly. Known as displayed thinking, an idea attributed to the
Walt Disney Company, this method aims to enable a newcomer to a creative workplace to understand
its projects just by looking at the walls. Ethicon Endo-Surgery uses whiteboards and bulletin boards
on every wall to visibly communicate ideas and foster innovation.
CONCLUSION
During this study, the project team found that establishing a culture that encourages, values,
and fosters innovation is crucial for an organization that desires to make innovation a regular part
of conducting business. Te best-practice organizations in this study realized that hiring the right
people, actively involving senior management, designating spaces for innovation, encouraging
risk taking, collaborating among dierent parts of the organization, and selecting the appropriate
technology and tools are all enablers to successfully embed innovation.
Chapter 4
T
he previous chapter discussed the enablers of an innovative
culture. Te next step to successfully embedding
innovation is maintaining that culture. Preventing innovation
from becoming a short-lived fad, many of the best-practice
partners agree, takes a portfolio of communication vehicles,
change management techniques, and training activities that
maintains a climate supportive of innovation activities. Tis
ensures longevity in the innovation arena and makes innovation
a core competency.
DIVERSE COMMUNICATION VEHICLES
Employing a diversity of communication vehicles is necessary for a
relentless focus on innovation.
When it comes to communication, one size does not t
all. Tere are multiple channels of communication, ranging
from synchronous face-to-face meetings to asynchronous online portals accessible anywhere at any
time, and organizations must decide when to use which method. While there is no denying the
value of face-to-face communications and all the tacit knowledge exchange they make possible, this
type of communication can be costly and the knowledge shared can be perishable. Te best-practice
organizations in this study used a variety of communication methods to support their innovation
activities. Tese organizations employed these communication vehicles to emphasize their need
for innovation, the value that they place on innovation, and the role that all employees play in
supporting innovation.
Positive communication has been a critical success factor at Hewlett-Packard for successfully
embedding innovation throughout the entire organization. Communication occurs at all levels of the
organization and includes some of the in-person vehicles described in previous chapters, including
the Imaging and Printing Group (IPG) poster fairs, the Power-UP road show, and business plan
competitions. Additionally, IPG uses electronic news letters, informal coee talks, and peer reviews
to continuously disseminate the latest developments on innovation throughout the organization.
Designing Ongoing Communication
and Change Management Tactics
1. Employing a diversity of
communication vehicles is
necessary for a relentless focus
on innovation.
2. Knowledge and change
management techniques can
facilitate the embedding of
innovation.
3. Offering both formal and
informal training courses
improves internal competencies
related to innovation.
Designing Ongoing Communication and Change Management Tactics
In terms of communicating about innovation, the Boston Scientific Cardiovascular Division
describes its culture as open and informal. Some of the communication vehicles used to convey its
strategic vision and tactical project plans and results include:
internal e-mails;
monthly newsletters;
plasma screens that are located throughout BSC facilities to cycle through information
for employees;
quarterly all-employee meetings within R&D, which are forums for sharing strategies;
project investment board meeting minutes, which are widely distributed; and
lunch and learn sessions, at which upper management speaks, marketing shares information
gathered at trade shows, etc.
Other enterprise communication tools include team leader forums for the approximately
200 product and technology team leaders, which are conducted both at the local level and BSC-
wide. Similar to Hewlett-Packard, project fairs function as poster sessions where teams show their
prototypes. Annual technology forums also allow employees to give technical presentations on their
projects. Te applied research group also facilitates a journal club that reads relevant industry journals
and assigns topics to its members, who then present the topics to the rest of their departments.
As with the other partner organizations in this study, Ethicon Endo-Surgery indicates that
widespread communication has been vital to successfully embedding innovation throughout the
entire organization. Eective communication vehicles include the organization Web site, newsletter,
the recognition/rewards programs, and face-to-face meetings. Additionally, it uses team centers,
e-rooms, and Web meetings to communicate remotely when necessary.
Te organization also cites the importance of informal communication in promoting innovation.
Many people within Johnson & Johnson move from one operating organization to another and the
resulting personal relationships facilitate knowledge sharing among the operating companies across
the entire Johnson & Johnson organization.
A current project at Ethicon Endo-Surgery is the development of a communication framework.
Tis will be a collection of guiding principles associated with innovation so that employees know
innovation when they see it. Te organization is developing this framework to increase innovation
awareness among all employees.
Air Products and Chemicals Inc. uses several communication vehicles. From a technical standpoint,
net meeting software and video conferencing are used. From an organizational standpoint, the
Air Products team uses knowledge sharing round tables and other communities of interest. Tese
roundtables rst began in the technology organization and have since spread to other parts of the
organization. Members of the innovation roundtable meet voluntarily on an ad-hoc basis and
share information.
Te Oce of Innovation within Computer Sciences Corporation (CSC) makes use of several methods
to communicate about its innovation agenda. Te oces Leading Edge Forum (LEF) uses its weekly
Web conference series to highlight numerous innovation activities, including the winners of various
grants and awards for technical excellence. Members of the centers of excellence are also invited to
participate and relate their activities and stories to a wider CSC audience through this forum. Te
LEFs objective for this series is to inform employees of developments of interest in innovation that are
occurring in the wider industry.
Another commonly used CSC communication vehicle is knowledge sharing communities. Tese
communities, in addition to fostering conversations among members, also serve as dissemination
points for important information, updates, and announcements from the Oce of Innovation.
KNOWLEDGE AND CHANGE MANAGEMENT
Knowledge and change management techniques can facilitate the embedding of innovation.
For many organizations, major changesincluding trying to embed innovationare the
great unknown. APQC has examined how best-practice organizations manage these changes in its
2005 benchmarking study entitled Realizing Change: How Best-Practice Organizations Benet from
Knowing When and How to Successfully Change. Te reports notes that historys scrap heap is piled
high with organizations that did not anticipate and act upon major changes within their marketplace,
organization, or society in general. Te literature suggests, moreover, that most organizational
change eorts fail. Nonetheless, history also contains examples of organizations that foresaw change,
adequately got in front of the change curve, and prospered.
Several of the key learnings from APQCs change management study follow.
Best-practice organizations possess clear defnitions of what change means, both internally
and externally.
To help achieve success, best-practice organizations focus change eforts on burning
platform issues.
In both planning and gauging success of change initiatives, best-practice organizations place the
strategic focus on stakeholders.
Best-practice partners have developed simple frameworks to support the entire change cycle.
Tese frameworks facilitate proactive, rather than reactive, change.
Best-practice organizations involve all levels of the organization in the change and the change
process. Involvement is aided in some cases by shared ownership of the process.
To enable and sustain change, substantial commitment of a critical mass of integrated resources
must be made during all phases of the change cycle.
Best-practice organizations have concrete strategies and simple tools for assessing readiness,
as well as anticipating and overcoming resistance to change. Tese include:
o work force transition strategies for managing change,
o continuous communication via multiple channels regarding change and the change process,
o application of established protocols for monitoring and managing change fatigue and
absorptive capacity, and
o facilitated eorts for managing resistance.
Best-practice organizations undertake systematic change eforts, entailing serious preparation and
the development and training of skilled change agents.
Te best-practice organizations in the current study realize that institutionalizing innovation
is an organizational change, and they have used change management techniques that incorporate
some of the above-mentioned learnings to mitigate any potential resistance resulting from newly
Chapter 4
introduced innovation eorts. Te majority of the partners have dedicated nancial or human capital
specically to change management for innovation. Resources leveraged by the partners include change
models, change communities of practice, change managers for key initiatives, corporate innovation
departments and individuals at the divisional level assigned to manage and implement systems, and
innovation programs oces.
Some of the best-practice organizations also employ knowledge management techniques to
facilitate the embedding of innovation. When the best-practice partners were asked to rate their
organizations was on reviewing innovation projects, learning from mistakes, and capturing knowledge
so that others within the organization could easily use it, they rated themselves 5.0 on average
(where 1=lowest and 7=highest). Knowledge management is also an important technique for change
management since one of the challenges for change management is how information and knowledge
can be disseminated throughout an organization. Ecient and eective communication, easy access
and retrieval of information and knowledge, and sharing tacit knowledge via storytelling are all
important ingredients for eective change management.
Computer Sciences Corporation (CSC) believes that its knowledge management program and, most
notably, its knowledge sharing communities, have acted as a change management program that
established a foundation for innovation to be embedded in the organization.
Additionally, CSC cites the following as the key contributing factors to implement innovation as a
change:
establishment of Ofce of Innovation to focus innovation activities;
alignment of Ofce of Innovation objectives with business strategy;
development of mechanisms for ongoing communication of innovation successes and
new solutions;
establishment of innovation centers and innovation programs at the local level to focus on specifc
needs of business units and their clients; and
continuous focus and support on key knowledge sharing communities to develop core
competencies and share ideas across the organization.
CSC also administers an anonymous employee survey. Part of this annual, voluntary survey
asks all employees for their opinions on current innovation programs and overall employee
engagement. In the last survey eort, the organization received answers from approximately 10
percent of the employee population in about nine days. While this survey is an important part of
how the organization measures innovation, it is also an important tool to show that employees are an
important part of the change process and to sustain the innovative culture of the organization.
To facilitate change within the organization and embed innovation into the culture, Hewlett-
Packards Imaging and Printing Group (IPG) uses an internally developed implementation program
referred to as Transformation Ambassadors. Te programs name was adapted from a 2005 exercise,
during which all IPG employees participated in a comprehensive re-evaluation of the groups markets
and business models. Te program involves assigning specic transformation ambassadors who
strive to give changes a personal face and smooth the adjustment process. Te ambassadors, who are
usually site managers, conduct face-to-face meetings with as many employees as possible in order to
address concerns about a particular change. Tis program has educated a signicant number of HP
employees about the organizations current strategies and innovations.
To manage the process that surrounds innovation, Air Products and Chemicals Inc. follows its own
Change Model. Tis model, conceived in 1999, is a six-step process, with a change manager assigned
to each step. More than 600 leaders have been trained in this process, making it well-integrated across
the organization.
Ethicon Endo-Surgery takes a more informal approach to change management. To facilitate any
type of change within the organization, as well as embed innovation its culture, Ethicon Endo-
Surgery believes that trust, which is consistent with the underlying Johnson & Johnson Credo,
is a critical success factor. Te organization notes that when everybody supports the goals of the
organization, the level of trust increases and the change process becomes more seamless. Reinforcing
positive behavior and successes also contributes to this level of trust and, consequently, the facilitation
of change. While there is not one specic group responsible for change management, there are process
drivers within the pipeline/stage-gate process whose job includes driving change through continuous
communication. Te organization has found that its people are exible and open to change if they
feel informed and know how they are contributing to the overall goals of the organization. Terefore,
senior leadership uses continuous communication to present its vision and deliver the message that
everyone is part of the innovation process.
TRAINING COURSES
Offering both formal and informal training courses improves internal competencies related to innovation.
Continuous learning is important for even the most seasoned of professionals in any industry. In
this study, the best-practice organizations recognize the importance of training, not only to embed
innovation, but also to maintain enterprise-wide continuous improvement. On average, the partners
rated the strength of their innovation-related training initiatives as 5.3 out of a possible 7.
Air Products and Chemicals Inc. considers the training it oers through its Innovation College to
be one of the most signicant enablers for fostering innovation. Te Innovation College, which is
part of the enterprise-wide Air Products University, oers roughly 20 courses on topics ranging from
creative thinking to project and intellectual asset management. Te college oers two certicate levels:
General certication is open to all whose positions would benet from such instruction, whereas a
more rigorous level of certication is available for those who are nominated by their managers. Tese
Innovation Mentors are taught at a higher level and are then expected to take a hands-on role with
their colleagues. Courses are taught by various Air Products employees as well as by outside experts.
Hewlett-Packard also uses training to support its innovation activities. For example, the Imaging
and Printing Group (IPG) has developed a course that teaches employees about innovation processes
and familiarizes them with IPGs future plans and objectives. Another course focuses on strategic
nancial analysis. Tis course covers:
how to make decisions and formulate strategy;
how to manage risk;
how to commercialize innovation; and
how R&D, marketing, and strategy teams can partner with the fnance department to foster
meaningful innovation.
Chapter 4
HPs chief portfolio advocate created the strategic nancial analysis course in response to the IPG
nance teams requests to feel more integrated with the R&D and marketing teams. More than 300
people from all parts of HP have attended the course, and its teachings are beginning to inuence the
ways in which employees prepare and evaluate business and product strategies.
For learning purposes, HP also regularly engages external consultants and university professors
to host lectures on a variety of topics pertaining to innovation. One such visiting lecturer series is
sponsored by the corporate marketing department and is called the Brand Innovation Lab. Te
lecturers in this series are authors and other practitioners who have radical ideas about new social
trends.
At Computer Sciences Corporation, the Oce of Innovation partners with Global Learning
Development Management (GLDM), a corporate-wide body, to oer training and innovation
coursework to interested employees. Introducing the wider CSC employee population to the
Innovation Oce is also accomplished by the Leading Edge Forums (LEF) rotation program. Tis
program places employees from the eld in the LEF group for about six months. Associates in the
program work with the LEF on standard reports and activities. After this rotation, the employees
return to their business units with a more complete view of the Oce of Innovation and its role
within CSC.
Ethicon Endo-Surgery emphasizes informal discussions rather than formal classes. Te organization
sometimes uses outside consultants to conduct training courses on inventive thinking for design
teams. Tere is also an industrial design group, reporting to a director of product development, that
conducts ethnographic (observational) research to discover new product opportunities. For example,
teams will observe surgical procedures to see how they might be improved. Additionally, engineers
from both the franchise development (FD) and R&D groups participate in teach-back sessions, in
which sales trainers practice by teaching the FD and R&D team members how to use the various
devices in surgical procedures. Tis activity not only helps with sales presentations, but it provides a
unique learning experience for employees.
CONCLUSION
During this study, the project team learned that best-practice organizations reinforce their
commitments to innovation by clearly communicating their objectives, using knowledge and change
management techniques when necessary, and providing training to build core competencies. Using
these vehicles and techniques can complement the existing cultural and technical enablers that exist
within an organization and ensure that innovation is an integral part of daily operations.

L
ike the chef experimenting with new recipes, organizations that are attempting to embed
innovation in their structures and processes are searching for ways to measure the results of their
eorts. For a chef, inputs and outputs (e.g., amount of each ingredient, quantities of food produced)
are relatively easy to measure, but the outcomes (e.g., taste, quality) are harder to judge and often
more intangible. Because peoples food preferences vary along regional, ethic, and even individual
lines, it can be challenging to set one global standard by which all culinary creations can be evaluated.
Similarly, each best-practice organization in this study is measuring innovation in some way that
ts its current innovation agenda and business model. Te variety of techniques employed by the
partners leads to this studys main nding regarding innovation measurement.
MEASURING INNOVATION
Although all the organizations studied are evaluating and measuring innovation in some form or fashion,
a common dashboard for innovation metrics did not emerge.
All of the studys best-practice partners strive to evaluate the success of their innovation eorts.
However, which measures are most eective is a matter of great debate. Given that innovation
ultimately should impact business processes and outcomes, most enterprises are relying on measures
that do not appear to be unique to innovation: return on investment, eciency/cycle time, and
success rate. Although these measures provide some insight into the state of innovation, the
enterprises recognize that their current measurement schemes do not oer comprehensive assessments
of their innovation initiatives.
Faced with the challenge of evaluating something as complex as innovation, some of the partner
organizations look to intangibles rather than rely on precise numbers to measure their performances.
Certain partners also leverage employee feedback as a gauge of innovation.
One reason for the diversity of innovation measures is the fact that innovation itself is broken
into several categories. Organizations are tracking dierent measures for product/service innovation,
operational innovation, and innovations in business models.
Among the partners, it appears that multiple measures are being used to evaluate product/
service innovation. Figure 10, page 52 summarizes the measures that partners have adopted to assess
product/service innovation. All the partner organizations that responded to the detailed questionnaire
track return on investment, and 75 percent of the partners are tracking the number of ideas that
progress from ideation to development, new product/service success rate, and growth impact.
Chapter 5
Evaluating Key Innovation Measures
In terms of operational innovation measures, the partners track eciency/cycle time and reduced
costs to a very great extent. Half the partner organizations also look at growth impact for operational
innovations (Figure 11).
With regard to business model innovation, partner organizations fully recognize the impact it has
on long-term viability, revenue growth, and protability. Participation in new business categories is
tracked by 100 percent of the partners, and 75 percent also measure prot margin improvement,
cycle time, shareholder returns, growth impact, and employee job satisfaction (Figure 12).
Te state of innovation measurement (i.e., the lack of a common set of measurements) revealed in
this study is fairly consistent with results that APQC has gathered previously. In early 2006, APQC
launched an innovation metrics survey in conjunction with IBM to understand how organizations
measure innovation. Tat eort garnered more than 120 responses from organizations in countries
such as the United States, Australia, Canada, India, South Korea, Mexico, the Netherlands, Saudi
Arabia, Singapore, and the UK, among others. Te participants spanned diverse sectors and included
both nonprot and for-prot entities. Respondents were asked to evaluate the accuracy of various
innovation metrics by scoring each on a scale from not eective to very eective.
Te next three gures list the innovation measures that were most often ranked eective or
very eective in the 2006 APQC/IBM survey. For ease of viewing, the measures that were rated
eective by less than 30 percent of the respondents are not shown.
75%
Partners (n=4)
Which of the Following Metrics Does Your Organization
Track for Product/Service Innovation?
0 20%
Growth impact
New product/service success rate
40% 60% 80% 100%
Figure 10
Kill rate
75%
25%
Number of ideas aligned with guidelines
50%
Percentage of new products or services
that over a stated timeframe achieve their
initial business objectives
50%
Number or percentage of ideas that
advance from the ideation stage through to
the development stage
75%
Return on investment 100%
Chapter 5
100%
Partners (n=4)
Which of the Following Metrics Does Your Organization
Use for Operational Innovation?
0 20%
Reduced costs
Efciency/Cycle time
40% 60% 80% 100%
Figure 11
100%
50%
Growth impact
Other 25%
50%
Partners (n=4)
Encountered in Collaborating with External Partners?
0 20%
Growth impact
External awards and recognition
40% 60% 80% 100%
Figure 12
Shareholder returns
75%
75%
Employee job satisfaction
75%
50%
Cycle time
Worker productivity
75%
50% New customer rate
New distribution channels 25%
75% Prot margin improvement
100%
Participation in new business
categories
Figure 13 summarizes the ratings for measures applicable to product/service innovation.
Te responses are very similar to those obtained through the current study. As the gure illustrates,
few measures were consistently popular with the survey respondents. Only one measurecustomer
satisfaction with product/service featureswas chosen by more than half the participants
(61.9 percent). Te remaining measures were popular with less than half the participants.
For operational innovation (Figure 14), the most popular measuresorder fulllment cycle time,
on-time delivery, and customer retentionwere rated eective or very eective by about 40 percent
of the respondents. Te remaining measures received lower scores.
In Figure 15, which details business model innovation measures, only three measuresrevenue
growth, average time to act on identied business exposure/opportunity, and prot growthwere
rated as eective or very eective by more than 30 percent of the participants. Of those three, none
were popular with an overwhelming portion of respondents.
35%
Ranking of Product/Service Innovation Measures
Percentage of Respondents Indicating Effective or Very Effective
0 20%
Percentage of new products/services
achieve initial business objectives
Percentage of products/services making
up 80% of sales volume
40% 60% 80% 100%
Figure 13
Return on investment for new products/
services
34%
33%
Number of patents
Payback period for new products/services
38.8%
Growth rate in number of customers
39.4%
Growth rate in share of key customers
purchases
40.2%
Time to protability for new
products/services
40.9%
Time to market for new products/services
44.3%
Percentage of revenue/sales/gross margin
from new products/services
44.4%
Customer satisfaction with product/
service features
61.9%
32.7%
Chapter 5
39%
Ranking of Operations Innovation Measures
0 20%
Customer sat with order taking, scheduling
and delivery
Cost reduction
40% 60% 80% 100%
Figure 14
Customer retention
37.8%
36.1% Employee productivity (revenue per FTE)
Cost of goods sold as a percentage
of revenue
40.2%
On-time delivery
40.5%
Order fulllment cycle time 41.7%
31.4%
Ranking of Business Model Innovation Measures
0 20%
Revenue growth (year to year)
40% 60% 80% 100%
Figure 15
42.4%
40.7%
Average time to act on identied
business exposure/opportunity
Prot growth (year to year)
36.5%
Te results from the 2006 APQC innovation survey and this 2007 study highlight the fact that
organizations have yet to develop a consistent, common set of measures for gauging the success
of their innovation initiatives. Like the chef who is unable to quantify the taste of a dish, many
organizations do not focus on evaluating innovation with precise numbers. Organizations are
presently doing what works for them, but the state of innovation measurement will continue to evolve
as enterprises increasingly emphasize and invest in long-term innovation eorts.
Another possible reason for the lack of consensus on innovation measures is related to the amount
of information organizations are willing to share. When it comes to innovation, many enterprises are
disinclined to discuss their measures in great detail. Unlike, for example, billing processes or order
fulllment processes, innovation and the products, services, and business models that arise from it are
at the heart of organizations business strategies. Innovation is what makes an organization unique
among others in the marketplace. Te proprietary and condential nature of innovation makes many
organizations reluctant to explain how they evaluate their eorts in this area.
Hewlett-Packards Imaging and Printing Group (IPG) leverages many of the previously noted
measures to evaluate its innovation eorts. Return on investment, new product/service success and
survival rate, new product/service revenue and prot, growth impact, and long-term net present value
are all used by IPG. IPG also informally measures the innovation track record of its teams and units.
When units and teams demonstrate consistent, long-term success with innovation, the organization
allows them more leeway to experiment and take risks. Units and teams that have been less eective at
innovation over the long term are monitored more closely.
Air Products and Chemicals Inc. tracks measures in the project planning and commitment process.
Previously, Air Products relied on spending as a chief measure, but it currently bases innovation
decisions on estimated future income from projects. By switching its focus to estimated operating
income, the enterprise is forcing managers to commit to plans and then deliver against them. Air
Products also measures new product/service success rate and has established a balanced scorecard for
its innovation process.
Rather than tracking innovation-specic measures, Boston Scientific Corporation focuses on
metrics that are indicative of the organizations overall health and are part of its business measurement
system. Te organization has recently collected anecdotal evidence that employees are using its suite of
innovation tools.
Johnson & Johnson, the parent of Ethicon Endo-Surgery, tracks measures such as new product
revenue, number of patents submitted, and the health of the project pipeline. Ethicon is currently
developing new measures for its dashboard, including metrics related to strategic value and cycle time.
Ethicons pipeline governance group owns these metrics and reports them back to Johnson & Johnson
at the corporate level.
In addition, Ethicon tracks employee attitudes towards innovation through the Johnson &
Johnson credo survey. Te survey asks employees about the state of innovation in their units and
also measures job satisfaction. Ethicons corporate culture considers the survey to be tremendously
important, and the organization uses the survey results to assess the level of innovation in
the organization.
Computer Sciences Corporation (CSC) evaluates innovation via a similar combination of qualitative
and quantitative data. Te organization looks at metrics, such as prot and loss, in addition to
employee attitudes toward innovation and job satisfaction. Employee attitudes are tracked through
an enterprise-wide anonymous employee survey, and results are reported to ocers and employees
alike. Te organization also maintains an innovation balanced scorecard, though it retains the overall
business goals.
CONCLUSION
In the current study, as well as in APQCs previous examination of innovation measures,
organizations report using a host of measures related to innovation with varying degrees of success.
Te measures dier depending on whether an organization is looking at product/service, operational,
or business model innovation. Tis study reveals that the partner organizations are using a range
of measures to gauge innovation, including both quantitative measures and qualitative measures
related to employee opinions. However, there is no clear consensus among the partners on
innovation measures.
Tere are several possibilities why a clear consensus on measuring innovation has not emerged.
Many organizations have just begun to think about innovation as a unique undertaking that diers
from their historic ways of doing business. Others believe that they do not need a separate set of
measures for something they are trying to ingrain into their daily work. In some cases, organizations
are relying on a know it when they see it approach because they are uncertain how innovation
should be measured. Additionally, competitive forces may be inhibiting organizations from sharing
how they are measuring innovation. Despite these obstacles, innovation measurement is likely
to evolve over the long term as organizations continue to develop their innovation practices
and processes.

Chapter 5
I
n any task, learning and continuous improvement may be the most important ingredients for
success. Te best-practice organizations for this leverage what they have learned in the past to
improve current projects and guide future ones. Te partners share the following lessons learned and
advice based on their experiences with embedding innovation.
A critical success factor for the innovation process at Air Products is the organizations corporate
development oce (CDO). Te CDO has a vital role within the organization: It acts as a prospector,
developer, and incubator of new ideas originating both inside and outside the enterprise. Specically,
the CDO manages external investment in startups, venture funds, and institutes in order to generate
new opportunities. It maintains a large data-mining operation that continuously combs the public
domain for fresh ideas and approaches, and its new business development oce begins projects that
will later be turned over to the appropriate business units for further exploration. Another of
Air Products critical success factors is the organizations Innovation College, which serves as a
training hub.
Air Products lists the following lessons learned.
Change managementConcentrating on employee attitudes and change management issues is
vital. Even the greatest ideas will fail to take hold if the human infrastructure is not receptive.
ConsistencyPromoting creative thinking is a process that must start at the top. If an
organization maintains consistent expectations, its culture will begin to change.
Early senior management involvementWhen an initiative requires more than incremental
improvements, securing senior management support early in the process can reduce reluctance
to commit resources and take risks.
PeopleInnovation requires diferent kinds of people encouraging one another to broaden
their thinking.
Boston Scientific Cardiovascular Division
Boston Scientic Corporation (BSC) cites the following success factors for its innovation eorts.
Scalability of processes and toolsAll of BSCs innovation tools were developed internally,
allowing the organization to build in additional complexity as needed. BSC has experienced
success rolling out tools in a phased manner, rather than all at once.
Chapter 6
Lessons Learned
Senior management supportTe organizations chief technology ofcer helps drive innovation
and backs up the teams. He does not focus on the details, but he sets the vision and ensures that
employees get the support they need.
Empowering team leaders to make key decisionsBecause BSC is very matrixed between
functional and project management, teams feel like cohesive groups with clear goals and scopes.
Strategy alignmentFranchise strategies are tied to the overall business strategy, as well as to
technology strategies that evolve over time.
Technical review boardsTese boards enable focused technical experts to guide the teams and
help ensure the integrity of the data and the decisions being made. Serving on the boards is also
a nice professional development role for employees, allowing them to be recognized for their
technical competence.
Continuous process improvementBSC started with simple tools, such as Microsoft Excel and
PowerPoint. In the beginning, focus was limited to documenting information and ensuring that
all employees were on the same page. As the processes have evolved, BSC has implemented more
robust systems.
BSC oers the following lessons learned and advice for others seeking to embed innovation.
Innovation cannot be counted on to happen spontaneously; it must be managed and directed.
Road mapping is the foundation of an innovation plan.
Ensure that the overall strategy is clear and widely understood.
Structures, roles, and communication are the frameworkbut not necessarily the drivers
of innovation in the organization.
BSCs senior manager of technology planning oers these additional lessons learned.
Answers are not in a mathematical model or map.
When obtaining input, it is important to acquire the largest sample possible
Keep it simple.
Implement a formal review process.
Have ownerseveryone should be responsible for a portion of the process.
Designate a neutral facilitator.
Know when the system is being gamed.
Tools need to be scaleable so that they can evolve to match the organizations maturity
and decision-making levels.
Computer Sciences Corporation (CSC)
CSC lists the following critical success factors for embedding innovation.
It is important that management provide continuous support for activities that emphasize
innovation. At CSC, the Oce of Innovation facilitates this kind of support.
Emphasize collaboration across the company.
Innovation thrives when organizations create spaces where experimentation is encouraged.
Examples include innovation centers, centers of excellence, and grant programs.
Lessons Learned
Chapter 6
Organizations should forge alliances to develop new solutions, such as the Collaborative
Open Innovation Network (COIN), which currently involves thousands of students and
several universities.
CSCs key advice to help embed innovation is to maintain an emphasis on communication
and experimentation. Te Oce of Innovation recommends establishing bodies similar to CSCs
communities, which allow employees to share information and launch pilot programs. In addition
to promoting information sharing, communities foster a culture of collaboration across regional and
business-unit lines. Experimentation is also vital; activities such as COIN and the grant program
are thought of as opportunities to experiment. Te Oce also stresses the need to give innovation
activities sucient time to take root.
Ethicon Endo-Surgery identies the following critical success factors for embedding innovation
throughout the organization.
Burning platformTe organization must create a sense of urgency for each project. Engendering
growth and maintaining industry relevance need to be high on the organizations list of priorities.
FlexibilityAll employees must be willing to change their ways of thinking and shift their
priorities without losing focus on the organizations strategic goals.
Behavior modeling by those in leadership positionsLeaders must meet the expectations that
they set if they want others to follow suit. Leaders have to dedicate themselves to innovation if
they want to successfully embed it in the organization.
Hewlett-Packard Company (HP)
HP, HP Labs, and the Imaging and Printing Group (IPG) have identied the following critical
success factors for embedding innovation.
According to John Meyer, the director of digital printing and imaging at HP Labs, successful
innovation results from the right combination of environment, circumstances, support, money,
and personnel. Once these elements are in place, the organization must trust its employees to
make intelligent creative decisions.
Senior management support for innovation is essential. An organization cannot build an
innovative culture exclusively from the bottom up.
It is also important that senior management sustain its innovation support over time. Inconsistent
support for innovation undermines morale and usually results in signicant brain drain.
Te inclusion of employees with diverse backgrounds and unusual career paths can beneft
innovation teams. One of the most important decisions in promoting innovation is hiring the
right people.

The power
of many
ABCs of collaborative
innovation throughout
the extended enterprise
Strategy
and Change
IBM Institute for Business Value
IBM Global Business Services
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior business executives around critical
industry-specific and cross-industry issues. This executive brief is based on an
in-depth study by the Institutes research team. It is part of an ongoing commitment
by IBM Global Business Services to provide analysis and viewpoints that help
companies realize business value. You may contact the authors or send an e-mail to
iibv@us.ibm.com for more information.
The case for greater collaboration
From interviews with 765 CEOs worldwide, the
IBM Global CEO Study 2006 found that CEOs
place a high priority on innovation in response
to massive shifts in the global competitive
marketplace. While companies were pursuing
the three main types of innovation in prod-
ucts, services and markets; in operations; and
in business models the study found that
financial outperformers were putting twice as
much emphasis on business model innova-
tion as underperformers. Further, in describing
business model innovation, CEOs focused
on organizational issues, notably changes in
organizational structure and more extensive
external strategic partnerships.
This emphasis indicates that CEOs are
increasingly looking beyond their internal
R&D teams for ideas and innovation. In fact,
study results showed that only 17 percent of
the CEOs were relying on R&D for innova-
tive ideas. The most common sources were
employees (41 percent), followed by busi-
ness partners (38 percent) and customers
(37 percent). Clearly, as innovation expands
throughout the organization and beyond, the
need to enable collaboration for innovation
becomes increasingly important. Indeed, the
strongest financial performers in our study
were also the strongest collaborators.
CEOs today recognize that they must be innovative if they are to keep up with
an ever more complex, global and dynamic environment. The IBM Global CEO
Study 2006 found that, to drive innovation, many top CEOs are collaborating
beyond their organizations with their extended networks of suppliers,
customers, business partners and others. Such collaboration, however, is
easier said than done. In fact, 50 percent of strategic alliances fail.
1
Based on
our research, experience and two examples of best practice cases, we present
here a framework the ABCs of collaborative innovation that can improve the
chances of success in this increasingly important area.
The power of many 65
The power of many
ABCs of collaborative innovation throughout the extended enterprise
By Lawrence Owen, Charles Goldwasser, Kristi Choate and Amy Blitz
2 IBM Global Business Services
There is a gap however between the ideal and
the reality. While 76 percent of CEOs cited the
importance of enabling collaborative innova-
tion, only 51 percent reported that they were
actually doing this to a large extent (see Figure
1). One big challenge is that, as organizations
become more global, they face more complex
issues related to culture, regulation, technology
and other areas. Further, with the growing
trend toward extended enterprise models,
involving more external partnerships, collab-
orative innovation is even harder to do well.
Research shows that failure rates for strategic
alliances hover near 50 percent.
2
We believe
collaboration problems across organizations
are key factors contributing to the demise of
strategic partnerships.
Collaboration of
great importance
Collaborate to a
large extent
(Percent of responses)
The collaboration gap
FIGURE 1.
While CEOs understand that collaboration is key to innovation, many have difficulty actually enabling it.
76
51
CEOs say:
Without collaboration, innovation would be
impossible.
It would be counterproductive to do everything
yourself. Innovative business models need to create
ways to leverage the capabilities of the different
players in an ecosystem.
Partnering is the only way to extract maximum value
and avoid re-inventing the wheel.
Source: IBM Global CEO Study 2006.
The power of many
ABCs of collaborative innovation throughout the extended enterprise
to imply that this is in any way easy, but rather
that there is a way of simplifying the complexi-
ties of collaborative innovation (see Figure 2).
A = Alignment
Alignment is a key step in ensuring that the
business strategy is communicated and
enabled throughout the organization both
vertically and horizontally. Alignment requires
looking at the organization from the perspec-
tive of innovation objectives, and then using
the insights gained to position the organization
to meet those objectives.
Vertical alignment translates the business
strategys innovation objectives into an orga-
nizational strategy and an implementation
plan. Once translated, the business strategy
provides a strategic roadmap for change.
Horizontal alignment typically requires the
creation of a new organizational unit or the
redefinition of existing ones. Key here is the
Know your ABCs: A framework for
collaborative innovation
To avoid the pitfalls of collaborative innova-
tion, our research and experience show the
best building blocks are: alignment, bound-
aries and commitment. Alignment entails
synchronizing the strategic vision and innova-
tion goals with the implementation of these
throughout the organization, focusing on
collaboration both vertically and horizontally.
Managing boundaries enables collaboration
across organizations, establishing struc-
tures and processes regarding governance,
operations and technology. Finally, an ongoing
commitment is required to orchestrate and
systematize collaboration for innovation
throughout the organization and its extended
enterprise over time. These ABCs can be done
separately or in combination, depending on
the capabilities, strategic goals and innova-
tion objectives of the organization. Note that
by calling these the ABCs we do not mean
FIGURE 2.
The ABCs of successful collaboration.
A
B
Source: IBM Institute for Business Value.
Commitment
The organization must make an
ongoing commitment to a collab-
orative climate enabled by leadership,
performance and incentives, and
learning.
Boundaries
Strategic relationships with the
extended enterprise must be
dened and managed for optimal
collaboration.
Alignment
The strategy and organization
must be aligned vertically and
horizontally to support the collab-
oration for innovation agenda.
C
A is for alignment:
setting strategic
innovation objectives
and positioning
the organization to
achieve them.
IBM Global Business Services 68
elimination of structures and processes that
may have been effective in the past but are no
longer conducive to collaborative innovation.
In the process, horizontal alignment reduces
barriers to collaboration across functional
groups, divisions, geographies and other silos.
To make collaboration for innovation systemic,
there also needs to be a focus on how people
will actually get work done, driving toward the
broader innovation goals. Often, job functions,
responsibilities and performance measure-
ments will need to be altered to include
collaboration for innovation. Changes in HR
approaches (such as recruitment, selection,
compensation and training) further ingrain
collaboration for innovation into the culture.
By translating the business strategy into
operational goals, and by creating structures
and processes to enable collaboration across
all segments of the organization, innovation
leaders can motivate and enable new behavior
(see Figure 3).
B = Boundaries
As noted previously, the majority of strategic
partnerships fail, and they typically do so
because they are very hard to manage well.
They require building trust, navigating different
approaches to decision making, agreeing
to legal terms about ownership and other
often contentious issues, collaborating across
cultures, managing communications and oper-
ations, and so on.
To avoid these problems, identifying the
best partner is the first critical step. Potential
partners may include customers, suppliers,
government groups or others. Establishing
the right structure for the partnership, such as
a joint venture, strategic alliance or consor-
tium, is essential and must extend from the
companys innovation agenda and business
strategy. Here, it is important to understand
the history and culture of each group as well
as the goals and terms of the relationship. Will
FIGURE 3.
Working together, horizontal and vertical alignment enable successful collaboration.
The strategy and organization must be aligned
vertically to support the business strategy...
the organization must also be aligned
horizontally to enable collaboration for
innovation across functional groups
Collaboration that enables
innovation is founded in
business strategy
Organizational strategy
Organizational strategy
operationalizes collaboration
within and beyond the enterprise
to enable desired innovation
Innovation targets are dened to
support that strategy
Modify or redene HR, IT
operations and other processes
Establish organiza-
tional elements to
support innovation
Align organi-
zation structure
within and across
functions
the relationship be temporary or permanent,
physical or virtual, rigid or flexible? Are any
legal agreements needed to protect specific
interests? As these and other questions are
explored, governance needs to be estab-
lished, covering potential areas of conflict such
as ownership of intellectual property (IP) and
decision-making processes. The financial and
contractual agreements that result from these
discussions are crucial to the success of the
relationship.
Technological integration and data visibility
across organizations are also critical to the
relationships success, enabling partners to
communicate and share information.
Strong collaborative tools are increasingly
important. At IBM, for example, we use what
we call Innovation Jams, which are Web-
based applications that allow multiple users
from inside the company and from several
other participating organizations to have
threaded discussions on diverse topics. In
establishing the technological foundations,
various requirements and protocols must be
evaluated, understood and established. For
example, will interactions be physical or virtual,
or both? Addressed early and fully, technology
can greatly advance collaborative innovation.
In all cases, defining the partnership, estab-
lishing governance terms and then building
a technological and operational infrastructure
for ongoing collaboration across organiza-
tions can significantly improve the chances of
success. As illustrated in Figure 4, when the
boundaries are managed well, collaborative
innovation can occur among external partners
and internal stakeholders.
FIGURE 4.
Optimal relationships depend on well-defined boundaries throughout the extended enterprise.
Extended enterprise
Business partners
Optimal relationships
Joint ventures
Strategic alliances
Professional forums
Customer forums
Consortia
Internal stakeholders
Enabling technology
Customers
Suppliers
Communities
Government groups
Universities
Research and development
Sales and marketing
Finance
Legal
Human resources
Manufacturing
Procurement
Planning
Logistics
Distribution
Governance
B is for boundaries:
defining and managing
strategic relationships
to allow stronger
collaboration.
C = Commitment
Organizations that are serious about collabo-
ration for innovation make an ongoing
commitment to transformation and change.
Creating a collaborative culture happens over
time through leadership communication and
reinforcement, the development and ongoing
tracking of key measures, and institutional-
ized learning and knowledge management to
continually develop the capabilities needed for
collaborative innovation (see Figure 5).
Of the collaboration ABCs, aligning the orga-
nization and establishing boundaries with
partners often have identifiable start and
end points. The third component, however,
represents ongoing work to infuse the orga-
nizational culture and to drive leaderships
commitment to the broad goal of enabling and
rewarding collaborative innovation.
Three points comprise the commitment
component of the framework: leadership,
performance management, and learning and
improving.
Leadership is needed to develop and
communicate the strategic direction of
collaborative innovation throughout the orga-
nization. Leaders define and work toward
attaining the cultural attributes that are
needed for better collaboration (such as
open versus closed and risk-taking versus
risk-averse). They commit to establishing an
organizational climate that fosters internal
and external collaboration. They also must
eliminate organizational elements that act as
barriers to collaboration.
Performance management adds structure
to the leadership vision. By outlining a
standard approach to assess, select,
contract, operate, evaluate and end
collaborative partnerships, the handling of
collaborative relationships becomes more
consistent. To be able to motivate and
reward collaboration, it is vital to establish
performance measurements and benefits
realization approaches, so that team and
individual performance can be measured
against them.
FIGURE 5.
Commitment involves ongoing efforts to mature the organizations abilities to collaborate for innovation.
Leadership
Leadership shows ongoing commitment with a focus on collaborative climate, removal of
barriers and strategic marketing of the innovation agenda.
Learning
The organization denes and builds
needed capabilities based on a philosophy
of learning and improving the collaboration
approach.
Performance and incentives
Owning outcomes and recognizing
desired behaviors and results reinforces
collaboration.
L
e
a
r
n
i
n
g
P
e
r
f
o
r
m
a
n
c
e

a
n
d

i
n
c
e
n
t
i
v
e
s
Leadership
C is for commitment:
acting on collaborative
intent through leadership,
performance management
and learning.
Continuous learning and improvement are
also critical. This includes defining and
building capabilities for idea generation, rela-
tionship management and collaboration. For
optimal results, knowledge gained through
collaboration should be captured, shared
and reused. The goal here is to improve
collaborative innovation over time by estab-
lishing processes to learn and change.
Putting the ABCs into play
Eli Lilly and Company launches research
without walls
Eli Lilly and Company is a strong example of
a company that helped set the standards in
its industry for collaborative innovation. In fact,
the pharmaceutical industry faces continual
pressures to launch more innovative products
as quickly and cost-effectively as possible. To
address these needs, pharmaceutical compa-
nies rely increasingly on external sources of
innovation as a way to accelerate, strengthen
and deepen their innovation pipelines. Early to
adopt this strategy was Eli Lilly and Company.
In the mid-1990s, Lillys senior management
recognized a growing need to strengthen its
innovation pipeline and better position itself to
discover, develop and ultimately launch new
medicines at the start of the next decade.
To meet this need, Lilly developed a creative
solution. Using what it called a research
without walls approach, Lilly began to culti-
vate an extensive network of external partners
in biotech, academia and other innovation
centers as a major component of its overall
innovation strategy.
Successful alliances are more
critical than ever to our strategy. We
are working hard to be recognized
as the pharmaceutical industrys
premier partner by consistently
creating value for our partners and
for Lilly.
3
Sidney Taurel, Chairman of the Board and
Chief Executive Officer, Eli Lilly and Company
The companys early adoption of the research
without walls approach would prove valu-
able as Lilly entered the new millennium. In
2001, Lilly faced a number of business chal-
lenges that made it even more critical for
the company to identify new strategies for
strengthening its innovation pipeline. The
companys largest-selling product, the block-
buster anti-depressant Prozac, lost patent
protection earlier than expected, resulting in
a sizable loss of revenue. At the same time,
the company was experiencing delays in U.S.
Food and Drug Administration (FDA) approval
to launch several new drugs in its pipeline, and
a recently launched sepsis drug was not as
successful as anticipated.
To jumpstart and better focus its external
collaboration efforts, Lilly made the decision
in 2001 to bring its R&D prospecting group, its
corporate business development group and a
newly created Office of Alliance Management
together under one organization dedicated to
Sourcing Innovation. By bringing these areas
together, Lilly helped break down barriers
among groups that might otherwise have
competed. In the process, Lilly also facili-
tated a broader commitment to collaboration.
Moreover, by creating an Office of Alliance
Management, Lilly ensured a systematic,
ongoing approach to its growing network of
external partners.
Today the Office of Alliance Management
handles over 100 R&D partnerships focused
on new technology, products and services,
while others in manufacturing work with an
additional 160 partnerships. Using ongoing
surveys of partners, the office regularly tests
the health of each relationship and identifies
areas for improvement. The group also creates
roadmaps for designing, negotiating and
managing alliances to ensure sustainability
and value to all parties. Moreover, the office
continually studies and implements findings
from its numerous alliances in order to avoid
the myriad organizational, governance, techno-
logical and other issues that can derail even
the most promising partnerships.
In addition to these efforts, Lilly created a novel
business model for collaborative innovation
when it started InnoCentive. This company,
which Lilly has subsequently spun off but
still retains some ownership of, leverages the
global reach of the Internet to bring together
seeker companies with solver scientists
in order to identify innovative solutions to
diverse problems. To date, InnoCentive has
registered over 110,000 solvers in more than
175 countries.
4
The results of Lillys research without walls
efforts have been impressive. The company has
launched numerous new products, invigorated
its innovation pipeline and achieved revenue
growth as well as solid branding as a partner
of choice. A sampling of partnerships and
the revenues they have generated for 2006
alone demonstrates the link from collabora-
tion to innovation to financial performance.
For example, Byetta, developed by Amylin
Pharmaceuticals and now manufactured and
comarketed by Lilly, was launched in June 2005
and generated revenue for 2006 of US$430
million. Other successes for 2006 include Cialis,
which generated US$971 million in revenue,
and Actos, which generated US$448 million.
Currently, Lilly is working with another partner,
Daiichi Sankyo, toward FDA submission of
prasugrel, a promising anti-clotting compound.
Lilly has been benchmarked as best-in-class
for managing alliances, an increasingly critical
success factor in the pharmaceutical industry.

Snapshot view: The ABCs at Eli Lilly and Company
A Alignment:
A research without walls strategy driven by leadership was designed to revitalize the new product development
pipeline. Alignment across all functions of the organization enabled greater collaboration among R&D, business
development, sales and marketing, legal and other functions. The Sourcing Innovation group, in particular,
brought R&D prospecting, corporate business development and a newly created Office of Alliance Management
together under one structure, helping ensure these groups were aligned.
B Boundaries:
Through the Office of Alliance Management, boundaries with external partners, including biotechnology firms and
academic institutions, are carefully negotiated and managed to address governance, ownership, risk, IP and other
issues. Regular surveys of partners are also administered and studied to test the health of the relationships.
C Commitment:
Lillys Office of Alliance Management and the broader Sourcing Innovation group have been particularly effective
in optimizing the companys ongoing relationships with external partners. In addition, new organizations, such
as InnoCentive, have been established to enable collaborative innovation in areas related to drug discovery.
Airbus collaborates with suppliers to
accelerate innovation on A380 wings
In the tightly competitive aerospace industry,
Airbus has found a way to accelerate inno-
vation: by working closely with its extensive
network of suppliers and other partners to
develop innovative solutions collaboratively.
5

An aerospace industry leader in developing
new technologies, Airbus has faced serious
pressures in getting its innovative new
A380, the worlds largest passenger plane,
to market.Amid many challenges, an area
of success has been in the wing assembly,
one of the most complex parts of the aircraft.
Based in the United Kingdom, the wing
assembly group collaborated closely with
an extended network of suppliers to identify
innovative solutions to complex issues, and in
the process to cut production time and meet
schedule commitments.
A
B
C
The first step was a shift from being a devel-
opment organization to one that manages
large-scale serial production. As part of this
shift, the Airbus UK wing division now had to
coordinate the efforts of its extended network
of suppliers, sub-contractors and others. An
experienced team of human resource and
organizational specialists was brought in to
help, delivering specialized training programs
for several hundred people across Airbus UK
and its many subcontractors in new tools,
processes and collaborative approaches.
These and other initiatives greatly acceler-
ated wing production, with overall lead time
on wing production reduced by 41 weeks,
or 36 percent. In addition, Airbus achieved
significant cost improvements in design and
manufacturing. Overall, collaboration with
suppliers, subcontractors and others helped
identify innovation solutions throughout wing
development for the A380. And though the
company continues to struggle with timelines
for getting the A380 to market, in this area,
they soared.
Snapshot view: The ABCs at Airbus UK Wing Assembly
A Alignment:
The companys business goals for A380 production were vertically aligned throughout the organization.
Management layers were removed to enable UK country team leaders to make key decisions, greatly acceler-
ating the pace of collaboration with suppliers.
B Boundaries:
Through careful negotiations with many suppliers involved in the wing production, Airbus resolved challenging
issues related to ownership, risk-sharing, governance and IP. Extensive training initiatives then enabled
standardization throughout the diverse group of supplier organizations.
C Commitment:
Airbus established internal teams to manage key supplier relationships and establish clear, consistent collabo-
ration for innovation across organizations.
How well connected are the component
parts of your organization to support innova-
tion, including R&D and sales, for example?
Boundaries
Managing boundaries well involves estab-
lishing the partnership, governance and
operational infrastructure for ongoing collabo-
ration across organizations.
How well does your current business model,
operations and product portfolio support
collaboration with partners outside your
company?
How visible are these partnerships
throughout your organization? How struc-
tured are the processes for collaborating
with external partners? Are roles and
responsibilities for managing collaboration
internally and externally understood?
In what ways are your processes, gover-
nance and operating guidelines designed
specifically to facilitate sharing information
with other companies? Do you have struc-
tures for resolving or avoiding conflicts over
IP, ownership and other core issues?
A
B
C
Pinpointing your collaboration
strengths and shortfalls
To begin an analysis of your own companys
collaboration capabilities, ask yourself the
following questions based on the ABC frame-
work. Your answers can help identify the areas
where your organization is already doing well
and those that need improvement.
Alignment
Alignment helps ensure that the business
strategy and related innovation objectives are
communicated and enabled throughout the
organization both vertically and horizontally.
To what extent is your overall business
strategy supported by a strategy for collab-
orative innovation?
How well do people at all levels of the orga-
nization understand the overall strategic
direction and associated innovation goals?
How strongly do they identify with these?
And do they know how their actions
contribute?
Are the right processes in place to drive or
support innovation at all levels of the orga-
nization, in operations, in business models
and in the development of new offerings?
For example, in manufacturing, sales,
corporate development?
How does your technological infrastructure
support collaborative processes across the
extended enterprise, from basic communi-
cations to shared access to information to
realtime collaboration?
What kind of process do you have in place
for monitoring and understanding potential
changes in strategy or direction by any of
your current and potential partners?
Commitment
An ongoing commitment to transformation
and change requires leadership, performance
management, and learning and improving.
How strongly does your company culture
value spending time, energy and resources
on commercializing ideas obtained from
outside?
To what extent do leaders provide support
for the strategic innovation agenda? How
consistent is this over time?
In what ways do your HR processes (hiring,
training, performance management, incen-
tives), reporting relationships, and other
organizational structures support collabora-
tive innovation?
Does your collaboration strategy enable the
agility necessary to accommodate dynamic
partnering relationships?
Does your organization capture lessons
learned and apply these to future collabora-
tions and, if so, to what degree?
Based on your responses to these questions,
are you comfortable that you are positioned to
collaborate for innovation? If not, which areas
do you plan to improve? Finally, do you have a
balance between short-term interventions and
long-term strategies for improving collabora-
tion across your organization and extended
enterprise?
Conclusion
As a vital part of an overall business strategy,
top CEOs recognize the need to make orga-
nizational changes to support collaborative
innovation and derive profit from valuable
ideas, no matter where they originate. The
ABCs alignment, boundaries and commit-
ment provide a framework for unlocking the
power of many, enabling collaborative innova-
tion throughout the extended enterprise and
improving performance.
To learn more about this IBM Institute for
Business Value study, please contact us at
iibv@us.ibm.com. For a full catalog of our
research, visit:
ibm.com/iibv
About the authors
Lawrence Owen is the Global Leader of the
Organization and Change Strategy practice
within IBM Global Business Services. This
practice develops and implements organi-
zational and change strategies for clients,
focusing on the delivery of benefits from signif-
icant transformation projects and integrating
the people-related aspects of change with
transformations of process and technology.
Lawrence has worked with clients from
around the world in the travel and transporta-
tion, consumer products, retail, banking, and
government industries. In addition, Lawrence is
responsible for the design and implementation
of IBMs own ongoing transformation, focusing
on growth strategies, collaboration and innova-
tion across the whole enterprise. He can be
contacted at owenl@us.ibm.com.
Charles Goldwasser is the Americas Leader
of the Organization and Change Strategy
practice for IBM. His expertise is in planning
and implementing large scale transformational
change in association with technology inte-
gration, outsourcing of business processes,
business restructurings, shifts in strategy and
other complex changes. Charles work spans
diverse industries including automotive, life
sciences, electronics, consumer products,
metals, chemicals, entertainment, energy
and utilities. He frequently speaks and writes
on issues of leadership and organizational
change and is the author of the book Action
Management Practical Strategies for Making
Your Corporate Transformation a Success.
He can be reached at charlie.goldwasser@
us.ibm.com.
Kristi Choate is a Senior Managing Consultant
in the IBM Organization and Change Strategy
practice. She has extensive consulting expe-
rience leading business transformations to
achieve desired results and benefits. Her
project involvement includes team collabo-
ration, process reengineering, executive
facilitation, change management, organiza-
tional design, and implementation strategy
development particularly on large system
implementations. Kristi can be contacted at
kristi.choate@us.ibm.com.
Amy Blitz is the Strategy and Change Leader
for the IBM Institute for Business Value. She
was a core team member of the IBM 2006
CEO Study on Innovation, based on interviews
with 765 CEOs worldwide. She is currently
producing a series of papers on related
innovation topics, including the collaborative
innovation themes addressed here. Amy has
led major research initiatives on issues related
to entrepreneurship, innovation and strategy.
Her work has been featured in Harvard
Business Review, The New York Times, The
Wall Street Journal, MSNBC and PBS. Amy
can be contacted at ablitz@us.ibm.com.
Contributors
This paper would not have been possible
without the insights and contributions of an
extended IBM team, including Saul Berman,
Susan Blum, Trevor Davis, Kathryn Everest,
Ian Foraker, Andrew Gear, Chris Kirk, May
Lawrence, Salima Manji Lin, Mike Martin, Philip
Myburg, John Riley, Suzanne Simon, Andrew
Statton and Andy Strowbridge.
About IBM Global Business Services
With business experts in more than 160
countries, IBM Global Business Services
provides clients with deep business process
and industry expertise across 17 industries,
using innovation to identify, create and deliver
value faster. We draw on the full breadth of IBM
capabilities, standing behind our advice to
help clients innovate and implement solutions
designed to deliver business outcomes with
far-reaching impact and sustainable results.
References
1
Ernst, David and James Bamford. Your
Alliances Are Too Stable. Harvard Business
Review. June 2005.
2
Ibid.
3
Achieving value through partnership. Eli
Lilly and Company. http://www.lilly.com/
about/partnering/alliances/index.html
4
The Rockefeller Foundation to Extend
InnoCentives Online, Global Scientific
Platform For Technology Solutions to Global
Development Problems. InnoCentive press
release. December 18, 2006.
5
Airbus achieves A380 first flight on
schedule with help from IBM. IBM
Corporation. January 2007. http://www-
306.ibm.com/software/success/cssdb.
nsf/cs/jsts-6wj2bz
G510-6335-00
Copyright IBM Corporation 2007
IBM Global Services
Route 100
Somers, NY 10589
U.S.A.
Produced in the United States of America
04-07
All Rights Reserved
IBM and the IBM logo are trademarks or
registered trademarks of International Business
Machines Corporation in the United States, other
countries, or both.
Other company, product and service names
may be trademarks or service marks of others.
References in this publication to IBM products
and services do not imply that IBM intends to
make them available in all countries in which
IBM operates.
Driving
operational
innovation using
Lean Six Sigma
IBM Global Business Services
Strategy and Change
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior business executives around critical
industry-specific and cross-industry issues. This executive brief is based on an
in-depth study by the Institutes research team. It is part of an ongoing commitment
by IBM Global Business Services to provide analysis and viewpoints that help
companies realize business value. You may contact the authors or send an e-mail to
iibv@us.ibm.com for more information.
In todays marketplace, increased globaliza-
tion, constant technological advances and
other competitive pressures are accelerating
the pace of change CEOs face. The resulting
opportunities and threats have placed innova-
tion near the top of CEOs priority lists. And
yet, for many, innovation success has been
sporadic at best.
Our research and experience shows that the
right operations strategy can help companies
make innovation a regular occurrence. Such
a strategy, if focused not just on efficiency
but also on growth, can serve as a founda-
tion for innovation throughout an organization
far beyond operations to products, services,
markets and even a companys underlying
business model. Simply put, this sort of strategy
is not about doing things better; it is about
doing better things.
As part of our analysis, we examined several
leading companies that are doing just that.
They have implemented operations strategies
based on a relatively well-known management
philosophy which we will call here Lean Six
Sigma. It is also sometimes referred to as Six
Sigma Lean. And at some of the companies
we studied, leaders still label their initiatives
as Six Sigma or 6 Sigma even though, from
our perspective, they have moved beyond Six
Sigmas original definition and scope by incor-
porating Lean features as well.
Regardless of the term, the companies that
have used this overall approach have estab-
lished disciplined working environments
focused on customer needs, detailed data
analysis and facts, not theories. The results are
remarkable:
At Caterpillar, stagnant revenue growth
prompted the company to undertake a
massive transformation in January 2001.
Through its 6 Sigma initiative, the company
developed a strategic vision that outlined a
CEOs today face mounting pressures to innovate; yet finding ways to actually
enable innovation remains a challenge for many. Top companies with
successful track records of innovation, however, have discovered one possible
solution. Lean Six Sigma, a relatively well-known approach for achieving
operational excellence, can, as it turns out, do more than simply improve
processes. It can help leaders discover innovation opportunities far beyond
operations, enhance financial performance and create organizations that have
an inherent inclination toward innovation.
Driving operational innovation using Lean Six Sigma 81
Driving operational innovation using
Lean Six Sigma
By George Byrne, Dave Lubowe and Amy Blitz
2 IBM Global Business Services
roadmap for change based on fact-based
analysis. Caterpillars initiative also led to
product innovations like its phenomenally
successful low-emissions diesel engine and
to redesigned processes including a stream-
lined supply chain. By 2005, revenues had
grown by 80 percent.
Coddled by decades of government protec-
tion, Korean steelmaker POSCO faced fierce
competition as it privatized in 2000. But with
the help of Lean Six Sigma, the company
staged a dramatic turnaround. This approach
helped POSCO escape its low-margin
business as a regional low-cost provider and
elevate itself to the global stage as a premier
provider of innovative steel products and
services. Fact-based analysis surfaced high-
potential markets and unmet needs that led
to differentiated products with entirely new
applications. In just a few short years as a
private enterprise, POSCO has become the
worlds third largest steelmaker.
In a newly deregulated market, ScottishPower
was losing customers who now had the
power to choose their electricity provider.
Determined to reverse the trend, the
company used a Lean Six Sigma approach
to reinvent its customer service function.
By innovating based on facts not assump-
tions, the company was able to halt a steady
decline in its customer base and increase
market share by 60 percent in just four years.
As we analyzed the companies that used Lean
Six Sigma to achieve broad-based innovation
and superior financial performance, we identi-
fied several distinguishing characteristics of their
approaches that set them apart from those with
a traditional operational improvement mindset.
Successful innovators had:
An innovation vision based on factual
customer and market insights Leaders
crafted a compelling vision based on a keen
understanding of market demands and their
own capabilities. Their objectives were explicit
and few in number to enable focus.
Leadership committed to perpetual innova-
tion CEOs and business unit leaders played
active, enthusiastic roles. They were clearly
committed to making an indelible organi-
zational change, not just launching another
initiative.
Alignment across the extended enterprise
The strategic innovation vision was used as
a unifying force to align disparate business
units and influence supplier and customer
relationships.
Organizational capabilities that made innova-
tion habitual At the outset, these companies
Lean Six Sigma initiatives involved an intense
period of training, dedicated resources and
an initial bubble of projects to jumpstart their
transformation. But over time, as the mindset
became more mainstream, these companies
established enduring processes that helped
drive continuous innovation throughout the
organization.
Although CEOs might instinctively think of
management approaches such as Lean
Six Sigma in terms of process improvement
and cost reduction, our research suggests
that this perspective is shortsighted. The
successful companies we studied acted in
a more visionary manner. They deliberately
expanded the scope of Lean Six Sigma, using
it to surface significant innovation opportunities
that impacted much more than their operations.
And in the process, they were able to improve
business performance and establish organi-
zations that now have an inherent inclination
toward innovation.
Driving operational innovation using
Lean Six Sigma
Lean Six Sigma: A foundation for
innovation
Around the world, CEOs are searching for
blockbuster products and services, making
major operational changes, and even rede-
signing their fundamental business models.
This trend toward broad-based innovation
was evident in the 2006 IBM Global CEO
Study. Based on in-depth conversations
with 765 corporate and government leaders
worldwide, the study found that CEOs innova-
tion priorities were spread across all of these
different dimensions (see Figure 1). And yet
CEOs ranked an unsupportive culture and
climate as their biggest obstacle to innova-
tion success.
1
Their organizations lacked
the processes, discipline and organizational
mindset to foster meaningful innovation on a
continuous basis.
As we analyzed the impact of operations
strategy on overall business performance,
we noticed a similar pattern. We found that
a companys operations strategy is often an
integral part of a more fundamental enterprise
transformation one that impacts not only
how a company works, but also its products
and services and its overall business model.
Innovation in one area drives innovation in
another.
The leading companies that we examined
in our research were intentionally pursuing
this much larger innovation agenda. They
aimed beyond operational improvement to
innovation throughout the enterprise. Using
Lean Six Sigma, they produced breakthrough
innovations that had profound impacts on
their business performance. But perhaps
more importantly, they obliterated CEOs
biggest innovation obstacle by creating an
organizational climate in which innovation has
become instinctive.
The evolution of the Lean Six Sigma
approach
As its name suggests, Lean Six Sigma is a
combination of Lean methods and Six Sigma
approaches. It is also sometimes referred
to as Six Sigma Lean. And at some of the
companies we studied, leaders still label
their initiatives as Six Sigma or 6 Sigma even
though, from our perspective, they have moved
beyond Six Sigmas original definition and
scope by incorporating Lean features as well.
Products/
services/markets
Operations Business
model
50
40
30
20
10
0
FIGURE 1.
CEOs innovation emphasis.
(Percent of emphasis allocated to each innovation type)
Source: Expanding the innovation horizon: The Global CEO Study
2006. IBM Global Business Services. March 2006.
The variations in naming are not surprising,
given the approachs evolution. Lean Six Sigma
builds on the knowledge, methods and tools
derived from decades of operational improve-
ment research and implementation (see Figure
2). Lean approaches focus on reducing cost
through process optimization. Six Sigma is
about meeting customer requirements and
stakeholder expectations, and improving
quality by measuring and eliminating defects.
The Lean Six Sigma approach draws on the
philosophies, principles and tools of both (see
Figure 3).
However, Lean Six Sigmas goal is growth, not
just cost-cutting. Its aim is effectiveness, not
just efficiency. In this way, a Lean Six Sigma
approach drives organizations not just to do
things better but to do better things.
In the past, companies used Lean Six Sigma
primarily for operational improvement refining
existing processes to reduce costs, improve
performance and provide better customer
value. However, dramatic upheavals in the
competitive marketplace are prompting
business change on a much more massive
scale. Companies must innovate, not just
improve.
Despite its heritage, Lean Six Sigma is well-
suited for this step change in target and
scope. The leading companies we studied are
proving that the Lean Six Sigma approach has
applications far beyond process improvement;
they are using it to innovate in all areas of their
businesses their operations, their products
and services and even their business models.
Just in Time (1980s)
(Kanbans, Pull systems,
Visual management)
FIGURE 2.
Lean Six Sigma builds on the practical lessons learned from previous eras of operational improvement.
Source: IBM Global Business Services analysis.
Deming/
Juran
(1950s)
(14
points,
Statistical
quality)
Ohno
(1960s/1970s)
(Toyota
production
system)
Lean Production (1990s)
(Machine that changed the world,
Lean Thinking, Value stream mapping)
Total Quality Management (1980s)
(Statistical Process Control, Quality
circles, Kaizen, Culture change/bench-
marking, Baldridge, ISO9000)
Business Process Reengineering
(1990s)
(Downsizing, To be processes,
Process owners)
Motorola Six Sigma
(1980s)
GE (1980s-1990s)
Six Sigma (Applied method for growth and productivity)
Change Acceleration Process (CAP) (Change method and tools)
Customer Partnering (GE Toolkit, Customer CAP)
Process Improvement (New Product Introduction, Supply chain, Suppliers)
Best Practices (Benchmarking, Across and outside of GE, Ending Not
Invented Here)
Work-out (Kaizen type, Cross functional teams, Boundarylessness, Values)
Strategy (Number 1 and Number 2 in each business, Fix, close or sell)
L
e
a
n

S
i
x

S
i
g
m
a

(
2
0
0
0
s
)
I
n
t
e
n
s
i
t
y

o
f

c
h
a
n
g
e
Because of its core tenets analysis based
on facts and direct customer input Lean Six
Sigma is equipped to facilitate a much broader
transformation, helping a company rethink its
entire business and create a more innovative
climate.
The concept in action
In virtually every industry and across the
public sector, the Lean Six Sigma approach
has served as a catalyst for broad-scale inno-
vation. Though the organizations we studied
vary in terms of size and mission, they have
all realized substantial benefits even earning
positive responses from the sometimes fickle
financial markets. Their experiences provide
valuable lessons for firms that want to cultivate
an innovative mindset.
Innovation has legs at Caterpillar
In 2000, Caterpillar found itself stalled: four
years of flat revenues and intense competition
that showed no signs of faltering. Determined
to regain its industry leadership position and
jumpstart growth, the company deployed a
Lean Six Sigma approach, or what they refer
to as 6 Sigma, in January 2001. Caterpillar
wanted to revolutionize not only the way its
employees worked, but also their mindsets.
The goal: continuous, customer-driven innova-
tion. The magnitude of the planned transition
was staggering: 27 separate business units
and over 72,000 employees located on six
continents who spoke multiple languages.
FIGURE 3.
Lean Six Sigma incorporates, and deploys, the key methods, tools and techniques of its predecessors.
Dene
opportunity
Control
performance
Improve
performance
Analyze
opportunity
Measure
performance
Implement
solutions
Develop
solutions
Explore
solutions
Measure
requirements
Dene
opportunity
Six Sigma also focuses on New Process Design/Complete Redesign (DMEDI) for wholesale redesign of
processes as well as new products and services.
Six Sigma focuses on Continuous Process Improvement (DMAIC) to reduce variation in existing processes.
Lean focuses on waste elimination in existing processes.
Analyze
opportunity
Improve
performance
Deliver
performance
Focus
improvement
Plan
improvement
Although Lean Six Sigma
has traditionally been
used for operational
improvement, leading
companies have
demonstrated its
potential for driving
broad-based innovation.
The launch began with a nine-month training
period for 4,200 employees. These trained
professionals with varied backgrounds from
engineering to finance then each led their
own projects and served as mentors to the
rest of the organization.
Perhaps the most far-reaching transformation
came from applying 6 Sigma approaches to
strategy development. Using these disciplines
to collect and analyze hard data on customers,
markets and Caterpillars capabilities, the CEO
and a strategic planning committee crafted
a detailed vision for Caterpillar in 2020. The
vision was subdivided into three five-year
plans. The immediate plan set out specific,
measurable targets for market position, quality,
order-to-delivery performance, safety and
other critical success factors. The plan was
companywide, spanning all lines of business
and cascading down through the organiza-
tion. Through the rigor and discipline enforced
by the initiative, the entire company aligned
behind the same specific objectives.
It is always about control. 6 Sigma
forces you to have the processes and
the people accountable to make sure
the results are enduring.
Dave Burritt, Vice President, Chief Financial
Officer, Caterpillar
2
The initial 6 Sigma launch spawned over 1,100
projects some generated subtle (though
financially beneficial) operational improve-
ments, while others resulted in innovative
new products and radically different ways of
working. One of the first process changes
involved revamping R&D to include more
direct interaction with the customer. Engineer
to engineer, employees and clients began
working collaboratively to pinpoint problems
and develop solutions, steadily building closer
relationships.
Through alliances it built with Canadian
oil sands mining customers, for example,
Caterpillar learned about the nuances
involved in extracting oil from sand. These
application-specific insights led the company
to develop a completely different kind of
mining truck. Instead of offering a one-
size-fits-all model, its new mining truck is
available in five unique configurations each
suited to a particular type of terrain and haul
profile. Now, customers in extremely cost-
sensitive industries, such as oil sands mining,
can select the configuration that offers the
best blend of price and productivity.
You can use 6 Sigma for anything; we
used it for Sarbanes-Oxley compliance.
When people talk about SOX, they dont
know how much it costs them but we
do because we tracked it.
Dave Burritt, Vice President, Chief Financial
Officer, Caterpillar
3
Teams also developed a tremendously
successful diesel engine breakthrough that set
Caterpillar apart from competitors. The ACERT

Technology significantly reduces emissions
and offers higher fuel efficiency, saving
customers money and allowing the company
to command premium pricing.
This approach also led to major operational
changes, particularly in Caterpillars supply
chain. Caterpillar has, in its own words,
systematically de-bottlenecked its order-
to-delivery process. For example, teams
Key takeaway: Strong leadership yields
speed and strategic alignment
Applying Lean Six Sigma to strategy development
sends a clear message about how serious
management teams are about making an enduring
change.
In the case of Caterpillar, strong leadership
prompted strong participation, unifying 27
disparate organizational units around common
strategic goals. Teams saw how their efforts were
linked and contributed to the whole. Results were
measurable and visible to all. While its 6 Sigma
initiative helped make the changes enduring,
strong leadership and broad participation made
them happen fast. Caterpillar recouped its initial
investment in less than a year.
And its story is not an isolated case. As part of
our research, we analyzed the performance of
many of our past clients to determine the impact
that a companys deployment model and level
of commitment had on overall results. Although
most demonstrated solid results from their Lean
Six Sigma programs, those with a high degree
of CEO commitment and a top-down corporate
deployment approach experienced a much faster
transformation.
In the lackluster steel industry,
POSCO shines
After decades of government ownership, the
Korean steel company POSCO was privatized
in 2000. Long sheltered from market forces,
the company now faced serious competitive
pressures. In particular, its low-cost competi-
tive advantage was evaporating as cheaper
competitors emerged from other regions,
notably China. Its limited regional footprint
also left the company exposed to a declining
Korean economy.
redesigned the production scheduling process
at Caterpillar manufacturing facilities, which
cut lead times by more than 50 percent.
They have also reduced delays caused by
supplier-sourced pumps. Historically, if a pump
failed during initial testing, Caterpillar had
to take time to fix the pump or wait for the
supplier to send someone to repair it. Now,
based on suggestions from the 6 Sigma team,
the supplier has its own pump test cell and
breaks in new pumps before sending them
to Caterpillar plants. And the supplier faces
a financial penalty if it fails to meet specific
quality goals.
Overall, the results from Caterpillars initia-
tive have been phenomenal. Caterpillar
launched 6 Sigma globally and delivered
benefits that surpassed implementation costs
in the first year. Since then, it has become a
critical component of Caterpillars success.
The rigor and discipline have enabled the
record profits of the past few years and
are helping the company achieve its 2010
strategic goals. According to Caterpillar Vice
President and CFO Dave Burritt, Caterpillars
competitiveness has improved...6 Sigma
has been applied to increase our percent of
industry in all of our principal lines of business.
The machine, the engine, and financial
products businesses have all benefited from
the rigor of 6 Sigma. Without question, we
are in the best of times at Caterpillar, and the
improvements would have been much less
without 6 Sigma.
4

It takes strong
leadership to create
enduring change that
produces continual
innovation.
With increasing globalization, every
steel company must innovate to prosper
and compete in this new environment.
POSCO was in a difficult situation
you might almost say a crisis a few
years ago as we faced this new global
competitive threat. As a management
team, we felt that Six Sigma was a good
vehicle to change all employees way
of thinking, current working styles and
mind-sets.
Ku-taek Lee, Chairman and CEO, POSCO
5
Undaunted, POSCO was determined to
remake itself, shifting from a local, low-cost
producer to a global, value-added steel
maker. To do so, its entire way of working
had to change. The company made a funda-
mental commitment to use a Lean Six Sigma
approach to transform its business and
create a market-driven mindset throughout
the enterprise.
6
Initially, R&D resisted the Lean Six Sigma
approach, feeling it was too Western to be
practical for an Asian company. But after
special training sessions, designed with
these engineers in mind, opinions began to
shift. Instead of sending marketing or sales-
people to research customer needs, senior
management sent engineers. This empowered
the people who were making the pivotal
design decisions to talk directly with key
customers and make recommendations. For
the engineers, this approach provided oppor-
tunities to learn directly from customers. The
in-depth client discussions helped POSCO
engineers pinpoint several product areas
where customers were looking for more inno-
vative solutions.
As the POSCO management team developed
its strategy for becoming a value-added rather
than a low-cost steel provider, it again relied
on Lean Six Sigma. Using the engineering
teams input on customer needs, senior
management analyzed market potential and
the companys capabilities in those product
and service areas. The optimal strategy
seemed to revolve around two high-potential
markets: shipping and automotive. Senior
managers then aligned the entire company
behind these strategic priorities. R&D concen-
trated on these two areas, and pet projects
that did not contribute to the value-added
vision were cancelled. (Its important to note
that these priorities were not static. With
Lean Six Sigma helping POSCO maintain a
perpetual watch over customer needs and
market opportunities, the company has since
added a construction vertical to the mix.)
The business model shift to focus on the
shipping and automotive industries led to
major product innovations. For example, the
company invented steel that remains rust-free
in salt water, creating significant opportunities
in shipping and floating dock construction.
Using Lean Six Sigma to drive interactions
with global automakers, POSCO developed 21
varieties of high-grade steel designed to meet
special industry needs, such as coated steel
that paint adheres to more easily.
Lean Six Sigma analysis soon led to another
realization: in order to expand its products
and markets, POSCO would have to expand
its operations as well. Although China is
the worlds biggest producer of steel (and
therefore a competitive threat), the expanding
gap between its own production capabilities
and rapidly rising demand provided a growth
opportunity for POSCO. To fill this gap, POSCO
has orchestrated 14 joint ventures and invested
US$780 million in China. Just a decade ago,
that investment figure was zero.
7
Using Lean Six Sigmas relentless focus on
customer demands, POSCO developed
process and IT innovations that dramatically
reduced finished steel inventories and cut lead
times from 28 to just 14 days by 2003.
8
At the
same time, however, the companys focus on
customer needs sometimes created additional
challenges. For example, POSCO found that
filling orders faster left too many partly used
steel slabs, which hurt margins. Determined
to meet customer needs profitably, POSCO
developed sophisticated production sched-
uling algorithms that allowed it to pack multiple
orders on a slab. This allowed the company to
optimize slab utilization (and profitability), while
still responding rapidly to customer demand.
9

In addition to growth and profitability, the Lean
Six Sigma approach helped POSCO realize
an altruistic objective to help restore and
protect Koreas natural environment. The years
following the Korean War were hard on Korea
ecologically; in the drive to improve economic
conditions, companies too often ignored the
environmental impacts of their actions. In
an effort to contribute positively in this area,
POSCO, through its Lean Six Sigma efforts,
was able to introduce diverse environmental
management programs and processes,
including an iron-making approach that
eliminates the sintering and coking processes,
which, in turn, reduces environmental pollutants.
As the Lean Six Sigma way of thinking
spread across POSCO, virtually no area of
the business was off-limits. The company was
equally comfortable (and confident) applying
the approach to corporate strategy and
budgeting as manufacturing and logistics.
Through its Lean Six Sigma efforts, POSCO
has produced over US$1 billion in financial
gains to date, including strong savings and
record sales volumes. Even in 2001, the first
year of its Lean Six Sigma initiative, when
twenty-five-year lows in prices hit other steel-
makers and their investors hard, POSCO
achieved double-digit profitability.
10
By 2005,
in less than four years, the company had
transformed itself from a regional, low-cost
producer to a global, value-added provider
of high-quality steel. POSCO is now the third
largest steelmaker worldwide. It also ranks
high in terms of efficiency and profitability
and has been selected as the worlds most
competitive steel firm for three consecutive
years in a global study conducted by World
Steel Dynamics.
11
As we became privatized and more
globally oriented, we had to dramati-
cally change everything within the entire
enterprise all processes and ways of
operating. But you cant make these
kinds of changes overnight, especially
not employees mind-sets and attitudes.
We are using Six Sigma as a way to do
this gradually and continuously
Ku-taek Lee, Chairman and CEO, POSCO
12
Innovation begets
innovation; what starts
as a seemingly minor
operational change can
result in new products
or even an entirely new
business model.
Key takeaway: The innovation domino
effect encourages wholesale transfor-
mation.
As Lean Six Sigma disciplines steadily infiltrated
the thought processes of employees and company
leaders, POSCO experienced a domino effect.
As the company innovated in one area of the
business, it triggered transformation in another.
For example, the business model decision to
focus on high-potential segments such as the
automotive industry inspired new, innovative steel
products. These new products, in turn, led to new
processes to produce higher-grade steel.
Collectively, these ripples of innovation enabled
POSCO to accomplish a top-to-bottom trans-
formation from government-owned business
to profitable private enterprise; from low-cost
producer to value-added provider; and from
regional player to global competitor.
Market share and margins surge higher
at ScottishPower
In 2001, ScottishPower found itself losing
market share in the recently deregulated UK
retail energy marketplace. Regulators who
were responsible for safe, reliable energy
supply were beginning to express concern
about recurring customer service complaints.
The company needed to reverse the trend
quickly. By radically overhauling its customer
service and sales operations, it hoped to
regain a market-leading position.
Defying the notion that Lean Six Sigma
is primarily for manufacturing firms,
ScottishPower decided to use the approach to
drive innovation in its services-based business.
It launched Lean Six Sigma by establishing
a Business Transformation department and
training hundreds of employees.
Very quickly, the Lean Six Sigma approach
proved that the companys initial assump-
tions about why customers were leaving were
off-base. In reality, many customers were
being lost when they moved to a different
home. When customers called to cancel their
service, customer service representatives
(CSRs) did just that, following their scripts
precisely but never considering whether the
caller might need service elsewhere. They
were extremely efficient, but not effective.
Once Lean Six Sigma exposed this market-
share leak, ScottishPower instituted a hot key
process to transfer callers to advisors who
could offer service at the callers new home.
The company also offered financial incentives
to CSRs to encourage the transfers. Because
Lean Six Sigma forced an end-to-end inspec-
tion, ScottishPower was able to close the loop
by designing a new process that notified sales
teams to approach the new inhabitants at
the vacated address. So instead of losing a
customer, the firm was now more likely to end
up with two.
In its initial wave, ScottishPower launched 130
such Lean Six Sigma projects. Others included
a targeted marketing campaign that boosted
use of direct debit payments by 14 percent,
a simplified sign-up process for business
customers that led to a 20 percent increase in
acquisition, and new meter reading processes
with lower costs and higher accuracy.
Combined, the Lean Six Sigma approach
helped ScottishPower expand from 3.2 million
to 5.1 million customers in just four years, or
an average of about 40,000 new customers
per month during the period. This contrasts
sharply with the trend of declining numbers
of customers for many of ScottishPowers
competitors. These gains are even more
remarkable given that all of these companies
are competing in the same market for a rela-
tively stable number of households. To date,
ScottishPower has realized a total of US$170
million in additional revenue and cost savings
through its Lean Six Sigma initiatives.
I believe the methodology is robust
and transferable it enhances the
customer experience, develops my
staff and improves the bottom line. If I
left ScottishPower tomorrow and joined
another company, [this approach] would
be one of the first things that I would
adopt.
Willie MacDiarmid, Director of Energy Retail,
ScottishPower
Key takeaway: Specificity and facts trump
generalizations and assumptions.
Instead of blindly marketing to enhance image and
build market share, ScottishPower used Lean Six
Sigma to identify the real reasons for customer
dissatisfaction and defection. The company no
longer needed to rely on guesses or assumptions
it had facts. With these insights, the company
was able to redesign the specific processes that
actually impacted customer relationships. And
in the end, the cost of regaining its market share
through Lean Six Sigma was much lower than a
traditional mass marketing approach.
Its not just for the private sector
The Lean Six Sigma approach can also be applied
to the challenges of the public sector. Take, for
example, the Office of the Principal Legal Advisor
(OPLA) in the U.S. Department of Homeland
Security (DHS) Bureau of Immigration and
Customs Enforcement. OPLA, DHSs largest legal
program, litigates 400,000 alien removal cases
each year. Embracing strategic management
and Lean Six Sigma, it deployed a nationwide,
Web-accessible case and document management
system; gave each employee a scanner;
established a Strategic Review Division to review
offices and spread best practices; improved hiring
and training; and formed numerous Lean Six
Sigma working groups made up of employees
from across the country.
By giving its employees shared ownership in
OPLAs processes, it is now quickly moving
toward more efficient litigation and admin-
istrative processes. The working groups are
increasing OPLAs efficiencies in everything
from electronically exchanging documents with
the private bar; to increasing the efficiency with
which court cases are calendared; to devising
case-management metrics that will capture ineffi-
ciencies in its litigation processes; to creating
electronic case files that its trial attorneys can
carry into courtrooms using laptops. Many other
processes are also under review, and OPLA is now
embarking on forming strategic alliances with
stakeholder agencies.
With software enhancements, new personnel,
and numerous process fixes in the works, OPLA
will continue its historic transformation. Lean Six
Sigma has been key to its success.
To build an innovative
track record, companies
need facts, not just
good guesses.
Assessing your own innovative
climate
The successful companies we studied took a
deliberate detour from the traditional approach
to operational improvement. By using the
Lean Six Sigma approach in a broader, more
strategic fashion, they were able to uncover
innovation opportunities across their business
not just in operations. And in the process,
they were able to improve business perfor-
mance and establish organizations that are
more naturally inclined to innovate.
As we analyzed their Lean Six Sigma efforts,
we identified several distinguishing features
of their approaches that set them apart from
those with a traditional operational improve-
ment mindset. The common characteristics
shared by these innovators include:
An innovation vision based on factual
customer and market insights Leaders
crafted a compelling vision based on a keen
understanding of market demands and
their own capabilities. Their objectives were
explicit and few in number to enable focus.
Leadership committed to perpetual inno-
vation CEOs and business unit leaders
played active, enthusiastic roles. They were
clearly committed to making an indelible
cultural change, not just launching another
initiative.
Alignment across the extended enterprise
The strategic innovation vision was used as
a unifying force to align disparate business
units and influence supplier and customer
relationships.
Organizational capabilities that made innova-
tion habitual At the outset, these companies
Lean Six Sigma initiatives involved an intense
period of training, dedicated resources and
an initial bubble of projects to jumpstart their
transformation. But over time, as the mindset
became more mainstream, these companies
established enduring processes that helped
drive continuous innovation throughout the
organization.
The challenges these companies faced
are not unique. Peers around the world are
feeling similar pressure to innovate. The
pivotal question is whether your organiza-
tion is equipped to do so and to do so
in a sustainable manner. Here are several
questions that can help you assess your level
of preparedness:
Do you have a clear vision of where you
want your company to be in two years? In
five years? In ten years?
How closely tied is this vision to the needs
of your current and target customers? And
is your understanding of these needs based
on actual assessments or assumed informa-
tion?
Will this vision require innovations in your
business model? In your products or
services? In your markets?
What will you need to do at the operational
level to enable and drive these innovations?
To support innovation, what changes will be
required to your management approach,
organizational structures, metrics and skills?
How are you making innovation happen
more systematically? Are you establishing
the right environment?
Conclusion
CEOs might be tempted to downplay the
importance of operations strategy and related
management approaches such as Lean Six
Sigma, thinking of them in terms of process
improvement and cost reduction. But this
perspective is competitively shortsighted.
Industry leaders such as the companies
analyzed in our study are using Lean Six
Sigma approaches to surface significant inno-
vation opportunities that have far-reaching
impacts on their businesses. Certainly their
operations are changing dramatically but so
are their products and services, their target
markets and, in some cases, even the funda-
mental design of their business models.
Most importantly, the successes of the
companies we researched were not
anomalies. Through the discipline of Lean
Six Sigma, these CEOs and business unit
leaders have substantially improved business
performance and permanently reoriented their
organizations mindsets, creating the type of
environment where innovation can flourish.
To learn more about this IBM Institute for
Business Value study, please contact us at
iibv@us.ibm.com. For a full catalog of our
research, visit:
ibm.com/iibv
About the authors
George Byrne is the Americas Group Lean
Six Sigma Leader for IBM Global Business
Services. George can be contacted at george.
byrne@us.ibm.com.
Dave Lubowe is the Global and Americas
Operations Strategy Leader for IBM Global
Business Services. Dave can be contacted at
dave.lubowe@us.ibm.com.
Amy Blitz is the Strategy and Change Leader
at the IBM Institute for Business Value. Amy
can be contacted at ablitz@us.ibm.com.
Contributors
Dr. Saul J. Berman is the Global and Americas
Business Strategy Leader for IBM Global
Business Services. Saul can be reached at
saul.berman@us.ibm.com.
Ian Wilson is the Global Lean Six Sigma
Leader and Operations Strategy Leader for
Europe with IBM Global Business Services. Ian
can be reached at ian.b.wilson@uk.ibm.com.
We would also like to thank other contribu-
tors as well, including Paul Campbell-Kelly,
Jerry Coover, Geoff Gibbons, Changdae Kim,
Bill Kane, Mark McDonald, and many others
throughout IBM, all of whom generously
shared their time and insights to help produce
this paper.
Finally, we sincerely thank our clients profiled
in this paper, and congratulate them on their
successes.
G510-6331-00
Copyright IBM Corporation 2007
IBM Global Services
Route 100
Somers, NY 10589
U.S.A.
Produced in the United States of America
01-07
All Rights Reserved
IBM and the IBM logo are trademarks or
registered trademarks of International Business
Machines Corporation in the United States, other
countries, or both.
ACERT is a trademark of Caterpillar Inc. in the
United States, other countries, or both.
Other company, product and service names
may be trademarks or service marks of others.
References in this publication to IBM products
and services do not imply that IBM intends to
make them available in all countries in which
IBM operates.
About IBM Global Business Services
With business experts in more than 160 countries, IBM Global Business
Services provides clients with deep business process and industry expertise
across 17 industries, using innovation to identify, create and deliver value
faster. We draw on the full breadth of IBM capabilities, standing behind our
advice to help clients innovate and implement solutions designed to deliver
business outcomes with far-reaching impact and sustainable results.
References
1
Expanding the Innovation Horizon: The Global CEO Study 2006. IBM
Business Consulting Services. March 2006. http://www.ibm.com/bcs/
ceostudy
2
IBM Global Business Services interview with Mr. Burritt, March 31, 2006.
3
Ibid.
4
IBM Global Business Services correspondence with Mr. Burritt, August 3,
2006.
5
The Gartner Fellows Interviews: Ku-taek Lee, Chief Executive Officer,
POSCO. Gartner, Inc. April 12, 2005. http://bvit2.gartner.com/research/
fellows/asset_140300_1176.jsp.
6
Because POSCO launched its transformation efforts before the term Lean
Six Sigma came into common use, it continues to refer to it as Six Sigma.
7
Brooke, James, Korean Steel Maker Finds Strength in Flexibility, New York
Times, August 5, 2003.
8
Ibid.
9
IBM Corporation. Optimizing production scheduling helps POSCO to meet
new customer demands and reduce costs. http://domino.research.ibm.
com/odis/odis.nsf/pages/case.12.html
10
Brooke, James, Korean Steel Maker Finds Strength in Flexibility, New York
Times, August 5, 2003.
11
Ibid.; Keun-min, Bae. POSCO Worlds Most Competitive Steel Firm. The
Korea Times. June 20, 2004.
12
The Gartner Fellows Interviews: Ku-taek Lee, Chief Executive Officer,
POSCO. Gartner, Inc. April 12, 2005. http://bvit2.gartner.com/research/
fellows/asset_140300_1176.jsp.
Air Products and Chemicals Inc. 97
Boston Scientic Corporation Cardiovascular Division 107
Computer Sciences Corporation 121
Ethicon Endo-Surgery 129
Hewlett-Packard Imaging and Printing Group 139
I
n 1940, Leonard Pool founded Air Products on the unique idea of building industrial gas facilities
in close proximity to high-volume users, providing gas at prices far cheaper than the then-prevalent
method of shipping gas in heavy metal cylinders. Tis business model has since become the norm for
the industrial gases market.
From its early history of providing oxygen to the U.S. government and Allies during
World War II and, later, steel manufacturers in the northeast U.S., Air Products has grown to
employ nearly 20,000 people and conduct operations in 30 countries. Revenues in 2006 were more
than $8.8 billion, of which approximately 50 percent is from outside the United States.
Currently Air Products competes in several gas and chemical markets. On-site generation falls
under Air Products Tonnage Gases Equipment and Energy (TGEE) division, which contributes
about one-fourth of total revenue. Tis division contains Air Products tonnage gases business as well
as transportation energy (mainly the production of hydrogen), hydrocarbon recovery (production of
liqueed natural gas and oil recovery), and power generation (gasication). TGEE is also tasked with
developing a share of the emerging hydrogen/alternative energy market.
Merchant Gases is another large part of Air Products. Te excess gas generated from on-site plants
is packaged and sold in smaller volumes in either a liqueed or compressed state.
Air Products Electronics and Performance Materials division supplies to the electronics industry
specialty gases such as nitrogen triuoride, silicon tetrauoride and carbon tetrauoride as well as
vital components and services for silicon and compound semiconductors, thin lm transistor liquid
crystal displays, and photovoltaic devices manufacture. Te Electronics and Performance Materials
division also supplies coatings, inks, and adhesives. Te division plays a key role in the manufacture of
electronic components as about 100 gases and chemicals are needed to manufacture a semiconductor
device. Electronics and Performance Materials accounts for approximately 20 percent of Air Products
overall revenue.
Air Products entered the home health care market in 2002 with the purchase of American
Homecare Supply. Tis division supplies respiratory therapy and infusion services to more than
400,000 patients in 14 countries.
Defining Innovation
An examination of Air Products future growth targets revealed the need for an accelerant to
exceed historic growth rates. Te organization has placed a heavy emphasis on innovation as the means
to close the gap between anticipated and desired growth. Air Products denes innovation in two ways:
as an output and as a process. As an output, innovation is a new source of value in a commercial for-
prot enterprise that required a change in a business process to realize it. Innovation the process is
the system through which new ideas become embedded as business process creating value. Value is
dened as the capability to create, deliver, communicate and get a paid return for a new or improved
product or service.
Although Air Products has a strong engineering-based culture, innovation is not limited to
product innovation but encompasses service, operational, and business model innovation, both
incremental and revolutionary. In order to pursue opportunities in service areasmarkets in which
Air Products may not have vast experiencethe organization will partner with external entities to
share risk and gain expertise.
Je Kramer, vice president of the corporate development oce (CDO), noted Air Products, while
working to do be the best hydrogen producer through innovations in productivity and eciency,
must also pay attention to the business model that eliminates the need for a hydrogen plant.
Organizational Structure of Innovation
Innovate is one of the 13 global, enterprise-wide processes at Air Products and is overseen
by the chief technology ocer (CTO). In addition to the formal structure created for the Innovate
core process, other innovation groups operate throughout the enterprise and within individual
product groups.
Te innovation organization inside of Air Products has three main structures: Tere are corporate-
wide bodies like the Growth Board and the CDO. Second, inside units such as TGEE and Merchant
Gases, there are specic innovation-centered roles, including the business technology managers
(BTMs), who oversee the development of new technologies. Tird, the Innovation College works to
transform innovative thinking and processes from the purview of specialized groups to the calling card
of the entire organization.
Te Growth Board is a high-level technology guidance group. Consisting of the vice president of
the corporate development oce, the chief operating ocer, the CTO, CFO, and others; the board
acts as a portfolio manager. In order to deliver the expected rates of growth, the board, which meets
monthly, selects only the most promising projects to fund. New platforms proposed throughout the
organization ultimately have to gain the approval of the Growth Board in order to survive.
Te Growth Board directly allocates funding to the CDO. Te CDO is the main engine of new
business platforms and technologies within Air Products. It has a worldwide sta of approximately
25 and is broken into several groups: Te corporate and business strategy group works with the
business units to make sure that they have the proper strategies in place. A small transactional group
concentrates on mergers and acquisitions, and another group provides economic forecasting and
business modeling. Te CDO also manages the organizations venture equity investments. Air
Products frequently partners with outside groups and invests in venture funds to gain access to new
ideas and innovations. Tis access, rather than nancial reward, is Air Products primary goal in
its partnerships.
Innovation is encouraged and does occur throughout the individual business units such as
Healthcare and Electronics and Performance Materials. However, for those innovations that have
development timeframes of ve years or longer, the platform and incubation group or new-business
development group within the CDO are involved in bringing the projects into fruition. Once a
discovery has occurred, the platform and incubation group shepherds its development, the goal
being to hand o the project to either an existing business unit or a specially created business unit.
During this incubation process, these projects are actively managed by the Growth Board in order
to determine whether funding and resources should continue to be made available. Te CDO
particularly the platform and incubation groupreceives its funding from the corporate level.
However, as a startup center within Air Products, the platform and incubation group must frequently
negotiate with the business units for resources, manpower being the most important. Figure 16 shows
the discovery, incubation, and acceleration processes performed by the platform and incubation group
within the CDO. (Tis process is also aided by the Materials Research Center, formerly the Corporate
Science and Technology Center.)
Te CDO is also involved with the BTMs, who report to the technology function inside
Air Products. Te BTMs guide the portfolio processes for technologies inside the individual business
units, advance programs, and eliminate projects that do not t the overall organizational strategy.
Creating Growth Platforms
Figure 16
Performance
Materials
EPI
Electronics
Global Healthcare
Advanced Materials
Energy Solutions
Emerging Materials
(Electronics)
Healthcare
CDO
CSTC
Discovery Incubation Acceleration
CREATING A STRATEGY TO EMBED INNOVATION
Innovation Strategy
Air Products has established clear goals for its innovation activities. In 2001, the organization
determined that only 75 percent of desired future growth would come through existing businesses.
Te remaining 25 percent would need to come from new opportunitiesfrom innovative thinking.
Although Air Products does not have a formal written innovation strategy, the organization has taken
signicant steps toward the formation of one.
Te organization is learning to think beyond incremental change to current oerings; it is
encouraging innovative thinking in areas such as services and business models, and is diversifying
its work force to include employees with skills and experiences beyond the traditional engineering
background.
In addition to the work within its new-business development oce, the CDO is tackling ideas
and opportunities that originate outside of Air Products through the Open Innovation model.
Air Products has long been leveraging alliances with external sources such as start-up ventures,
universities, and research institutions.
Te organization has also taken steps to establish forward-looking road maps for entering and
competing in new markets. Air Products categorizes its business innovation opportunities in relation
to its current organizational structure. Projects are considered whitespace if they are between the
domains of existing businesses. Greyspace projects are those that overlap multiple business units, and
the organization describes blue space projects as out there. Te CDO creates road maps to establish
where nanotechnology will reside in relation to businesses both inside and outside the CDO and to
make sure that the components necessary for future success are outlined and set in place.
Enablers and Challenges of the Innovation Strategy
Many of the challenges faced in embedding innovation within Air Products revolve around people
issues. Te organization feels that many of the most innovative ideas may come from employees
outside of established innovation structures like the CDO; however, with an employee population of
approximately 20,000 and operations in 30 countries, Air Products is challenged to spur innovative
thinking enterprise-wide. Te Innovation College at Air Products University encourages creative
thinking with mentoring programs for new employees and innovation awards.
Another challenge comes from the networks that employees build among themselves. Ron
Pierantozzi of the new-business development oce holds that strong networks among colleagues in
the same function can hinder innovative thinking. Working only within strong networks, he says,
often leads to intellectual inbreeding and only incremental improvements. In order make major
breakthroughs, employees should strive to build weak networksrelationships with others outside
the organization or outside their own functions. Weak networks can bring unexpected interactions,
experiences, and inspirations that can mean the dierence between an incremental improvement and
a game-changing innovation. In an eort to build weak networks, Pierantozzi authorizes employees
to attend meetings and conferences that no one at Air Products has previously attended and that may
be only tangentially related to an employees job, as long as the employee feels that attendance would
benet Air Products.
With strong networks, like minds breed like ideas; the same is true across a work force. Air
Products is beginning to address like-mindedness at its rootthe organizations hiring practices.
While its traditional new-hire base comprises engineers from top schools, Air Productsthe CDO
and the new-business development oce in particularis seeking candidates who have more to oer
than traditional skill sets. Entrepreneurs and others with unique skills are being brought on board to
help the organization think creatively. In less innovation-focused areas like the CDO, functional skills
are still prized; however, there is a growing emphasis on hiring those who also demonstrate creativity.
In the words of one Air Products team member, the organization is looking for a creative spark
in a candidate.
Stakeholders and Alliances
Air Products includes the following stakeholders in its innovation strategy.
EmployeesTe organization encourages innovative and creative thinking through a diverse work
force, mentoring programs for new employees, and annual innovation awards and symposia.
CustomersJohn Irven, BTM of Packaged Gases, relates how voice-of-customer is used
extensively to create dierentiated products. For example, to dierentiate its business given the
commodity nature of the gas cylinder, Packaged Gases created BIP (built-in purier) Cylinder
Gases, Integra, and the Party Perfect package.
Te BIP is an attempt to capture the value from the external puriers that many customers
attach to gas cylinders. By moving the purier inside the cylinder, Air Products can charge more,
and the customer receives the same level of purity delivered by the traditional external purier.
Integra combines many control functions such as pressure reduction and ow control into a
much lighter, easier to use, and safer package.
Party Perfect packages are small packages of helium, used in party balloons, that can be
sold directly to the consumer at retail, again recapturing some of the value that is usually lost to
cylinder rental or other middlemen.
External alliancesTe organization makes frequent use of alliances and partnerships.
Air Products states that in areas where it may lack expertise or market knowledge, it has partnered
with outside organizations to gain that needed knowledge. Investments are made in startups,
and research through universities and institutes is funded. Currently Air Products is conducting
fuel cell research in partnership with the U.S. Department of Energy. An example of an external-
investment success can be seen in Air Products investment in Sonys E-ink, a new type of display
element that was initially funded in part by Air Products. Today, E-ink displays are commercially
available, and emulsion and adhesive materials for the display come from Air Products.
DEFINING ROLES AND STRUCTURES TO SUPPORT INNOVATION ENGAGEMENT
Senior Management Commitment to Driving Innovation
As noted earlier, senior management at Air Products recognizes that growth cannot come from
organic sources alone: Air Products expects 25 percent of future growth to come from innovation-
centered eorts. Senior management signals its commitment to enterprise-wide innovation in a
number of ways, including championing Innovate as one of Air Products core processes, as shown in
Figure 17, page 102, and through the Growth Board, which is staed by high-level senior executives.
Te challenge to think creatively is not reserved for the line organization within Air Products:
Senior management is almost exclusively composed of employees have been with the organization
20 or more years, and it is frequently challenged to examine opportunities that may seem far from
traditional Air Products ventures. To counteract the tendency toward stasis, the CDO has brought in
advisers and consultants to provide coaching on creative thinking.
Capturing Innovative Ideas
Capturing innovative ideas at Air Products is handled in large part by the technology group,
which has an operation established to catalog and develop innovation ideas. Te group monitors the
public domain (e.g., the Internet, conferences, or databases), on the hunt for trends, business and
technology developments, and opportunities. From this research, the group generates and sends
roughly 4,000 alerts (summaries of articles that may be of interest to a particular group of employees)
per year. When alerts yield promising ideas, short reports known as backgroundersusually 50 to 100
per yearfurther investigate the issue. From these backgrounders, 20 to 25 in-depth analyses per year
are created to enable further decision making. Te goal of these alerts, backgrounders, and analyses
to is drive ideas into incubation and accelerationwhether inside a business unit or the CDOs new-
business development oce.
Rewards and Recognition to Foster Innovative Thinking
In order to foster and reward innovative thinking, Air Products conducts annual technology
symposia. During these events, mid-level employees across the enterprise present their projects and
ideas in front of the entire organization, including senior executives. Rewards are given for creative
thinking, and the winners are invited to speak about their projects so that they might encourage
other employees to think creatively. Te organization also bestows similar awards for innovation.
Te innovation award, however, is not just for technology, as business models can be honored as well.
Judging for the awards is based on more than the impressiveness of the idea or discovery; the
monetary value of the idea as well as the leadership the team displayed by overcoming barriers are
also considered.
Te Chairmans Award for Excellence is the highest level of Air Products Innovative Rewards
and Recognition Program. Tis award recognizes individuals and teams for signicant technical,
scientic, commercial, or professional achievements that contribute to the long-term success of the
Enterprise Process Blueprint
Figure 17
Source
Make Fulll
Finance Information Environment Governance
Customers
Enterprise Process Blueprint
Align
Innovation
People
Supply Chain
Plan
Build
Sell
organization, or for a pattern of notable achievements over employees careers. It communicates
nationally and internationally the exceptional accomplishments and innovative talents of Air Products
employees. Te nancial reward and the presentation ceremony bet the organizations highest honor:
Te winners share $70,000 in cash and stock, which they receive at a formal awards dinner attended
by appropriate organization leaders and colleagues and friends of the recipients.
UNDERSTANDING THE CULTURAL AND TECHNICAL ENABLERS
Defining an Innovative Culture
According to Air Products, an innovative culture is driven from the top down and the bottom
up. Top down comprises elements such as the growth board, which has a direct role in new
opportunities, and the new-business development oce, which develops new opportunities before
handing them o to existing business units.
From the bottom up, Air Products encourages individual initiative though its innovation
awards and its Innovate process, including the Innovation College at Air Products University. Tis
is supplemented by eorts to create an intellectually diverse work force by modifying the new-hire
process, including involving similar peer levels in the interview process and asking for more behavior-
related information such as hobbies and outside interests. Te goal is to create a work force that can
make connections, think creatively, and develop new opportunities for the organization.
Cultural Enablers to Embed Innovation
One of the primary enablers for innovation is the Innovation College. Te Innovation College
is part of the enterprise-wide Air Products University. Te college oers roughly 20 courses, with
topics ranging from creative thinking to project and intellectual asset management. Courses in
the nancial side of project management are oered in conjunction within the Sell College at Air
Products University. Te college oers two certicate levels: Te general certicate is open to all whose
positions would benet from the instruction, while a more rigorous level of certication is available
for those who are nominated by their managers. Tese Innovation Mentors are taught at a higher level
and are then expected to take a hands-on role with their colleagues. Courses are taught by various
Air Products employees as well as by outside experts.
Further support of innovation is also given by the new-business development oce of the
CDO. Although the new-business development oces major role is to incubate and accelerate new
opportunities, the oce also acts as an internal consultant for Air Products business units.
Technical Enablers to Embed Innovation
In order to facilitate the communication and creative thinking, Air Products uses a net meeting
software and video conferencing software to allow team members and students to come together
and collaborate. Courses in the Innovation College are taught in person and also online, with the
course content archived for use on demand by those students who were not able to attend or are at an
international site.
DESIGNING ONGOING COMMUNICATION AND CHANGE MANAGEMENT TACTICS
Communication Vehicles for Embedding Innovation
In order to embed innovation, Air Products uses several communication vehicles. From a
technical standpoint, net meeting software and video conferencing are extensively used. Irven notes
that tools such as these are most eective and best utilized after team- and trust-building activities
preferably face to faceamong team members.
From an organizational standpoint, Air Products makes ample use of roundtables and other
communities of interest. Tese roundtables rst began in the technology organization and have since
spread to other parts of the organization. Members of the innovation roundtable meet voluntarily on
an ad-hoc basis and share information.
Change Management Tactics for Embedding Innovation
To manage the process that surrounds innovation, Air Products follows its own Change Model.
Conceived in 1999, it is a six-step process in which a change manager oversees each step. Tis change
model is well integrated across the organization, as more than 600 leaders have been trained in the
model. Members of teams involved in a given change are trained in the process. For example, the
Intellectual Asset Management organization spends 2.5 years laying the groundwork for its change
management process.
Training to Support Innovation Activities
Training for innovation activities is handled in large part by the Innovation College. As stated
previously, the college oers a variety of courses in innovative thinking and project management. In
addition to the college, innovation is supported by internal consulting performed by the new-business
development oce within the CDO as well as by a new employee mentoring system.
EVALUATING KEY INNOVATION MEASURES
Innovation Metrics
Air Products uses metrics to evaluate the health of the project portfolio, as part of the planning
and commitment process. Te organization previously used spending as the key measure; recently,
however, the organization has also begun requiring business managers to estimate future operating
incomes. In this way the business managers are forced to commit to a plan and show results against
that plan. Te organization also measures the new product/service success rate and maintains a
balanced scorecard for the innovation process.
IDENTIFYING LESSONS LEARNED AND CRITICAL SUCCESS FACTORS
Critical Success Factors for Embedding Innovation
Critical success factors for the innovation process at Air Products include the CDO and the
Innovation College. Te CDO has a vitally important role within the organization. It acts as a
prospector, developer, and incubator of new ideas from within and outside the company. Specically,
the CDO manages external investment in startups, venture funds, and institutes to generate new
opportunities. It maintains a large data-mining operation that combs the public domain continuously
for fresh ideas and approaches, and its new-business development oce begins projects that will later
be turned over to the appropriate business units for further exploitation.
Lessons Learned
Air Products lists the following lessons learned:
Change managementConcentrating on the people and change management issues is vital.
Even the greatest ideas will fail to take hold as long as the human infrastructure is not receptive.
ConsistencyPromoting creative thinking is a process that must start at the top. Maintain
consistent expectations, and the culture will begin to change.
Early senior management involvementFor ideas that are more than incremental improvements,
securing senior management support early in the process can reduce the reluctance to commit
resources and take on a risky project.
PeopleInnovation requires diferent kinds of people encouraging one another to broaden
their thinking.
BIP Gases, Integra and Party Perfect are registered trademarks of Air Products.

Boston Scientic Corporation Cardiovascular Division
B
oston Scientic Corporation (BSC) produces medical supplies used in minimally invasive
surgical procedures. Founded in 1979, the organization has grown aggressively as a result of
internal R&D eorts and more than 30 acquisitions. BSC is headquartered in the Boston area
(Natick, Mass.), and it currently operates 22 global locations with more than 28,000 employees, over
7,000 of which are situated in the greater Minneapolis area (the location involved in this site visit).
Te organization distributes its more than 15,000 products, which are used to diagnose and treat
conditions in a wide variety of medial elds, to physicians and medical centers throughout the world.
Although BSC began with a mechanical orientation, its products have evolved and focus has
shifted to chemical engineering and electronics. In its quest for innovative ideas to incorporate in
future medical technologies, the organization is pursuing mechanical, electrical, chemical, gene
therapy, nanotechnology, and molecular applications. BSC facilitates its innovation goals by spending
between 8 percent and 10 percent of sales on R&D.
BSC focuses on improving the quality of patient care and the productivity of health care delivery.
At the time of the site visit, four of the organizations primary business unitscardiovascular,
endosurgery, neuromodulation, and cardiac rhythm managementare concentrating on the
development of innovative products for less invasive medicine.
Boston Scientic has been recognized for its work in operations, its patent portfolio, its facilities
innovations, and project management. In operations, it was a winner of the 2005 Shingo Prize for
Excellence in Manufacturing and the 2005 IndustryWeek Best Plants awards. Te organization has
developed and acquired a strong patent portfolio, which is a meaningful advantage in its industry.
In addition, BSC received Leadership in Energy and Environmental Design (LEED) certication for
its Weaver Lake III facility; the enterprise has found that constructing green buildings helps with
employee recruiting, and it plans to strive for LEED standards in all new buildings. Another major
focus for BSC is excellence in project management, and its TAXUS drug eluting stent was named
2004 Project of the Year by the Minnesota chapter of the Project Management Institute (PMI).
Cardiovascular products, which are used in procedures that aect the heart and systems carrying
blood, are strategically important to BSC, accounting for about 80 percent of sales. Tis case study
focuses on innovation in the R&D organization in BSCs cardiovascular division. Te cardiovascular
division R&D team targets bringing new and better products to market to address cardiac diseases.
Boston Scientic Corporation
Cardiovascular Division
Defining Innovation
Boston Scientic takes a broad view of innovation, including operations, management, strategic
acquisitions, and R&D under the innovation umbrella. Te organization stresses the importance
of innovation enablers, and it places greater focus on innovations in enabling technologies than on
product innovations.
Innovation Strategy
BSCs innovation strategy has been driven by various diverse factors. When BSC acquired a new
chief technology ocer (CTO), he realized that the organization needed to pare down its portfolio
of potential new products and technologies and cultivate a more focused approach to innovation.
Another factor driving change was higher hurdles and costs as products have become more complex.
At the same time, the enterprises rapid expansion resulted in increased regulatory scrutiny, making
the development of clearly documented systems essential. As these issues moved upstream, BSC
recognized the need to impose structure on disjointed eorts. Some failures made it apparent that
the organization had to improve its long-term planning processes in the areas of technology and
product development.
Te convergence of these factors led BSC to create a comprehensive strategy for embedding
innovation within the organization. Te strategy focused on:
leadership team infuence,
introduction of the TDP (technology development process) and PDP (product development
process) stage-gate processes, and
dedicated resources for innovation.
Innovation Process
Boston Scientics innovation process consists of three stages.
1. IdentificationTis stage begins with uncovering unmet customer needs. BSC has improved its
ability to pinpoint these unmet customer needs by developing a Design for Six Sigma (DFSS)
project for obtaining high-quality customer input data. Te next step is then an investment
assessment.
2. CreationTis stage includes internal development or outside acquisition for investments that
pass through the previous stage. Te external acquisition of a license or company is led by the new
business development group, and internal development is conducted by R&D.
3. RefinementTis stage encompasses the organizations product development process. By this
stage, innovation has been translated into a specic project.
Te investment assessment step is critical to the success of BSCs innovation eorts. Te
evaluation of each potential opportunity starts with an assessment, which involves obtaining input
from multiple players: the R&D/applied research group, new business development, existing business
franchise leaders, the business planning group, legal, and clinical. Given how many internal groups
are involved, keeping the strategic investment assessment process ecient is a challenge; however,
BSC addresses this problem by designating a champion who is charged with gathering resources and
moving the project to the next level.
Te investment assessment process starts small: BSC runs an initial market assessment, calculates
net present value (NPV), and then decides whether it wants to pursue the opportunity further.
Tis initial assessment takes about a month. Once the organization decides to take on a particular
investment, it brings in additional resources and develops a broader cross-functional team to conduct
a deeper assessment. At that point, the opportunity percolates up through the business planning group
and the business management group.
To evaluate potential investments, BSC determines whether an opportunity meets the
following criteria.
Might it lead to products or procedures that are less invasive (to the patient)?
Will it serve BSCs customer base?
Does it target a new disease state opportunity?
Does it bring an innovative approach to an existing market?
What is the size of the opportunity (measured in terms of prevalence in the population for
earlier stage opportunities and units/revenue for later stage opportunities)?
Is it a good ft with SBCs existing core competencies (including R&D, operations,
sales, marketing)?
How risky is this opportunity?
Innovation and Technology Road Maps
BSCs innovation processes have evolved over time. Following the creation of a separate
technology development process in 1999, the organization implemented prioritization models for
R&D activities. During 2002 and 2003, basic connections began to be established between customer
needs and R&D activities; later, BSC performed more detailed mapping of these connections.
From 2005 to 2006, the organization focused on integrating technology road maps into its portfolio
planning process. Te target for 2007 and beyond is to conduct novel technology mapping
(a process that is described later in this section).
BSCs chief technology ocer championed the implementation of technology road mapping
activities. At his urging, BSC decided to leverage both in-house expertise and outside resources
(including industry best-practice contacts, academia, and consultants) in an eort to build and
maintain software solutions that could evolve with the organization. As the enterprise expands, it
creates dierent types of technology road maps. For instance, industry road maps are frequently used
as strategy tools, whereas market and product road maps are incorporated into product portfolio
planning. Te organization also generates road maps for individual technologies.
Technology road mapping has beneted BSC in numerous ways. Te mapping process:
helps to focus innovation eforts,
facilitates the connection between business strategy and innovation,
facilitates the alignment of innovation with the new product development portfolio process,
serves as a systematic and objective process for managing innovation,
ensures that all R&D activities are connected to customer needs, and
functions as a communication tool between R&D and marketing.

Figure 18 depicts Boston Scientics general model for technology road mapping and directing
innovation. To drive product-related innovation, BSC tries to determine its next product by
evaluating what will motivate the customer, predicting what competitors will do, and then
considering these factors in the context of the technologies that BSC has or needs. To answer the
question, Are we working on the right stu?is the organization creating technologies that will
help it meet its product innovation goalsBSC develops a portfolio of its technology investments.
Tis portfolio directs innovation in the organization and keeps it strategically aligned.
Figure 18
BSC Technology Road Mapping
General Model
Core
Road Mapping
Directed
Innovation
Novel
Road Mapping
Customer
Needs
Competitive
Threat
R&D
Technology
Project Portfolio
Map
Categorizing Innovation
BSC has developed a unique approach to categorizing dierent types of innovation. BSC divides
innovation into two categories: novel and core. Novel innovation, in BSCs view, includes both
breakthrough and disruptive innovation because either of them can enable fundamental changes
in the basis of competition. Te organization denes breakthrough innovations as those that close
gaps between what is available and what customers are looking to accomplish. Tese innovations
achieve order-of-magnitude improvements in product capability. By contrast, disruptive innovations
are those that bring simple, less costly, convenient solutions to customers; these innovations often
include features that are valued by new and low-end customers. Since BSC has examples of both
types of innovation, Richard Traxler, senior manager of technology planning, does not want to make
distinctions between breakthrough and disruptive innovations in BSCs road maps. He feels that
separating the two might stie overall innovation.
Instead of making distinctions between breakthrough and disruptive innovations, BSCs road
mapping process focuses on the dierences between these novel innovations and the organizations
core products. In terms of product planning horizons, core mapping helps the organization decide
how best to make platform technology investments, whereas novel mapping guides decisions about
investments in breakthrough/disruptive technology. Te core roadmap begins with what customers
want, whereas the novel roadmap begins with what customers need, coupled with an evaluation of
the size of the opportunity.
Developing the Innovation Portfolio
To manage its innovation portfolio, BSC must decide whether the organization will pursue each
of the various opportunities under consideration. Prioritizing the opportunities helps scientists and
researchers know what to focus on. BSC uses two formal oversight reviews to evaluate opportunities:
Te rst assesses whether the opportunity makes business sense in terms of the competitive threat and
business features, whereas the second looks at how the organization is chasing the opportunity
does it make technical sense?
Figure 19 illustrates the connections between BSCs technology road mapping and product
planning processes. Te inverted pyramid at the top of the gure shows how strategies are funneled
down into the new product development portfolio, and the pyramid at the bottom shows those
strategies being spread out into the execution of the portfolio. At the end of the day, BSC must balance
its entire technology portfolio with projects in new product development, core enabling technologies,
core pre-product developments, novel enabling technologies, and novel product concepts.
Figure 19
Technology Road Mapping Connection
to Product Planning
Project Management
Pipeline
Portfolio
Stage-Gate Process
PIT
Strategy
Business Strategy
Technology innovation has been vital in allowing BSC to achieve and maintain an industry
leadership position. When the cardiovascular unit looks at its worldwide market-share rankings, it is
rst or second in all its markets by key business segment. Te biggest problem facing BSC is the need
to spur innovation despite the competitive environment in which the organization operates and the
high stakes associated with new products and technologies. Too little innovation leads to stagnation
or death; too much innovation could result in a loss of focus. According to Scott Engle, director of
emerging technologies and new market development, Everyone needs to have a survivalist attitude.
BSC has encountered the following barriers and challenges in implementing its innovation
strategy and activities.
People work on what they know.
Finding organizational support for technologies that dont ft the current product profle is
a challenge.
Communication is complex, both internal/external and multi-site.
As technology becomes more complicated, the organization must strike the right balance between
employees with specic technology skills and employees who are generalists.
Implementing road mapping processes is a challenge. However, BSC stresses that this is not a
barrier: Te organization began by establishing basic links between technology and market needs,
but it now strives to standardize technology needs across business units.
Researchers and scientists have resisted the formal reviews involved in both the technology and
exploratory development processes. To counter this resistance, BSC holds these individuals
accountable to independent technical review boards and periodic management review.
Te internalization of external acquisitions can be complicated. After each acquisition, BSC has
to work with multiple groups within the acquired organization (e.g., intellectual property, quality
systems, and development systems) to transition them to BSCs systems and set expectations for
how to run various processes.
Te frst use for a new technology tends to drive its development, whereas the organization
believes it would be wiser to develop technologies with all potential users in mind.
Boston Scientic develops technology both internally and through third parties, but it does not
track statistics on the exact ratio. Te majority of new technologyparticularly for core businesses
is developed in-house. However, BSC is willing to invest in technology ideas that originate outside
the organization or to acquire competencies it does not have internally. Each business management
team (including R&D, marketing, and process development) keeps on eye on external trends and
technologies, and BSC devotes considerable resources to managing external relationships.
Once a particular investment is given the green light, it goes in one of two directions, depending
on whether the organization decides to develop the opportunity internally or via outside investment.
BSC considers the following factors in making this determination.
Cost of internal development:
o What is the actual dollar cost over time to develop the opportunity?
o What is the opportunity cost to existing business, in terms of both nite nancial resources
and impact on focus?
o How does the organization best use its nite development resources?
Market timing:
o Did BSC learn about the opportunity after others?
o What is the probability of catching up to others?
Intellectual property position (BSCs and others):
o Does BSC have a dierentiated position?
o Can it create one?
o Can BSC acquire a position?
Net present value (NPV) analysis:
o New technologies/markets are more dicult to assess, but BSC believes it is a worthwhile
exercise.
o Existing businesses are less risky and get lower discount rates. However, this creates a hurdle for
innovation, which may be riskier, and the calculations are only as good as the assumptions are.
When BSC rst acquires a new entity, it keeps the existing management in place for a period
of time until BSC learns about the acquired organization and how it runs. Someone internal to BSC
is assigned to manage the relationship and eventually aid in getting the new organizations systems
in line with Boston Scientics. A specic group in the product development area handles these
external relationships.
BSC partners for innovation with many leading R&D academic institutions, including the
University of Minnesota, Stanford University, California Institute of Technology, Te Pennsylvania
State University, the Corporate Executive Board, and the Massachusetts Institute of Technology.
Within the cardiovascular division, a number of specialized groups help the organization achieve
its innovation goals. Te director of emerging technologies and new market development works
to maintain a balance between the management of existing businesses and technology innovation
for future business. Additionally, to ensure that the organization continues to seek out new ideas,
BSC funds internal research by an applied research group, in which technology-oriented Ph.D.
researchers focus on looking outside the box. Tis group generates many innovative ideas and
concepts that eventually become products, and its eorts help inform business decisions from a
technical standpoint. If there is an idea for a new way to apply technology to treat a disease state, the
applied research group will look for either a fast failure or continue to pursue the idea. Other aspects
of innovation research are handled by the new business development group, which is charged with
looking outside the organization for new market opportunities and emerging technologies.
BSC has created an internal consulting group, the Design Systems group, to manage new
initiatives in the organization. Tis group focuses on optimizing deliverables through methodology
and tools and then embedding these tools and methodologies into the workow. Tools employed
by the Design Systems group include House of Quality, deBono (parallel and lateral thinking), and
TRIZ, as well as software such as Goldre Innovator and the Six Sigma Cockpit.
Other specialized groups in the cardiovascular division, each of which plays a role in innovation,
include:
Process developmentTis group functions as the intermediary between R&D and manufacturing.
Advanced process technologyWithin R&D, this group specializes in polymer materials,
laser processing, and product integration.
Business planning teamTis group is responsible for balancing the dierent groupings of
products and setting guidance for how much to anticipate investing in a particular business.
Portfolio planningTis group is charged with technology planning, owning the technology
development process, and project facilitation and support.
Te end result of the portfolio management process is a published portfolio list categorized into
active, planned to work on, and exploratory projects. Te portfolio planning team owns the
portfolio process, but not the data that goes into it. When the team analyzes the data, it includes
representatives from technology, marketing, marketing science, and other functions in the discussion:
Tis ensures that all departments are on the same page about what the market wants and how BSC
can meet those needs. At the time of the site visit, the cardiovascular division had 20 to 25 product
development projects underway, as well as a similar number of technology development projects.
Tese projects are divided among various business groups.
In addition to these specialized R&D groups, three primary management review boards are
involved in driving innovation.
1. Business planning teamTis team, composed of upper managers from marketing and R&D
who are known as franchise leaders, looks at franchise plans, prioritizes new opportunities,
and approves the initiation of product development projects.
2. Project investment board (PIB)Tis body reviews product development projects that are
fully staed and funded. Membership is cross-functional with all product development areas
represented by someone at a vice president level in the organization.
3. Technology project investment board (Tech PIB)Tis board reviews technology development
projects from a business perspective. Te boards analyses and recommendations are supported
by independent advice from the technical review boards, which are unique to every technology
development project. Technology review boards meet periodically to review data outputs from
the technology development teams and also conduct independent checks to conrm that the
development teams are making sound technical decisions. Membership on the technical review
boards is primarily internal to the organization, but some boards have included outside physicians,
representatives from academia, and others.
Corporate R&D is independent. It maintains its own PIB to review its projects, and the divisions
have representatives on that PIB. Corporate R&D feeds into some divisional technology development
teams, particularly for far reaching, highly advanced technology eorts.
To keep resources from being pulled from longer-term projects in favor of more immediate
projects, each R&D director receives exploratory funds that are specically allocated for early-stage
feasibility work. Spending guidelines help preserve this pool of exploratory funding, which often
precedes a full investment in a technology development project.
Another key innovation structure that BSC has created is its technology development process.
Tis process is separate from product development, and projects can be more easily killed in the
technology development process. Tis process enables BSC to pull out riskier elements and do them
up front while providing focus and technical oversight. For larger technology eorts, there is a stage-
gate process. Te outputs of this process can then be transferred to product development, further
technology development, or shelved in a knowledge management database. Tis database is designed
primarily to be a tool for product development teams to use to satisfy regulatory requirements.
Senior management is committed to innovation at BSC. At the time of the site visit, the CTO
is helping to integrate the new Guidant acquisition; however, prior to taking on that project, he had
been very involved in leading the organizations innovation eorts. At the corporate level, innovation
is owned by the R&D groups, which are tied together by the technology executive council (TEC).
All divisional and corporate R&D group vice presidents are members of this council. Te TEC meets
quarterly at dierent locations to leverage ideas across divisions, set the tone, and communicate about
what is working.
To encourage innovation, BSC emphasizes the importance of listening to internal experts as well
as seeking external ideas, which may be more ground-breaking and original. BSC tries to balance
tribal knowledge with the not-invented-here syndrome. According to Engle, in order to capture
high-quality ideas and identify areas of innovation that would solve unmet customer needs, You need
to be one with your customer. Te organization denes a customer broadly as anyone who touches
a product.
BSC relies on three activities to ensure that a sucient number of new ideas are entering its
pipeline. Te rst activity is product development, which is execution driven. Te second activity is
technology development, which helps the organization meet its needs for next-generation products.
Te third activity is exploratory development. BSC recognizes that exploratory development is going
to involve some starts and stops; therefore, the organization emphasizes learning over deliverables, and
each director is given authority to make day-to-day choices in this arena.
Rewards and recognition for innovative thinking are embedded in BSCs overall rewards system.
BSC provides bonuses for intellectual property (IP) disclosures and patents, and these monetary
incentives have succeeded in making engineers excited about innovation. Te organization also gives
enterprise-wide and local tech awards, which incorporate operations and other areas beyond R&D.
In addition, BSC has synchronized bonus systems for employees from dierent silos in cases where the
employees serve on cross-functional teams together.
Defining an Innovative Culture
To better understand its organizational culture, BSC is pilot testing a program that uses the Kirton
Adoptive Innovative (KAI) tool to generate employee innovation proles. Tis tool, which has some
correlation to Myers-Briggs, measures individuals problem-solving styles and then identies them
as either builders/adapters, innovators/pioneers, or some combination of the two. Understanding
how employees solve problems and formulate ideas is seen as a way to further embed innovation in
the organization.
As part of dening its innovation culture, BSC emphasizes each individual employees
responsibility for quality and innovation. Employees are encouraged to think of better ways to
work and to focus their quality and innovation eorts on upgrading patient care. In addition, all are
expected to memorize and embrace the organizations twelve-word quality policy: I improve the
quality of patient care and all things Boston Scientic.

Boston Scientic cites the following organizational and cultural factors as helpful in enabling
innovation to ourish.
Let your creators be creatorsdont overburden them with process.
Make sure that innovation eforts are targeted to desired opportunities, and try to avoid creating
overcomplicated solutions. (For example, NASA spent a considerable amount of money to design
a pen that would work in space, whereas the Russians simply used a pencil.)
Implement a well-defned process for elevating fndings to the senior-management and executive
levels. BSC acknowledges that it could improve how ideas bubble up from lower levels of
the organization.
BSCs mentoring network and just-in-time facilitation are examples of specic initiatives to
embed innovation in the organizational culture. Mentors, which are located in various areas of the
enterprise, are selected because they are nonbiased, good facilitators, and eective coaches.
A main objective of the mentoring program is to provide guidance and help push employees through
processes. Currently, BSC is getting so many hits for mentors on its internal Web site that it is unable
to keep up with demand.
Resource management is another mechanism that enables innovation. BSC has a project-
based culture in which full-time project managers operate in a matrix structure and teams are often
co-located. Resource planning and allocation are critical, and the organization uses internally
developed tools and targeted hiring processes to ll gaps. BSC strives to maintain a window of
12 to 18 months for resources. For larger projects, team members are often 100 percent dedicated
to a given project.
BSCs development processes also support its innovation eorts. Stage-gate processes are
enterprise-wide for product development, technology development, and clinical trial execution.
Tese processes are supported with dedicated sta, Web-based guidance, and tools and templates.
Additionally, the processes are exible, scalable, and satisfy global regulatory requirements
where necessary.
One of BSCs overarching goals is to be one with the customer. When it comes to involving
customers in innovation, BSC realizes that customers cannot tell the organization how to solve a
problem, but they are usually very vocal about the problems they would like solved. Terefore, the
marketing science department focuses on formulating decisions regarding which tools are used to
identify customer problems, motivators, and so forth. BSC employs a number of quantitative and
qualitative customer research tools to ensure that its innovation eorts correspond to customer needs
and desires.
Target customer advisory boardsBSC assembles groups of interventional cardiologists and listens
to their comments. Participants oer input such as, I wish I could do this. I have a patient who
has this problem, and I just cant do anything for him. BSC might show these customers new
product ideas to get their feedback.
Observation of user flowBSC observes how potential customers use the products, notices what
they gravitate toward, and listens to their feedback.
InterviewsBSC conducts one-on-one conversations with potential customers to analyze ease-
of-use and opportunities for new products. Te organization feels that, if its engineers were paired
with customers all the time, it would be easier to innovate.
Surveys (discrete choice)BSC employs a tool that asks potential customers questions and then
provides additional options based on their previous selections.
Boston Scientic has developed a number of tools that enable it to achieve its innovation
goals, specically in technology development. Te Customer Drivers Matrix focuses internal
product development eorts on a broad basis by examining features and drivers in the customers
language. Tis matrix provides information about why customers choose what they choose. Once
the organization has used the Customer Drivers Matrix to establish customer priorities, it then
applies its Customer Perception Matrix. Tis matrix breaks down the opportunities by technologies,
coding them in red, yellow, and green in accordance with where BSC perceives it has a competitive
advantage.
Te next step in the internal technology development process involves generating BSCs
Technology Road Map Output tool, which translates the data from customer language into R&D
language. Tis tool also places high-priority opportunities in red boxes to help leaders identify areas on
which to focus. It is critical that BSCs tool indicates whether the organization has missed a particular
opportunity: If a competitor has already secured an advantage, it is most likely not worth spending the
resources to innovate.
In 2007, BSC migrated its road mapping and portfolio planning processes from Microsoft Excel
and PowerPoint to a more sophisticated database. However, the organization emphasizes that success
does not depend on the specic tools that are used. Te key is to include all stakeholders in the
processes and to document, discuss, and gain consensus on the data and decisions.
According to Dan Kussman, the R&D manager and Design for Six Sigma (DFSS) program lead
for Design Systems, Tere are a lot of tools and methods out there. You need to make them t your
organization. BSC uses multiple innovation tools and software solutions, including innovation
trend analysis, TRIZ, House of Quality (Six Sigma cockpit software), De Bono (parallel and lateral
thinking), and Pugh Concept Select Matrix (Goldre software). All the tools can be found on the
organizations internal Web site, where employees can click on them for more information. In early
2007, about 25 percent to 35 percent of BSC employees were using the tools.
BSC is also creating knowledge bases that are corporate (e.g., patents) and personal (e.g., lessons
from conferences) to ensure that the organization retains, communicates, and transfers ideas eectively.
In terms of communicating about innovation, BSC describes its culture as open and informal.
Strategic vision and tactical project plans and results are communicated via multiple vehicles,
including:
project managers and functional managers;
e-mail;
monthly newsletters;
plasma screens that are located throughout BSC facilities to cycle through information for
employees;
quarterly all-employee meetings within R&D, which are forums for sharing strategies;
project investment board meeting minutes, which are widely distributed; and
lunch and learn sessions, at which upper management speaks, marketing shares information
gathered at trade shows, etc.
Te corporate innovations department is in charge of integrating innovation eorts across all
of BSCs dierent divisions. Consisting of eight to 10 people, this department reports to the CTO
and supports the entire corporation. Te department owns and maintains an enterprise-wide stage-
gate process, facilitates quarterly technology meetings, and coordinates technology leverage forums
that promote sharing between divisions and sites (e.g., polymers, stainless steel processing, and so
on). Additional methods by which the corporate innovations department promotes communication
include e-mail distribution lists, discussion boards, a SharePoint site, and annual live meetings.
Other communications tools related to innovation include team leader forums for the
approximately 200 product and technology team leaders, which are conducted both at the local level
and BSC-wide. Project fairs function as poster sessions where teams show their prototypes, and annual
technology forums allow employees to give technical presentations on their projects. Te applied
research group also facilitates a journal club that reads relevant industry journals; the club assigns
topics to its members, who then present the topics to the rest of their departments.
R&D and marketing also collaborate in several ways to drive innovation at BSC. Both functions
are members of the business planning team, and the Tech PIB is co-led by the R&D vice president
and the marketing vice president.
Innovation Metrics
BSC does not explicitly track any measures that it identies as specic to innovation. Instead,
metrics that indicate the organizations health in this area are tied into its overall business
measurement system. BSC currently has anecdotal evidence that employees are using its innovation-
specic tools, although more conclusive proof will not be available until the organization nishes pilot
testing the tools in three locations. Early success stories lead BSC to think that using the tools should
become a core competency in certain areas. Te ultimate goal is to fully integrate the innovation tools
into the way the enterprise does business.
BSCs cardiovascular division cites the following success factors for its innovation eorts.
Scalability of the process and the toolsAll of BSCs innovation tools were developed internally,
allowing the organization to build in additional complexity as needed. BSC has experienced
success rolling out the tools in a phased manner, rather than all at once.
Senior management supportTe CTO helps drive innovation and backs up the teams. He does
not focus on the details, but he sets the vision and ensures that employees get the support
they need.
Empowering team leaders to make key decisionsBecause BSC is a very matrixed organization
between functional and project management, teams feel like cohesive groups with clear goals
and scopes.
Strategy alignmentFranchise strategies are tied to the overall business strategy, as well as to
technology strategies that evolve over time.
Technical review boardsTese boards enable focused technical experts to guide the teams and
help ensure the integrity of the data and the decisions being made. Serving on the boards is also
a nice professional development role for employees, allowing them to be recognized for their
technical competence.
Continuous process improvementBSC started with simple tools, such as Microsoft Excel and
PowerPoint; in the beginning, focus was limited to documenting information and ensuring that
all employees were on the same page. As the processes have evolved, BSC has implemented more
robust systems.
Learnings/Key Advice
BSC oers the following lessons learned and advice for others seeking to embed innovation.
Innovation cannot be counted on to happen spontaneously; it must be managed and directed.
Road mapping is the foundation of an innovation plan.
Ensure that the overall strategy is clear and widely understood (i.e., lead, maintain, or invest in
new technologies).
Structures, roles, and communication are the frameworkbut not necessarily the driversof
innovation in the organization.
Te senior manager of technology planning oers these additional lessons learned:
Answers are not in a mathematical model or map.
When obtaining input, it is important to acquire the largest sample possible.
Keep it simple.
Implement a formal review process.
Have ownerseveryone should be responsible for a portion of the process.
Designate a neutral facilitator.
Know when the system is being gamed.
Tools need to be scaleable to evolve with the organizations maturity and decision-making levels.
Future Plans for Innovation
BSC is targeting the following areas for future work in innovation:
Technology portfolio balanceIn looking at the division between core and novel innovation,
BSC wants to increase the amount of novel innovations. However, the organization recognizes
that the ideal balance varies depending on the particular market/franchise and on whether BSC is
trying to lead, maintain, or compete in that area.
Road map communication toolsBSC is streamlining its process and communication tools.
After looking at all externally available tools, the organization decided to keep it in-house and use
internally developed tools.
Defning metrics for innovationBSC is examining the measures and metrics that other
organizations are using and is setting targets for itself.
Improving innovation efciency and cost of executionBSC strives for continuous improvement
in these areas.
Te future of BSCs innovation portfolio process involves including risk/readiness in the model
and making the tool easier to use.
W
ith $100 between them, Fletcher Jones and Roy Nutt founded Computer Sciences
Corporation (CSC) in 1959 to develop operating systems for the emerging computer industry.
Te organization quickly grew on the strength of its software and a few wise acquisitions to become
one of the largest independent computer services rms and the rst software company to go public.
Today, CSC is a worldwide organization with more than 400 locations, close to 80,000
employees, and revenues approaching $15 billion. Te organization has continued to rene and
reexamine its focus throughout the last several decades. CSC has signicant U.S. government
contracts and is a major systems integration, consulting, and outsourcing provider for
industry worldwide.
Defining Innovation
CSC denes innovation as the value added through applying creative ideas to a problem and
implementing those ideas in the marketplace. As CSC is an organization structured around bringing
solutions to its clients, innovation may take numerous forms including product, service, and business
model innovation.
CSC is a largely decentralized organization with 28 business units. Inside each of these business
units exist resources and manpower committed to innovation. However, the Oce of Innovation is
the main vehicle for the promotion and implementation of innovative practices and processes. Tis
oce develops and administers organization-wide innovation programs and works with business units
and individual employees on their innovation agendas.
Figure 20, page 122, provides a high-level overview of the structure of the Oce of Innovation.
Te Leading Edge Forum (LEF) is a component of the Oce of Innovation. Te LEF comprises a
business and management area and an applied technology area. Te LEF assists CSC business units
with idea generation, and many of the organizations internal innovation programs are directed by
the LEF. Te custom research component of the oce acts as an internal research organization,
monitoring the industry for trends and conducting commissioned research. Global alliances is
responsible for relationships with outside providers, which go beyond the simple procurement
handled by a dierent arm of the organization. Global solutions is a program oce for the
development and packaging of solutions for clients. Underlying these components is the knowledge
enablement component, which embeds knowledge management processes throughout the Oce
of Innovation. Knowledge enablement supports the hundreds of employee-led subject-based
communities and fosters the development of collaboration and knowledge management practices.
Reporting to the chief operating ocer, the Oce of Innovation was created in 2005 as a way
to bring existing innovation ideas and programs under one umbrella. Te Oce has a core group
that is corporately funded and supports the client-facing business units of CSC. Te Oce took this
structure in order to gain greater buy-in from the business units; by not competing for client dollars
and face-time with the business units, the oce ensures that it is accepted and used by the rest of
the organization.
Te organization does not fund innovation activities dierently depending on the type of
innovation, whether radical or incremental. Instead, innovation is funded through the global solutions
oce according to a deliberate/emerging innovation model. Deliberate innovations are those projects
that are planned for in advance; emerging innovation receives separate funding that is allocated in
advance with the expectation that promising ideas will present themselves throughout the budget
cycle. Deliberate innovations receive approximately 80 percent of the development funding pool.
Figure 20
The Ofce of Innvovation
Idea
Generation
Client and
CSC Innovation
Solution
Development
Lead Edge Forum
Management
Agenda
Technology
Agenda
Custom
Research
Global
Alliances
Global
Solutions
Fostering a
community
of thoughtful
executives and
academic thought
leaders around
new ideas and best
practices in business
and IT
Providing CSC points
of view on business/
IT management
issues
Providing
external input to
CSCs marketing
and solutions
development
Exploring leading-
edge technologies
and trends that
affect our clients
business
Providing CSC
points of view on
technologies
Stimulating
innovation within
both CSC and clients
cultures
Developing CSCs
technologists
Promoting and
certifying Centers of
Excellence
Providing custom
competitive, industry,
and market analysis
service both for
external clients and
internal use
Providing access
to subject matter
experts across the
whole of CSC
Connecting
employees to
CSCs knowledge,
research, and
offerings
Establishing go-to-
market partnerships
Establishing
partnerships with
leading technology
companies around
the world
Working with
industry partners
to develop joint
solutions that solve
clients problems
Managing CSCs
service-offering
development life
cycle worldwide
Coordinating
communications
that position CSCs
service offerings for
market success
Working across CSC
to bring benet to
clients from all of the
companys global
capabilities
Knowledge Enablement
CSC is investigating an additional model of innovation funding that is based on entrepreneurial
practices. Recognizing that some developments may not be able to progress fully in a traditionally
allocated xed-funding scheme like the deliberate/emerging model, the organization is allowing an
internal innovator to pitch development projects to the business units for funding and resources. With
this model, employee-entrepreneurs will be able to fund their ideas as well as reserve a portion of the
funding to invest in additional innovations.
For those ideas that are not funded by any of the models or are otherwise rejected, the organization
saves the proposals and makes them available enterprise-wide for possible inclusion in future projects.
Innovation Strategy
CSCs written innovation strategy is in alignment with its overall strategic goals. Te strategy
provides operational guidelines for the Oce of Innovation and suggestions for how business units
can include innovation practices in their services for clients. Adherence to that strategy is largely
determined by an innovation balanced scorecard that is reported to senior executives. CSC builds its
solution road maps upon technology road maps from the organizations suppliers.
CSC cites as an enabler of its innovation agenda its senior management support, particularly in
the allocation of funding and resources to the Oce of Innovation. Te Oce of Innovation, with its
Leading Edge Forum, custom research, global solutions, global alliances, and knowledge enablement
components that include networks of subject matter communities and various grants and programs to
support and reward innovation, is considered vitally important.
Te organizations main challenge with the innovation agenda is CSCs decentralized structure.
Rolling out a process or solution from the Oce of Innovation can be slowed by a culture in which
business units are reticent to adopt ideas that arise from outside the division.
One of the ways that CSC is attempting to counteract the not-invented-here attitude is through
its account innovation program (AIP), which involves both a business unit and its client in developing
custom solutions, thereby promoting business-unit adoption of the Oce of Innovations resources.
As stated earlier, the oce does this strictly as a support mechanism and does not command any of the
business units remuneration.
AIP consists of three levels corresponding to the clients level of involvement with the creation
and modication of CSCs innovation agenda. CSCs goal is to involve all clients with the Oce
of Innovation at least at the baseline level, innovation catalyst. At the level of innovation
collaborator, the oce begins to work in partnership with clients and business units to develop
innovation opportunities. Tese opportunities are to be based around the clients denition of
innovation and its specic needs for innovationwhether incremental or radical.
For the role of innovation incubatora role that CSC sees only a handful of clients adopting
the collaboration with the client deepens. In addition, an innovation center may be established in
concert with the client. An innovation center is a physical facility with a brieng center, an innovation
showcase, and a small prototype lab. Te facilities are a kind of intellectual property joint venture that
CSC maintains with select clients. Both parties invest and then are able to take the results back to
their organizations.
Another challenge to the agenda of the Oce of Innovation springs from senior management.
As a publicly traded company, CSC is concerned with quarterly results, and achieving expected results
can appear to conict with innovation programs, which frequently have timeframes of several years
rather than several months. Te Oce of Innovation has created several simulation models to show
the potential payo from innovation investment in order to stress to senior management the need to
continue allocating resources toward innovation. As data is collected against innovation deployment,
these models will be ne-tuned to further support decision making and budget decisions.
CSC counts as stakeholders in its innovation program, the Oce of Innovation, other employees,
clients, and suppliers. In order to involve these stakeholders, the Oce of Innovation uses dierent
methods depending on the relationship. For employees, the oce uses various grants and reward
programs (described later) and knowledge sharing communities. For suppliers, the oce relies on its
alliances function. As stated earlier, the alliances function works with major product manufactures
such as IBM, Sun, and Oracle. Te alliances function manages the relationships that CSC has with
these providers and is not responsible for procurement. Te global alliances group works with alliance
partners to strategize go-to-market approaches and look for opportunities to collaborate on new
solutions. For clients there is the previously described AIP.
Te organization also forms alliances with other organizations besides providers. CSC is currently
rolling out an alliance with a number of universities and institutes in India. Known as Pragyan
(Supreme Knowledge) a type of COIN (Collaborative Open Innovation Network), CSC is partnering
with Sourceforge to share intellectual property with approximately 75 universities and 3,000 students
in Indias Andhra Pradesh. CSC will gain access to student and university ideas and work by sharing
its intellectual property.
As stated earlier, CSC points to the creation of the Oce of Innovation as a primary example of
senior management commitment to embedding innovation. Senior management, with this decision,
rearranged existing functions and created a new oce because it felt that innovation deserved
greater focus.
Te Oce of Innovation is working to retain senior management commitment by keeping the
core oce headcount low and by maintaining a support function in order to reduce conict with
other business units. Te oce is also seeking to prove its value through its global solutions function
as a method of leveraging innovative ideas from the oce itself, and from other business units, and
deploying them throughout the rest of CSC.
Te Oce of Innovation uses a number of methods to capture innovative ideas. Tese include the
knowledge communities, grants programs, and the Request for Assistance (RFA) database.
Knowledge communities are subject-oriented virtual meeting places for employees across the
enterprise. Membership is largely voluntary and employees are free to join communities outside of
their job sphere. Within CSC there are hundreds of communities, of these 100 to 200 are considered
active. Tere are also a number of key communities. Tese key communitiesin areas such as system
architecture, project management, business development, or account managementare considered
especially important, and they receive additional corporate funding and sponsorship in the form of
personnel who are assigned to maintain the communities. Members of these key communities are
expected to participate as part of their responsibilities.
Te organization also runs a number of grants programs. Proposals and ideas from employees are
reviewed, and the winners receive the funding and time to pursue their ideas. Later, they prepare a
presentation of their ndings, and some ideas are allowed to proceed to further development.
Te Request for Assistance (RFA) database is the organizations most accessed database. Existing
in some form or another for decades, the RFA allows all employees to post questions, receive answers,
and review archived responses for solutions. Tese answers come from other interested employees and
not a sta specically dedicated to the RFA database. Bill Ko, vice president and chief technology
ocer for the Oce of Innovation, states that the RFA is highly successful and that answers are
usually received in 24-48 hours. He points to an example where a user in Germany was able to
identify an exact, already deployed solution to his issue, and resources to implement that solution
from Australia. Te organization also publishes an e-zine to further support and encourage the
use of the RFA database. Sent to about 10,000 subscribers, the e-zine provides digests of recent RFA
conversations as well as posts of questions that have gone unresolved. Each of these methods has
personnel assigned to monitor them. Ideas that warrant further development may be pursued by
global solutions.
One of the main functions of the Oce of Innovation is to administer several innovation award
programs. Similar to other organizations, the Oce of Innovation does this in order to not only
reward employees for creative ideas and accomplishments but also to inspire other employees to make
creative leaps and experiment.
Te main innovation award is CSCs award for technical excellence. Awarded enterprise-wide
since 1989similar awards exist for the individual business unitsthis award has tremendous
importance inside of CSC. Te award is mainly given to individuals but small teamsno more
than ve or so membersare also eligible. Nominations for the award are collected from across the
organization. Tey are then ltered by the chief technologists for each of CSCs 28 business units
before nalists and winners are chosen by the oce in consultation with several hundred adjudicators.
Winners of the award are proled at awards ceremonies and other events as well as CSCs Web
site. In addition, winners are also detailed in the weekly Oce of Innovation Webcasts, which are
available to all employees.
Te oce also conducts annual call-for-papers events, in which employees and clients submit
papers on technological or management issues for recognition. Te organization states that the CSC
Papers Program produces some surprising results, as there are ideas oating around the company in
odd places.
Similar to CSCs client-centered denition of innovation, the organization denes an innovative
culture as one that is constantly learning and applying what is learned to develop new solutions for
clients. CSC has put in place several cultural enablers to drive innovation growth and deliver new
solutions to clients. Te organizationthrough the use of awards such as the award for technical
excellence, grants, and the Oce of Innovationis attempting to signal to its employees that
innovation is desired and needed within CSC.
Part of this eort is encouraging a certain amount of risk taking with the organization. Te
organization has created several entities to this end. Te innovation center, a physical space created
in concert with key clients, is one example. As previously described, the ve innovation centers
house a brieng center and prototype lab in order for clients and CSC employees to work together
on innovative solutions. CSC, through the Innovation Oce, has also established several centers of
excellence. Like the innovation centers, there are real physical spaces that concentrate deeply on one
core subject or area. Here experimentation is explicitly called for and encouraged. Te grants program
also serves a similar purpose, rewarding and encouraging employees to take risks in their work.
Ideas or projects that do not yield the desired results are not permanently discarded. Te
organization shelves those projects and makes the data available to others. Te idea is to grow the
amount of source data available for future research and development. In the future, a new developer
may be able to fashion a new opportunity from a failed one or a shelved opportunity may be made
successful with fresh insight.
Te organization is also encouraging continuous learning about innovation. Te Global Learning
Development Management (GLDM), a corporate-wide body, is partnering with the Oce of
Innovation to encourage exploration of innovation courses and books. Te GLDM currently oers
hundreds of online courses and books. Measures of employee progress in these courses and time
reading online books are reported to senior management.
CSC cites its decentralized structure and emphasis on regular quarterly nancial results as the
primary cultural aspects hindering the embedding of innovation. CSCs structure is described as
a federation by Oce of Innovation Vice President and Chief Technology Ocer Bill Ko.
Te Oce of Innovation believes this structure helps with the dissemination of innovative ideas as
employees feel free to work with others, but has slowed the adoption of innovative ideas, as many
business units seek to put in place only those ideas that have originated within their four walls.
Technical Enablers to Embed innovation
To embed innovation, the organization relies on several technical enablers and software tools.
Te primary tools are portal applications such as WebSphere for the above-described innovation
portal and the knowledge community pages. Oce suite tools such as Lotus Notes are used for e-mail,
the RFA database, and calendaring; Microsoft oce tools are used for general desktop solutions,
and Sametime is used for instant messaging and Web conferencing. CSC is also experimenting with
various ideation and collaboration tools that it hopes to integrate in the near future.
Te Oce of Innovation makes use of several methods to communicate its innovation agenda.
Te LEF uses its weekly Web conference series to highlight numerous innovation activities. Winners
of grants and the award for technical excellence and members of centers of excellence are continuously
invited to relate their activities and stories to a wider CSC audience. Te LEF also invites venture
capital partners and startup rms to make presentations as well. Te LEF does this not in the context
of an investment, but to inform employees of developments of interest that are occurring in the
wider industry.
Te oce also conducts an annual Technology and Business Solutions Conference. Te event is
global in nature and approximately 1,000 people attend, including both employees and clients. Te
three-day event is held to examine recent developments, both poor and excellent, and best practices.
Events such as this also serve as face-to-face meeting points for the knowledge communities, further
strengthening the working relationship among community members.
Other communication vehicles include the knowledge-sharing communities. Tese communities,
in addition to fostering conversations among members, also serve as dissemination points for the
Oce of Innovation. Added to this are numerous briengs and newsletters.
CSC uses a variety of methods to manage change, including Lean, Six Sigma, an internal
methodology (Catalyst), and the AIM methodology for accelerating change implementation.
CSC also cites that its knowledge management program, including communities, acted as a
change management program that established a foundation for innovation to be embedded in the
organization. Additionally, the establishing of an Oce of Innovation also facilitated change by
allowing for greater collaboration between related functions and the development of new ideas for
moving innovation forward.
To implement change with regard to innovation, CSC cites the following as the key
contributing factors:
establishment of Ofce of Innovation to focus innovation activities,
alignment of Ofce of Innovation objectives with business strategy,
development of mechanisms for ongoing communication of innovation successes and new
solutions,
establishment of innovation centers and innovation programs at the local level to focus on specifc
needs of business units and their clients, and
continuous focus and support on key knowledge sharing communities to develop core
competencies and share ideas across the organization.
Te Oce has no formal training apparatus specically for innovation. Instead the Innovation
Oce partners with the GLDM to oer training to interested employees. Introducing the wider CSC
employee population to the innovation oce is also accomplished by the LEFs rotation program.
Tis program pulls in employees from the eld and places them in the LEF for about six months.
Associates in the program work with the LEF on standard reports and activities. Te employees then
return to their business units and take back with them a wider view of CSC and how the oce can
help their business unit.
Innovation Metrics
As stated earlier, the organization maintains a balanced scorecard of innovation metrics.
Tis balanced scorecard is dierent from the overall organization balanced scorecard but aligns with
the business goals.
Te scorecard was introduced three years ago and results are reported to senior management
on a quarterly basis, and the measures are also subject to periodic review by leadership. Te
organization also administers a yearly anonymous employee survey. Part of the voluntary survey asks
all employees for their opinions on current innovation programs and overall employee engagement
in the organization. In the last survey, the organization received answers from approximately 10
percent of the employee population in about nine days. Te organization is also reporting this survey
information to employees, drilled down to exact questions with data for the various divisions.
CSC lists as their critical success factors for embedding innovation:
Continued management support for emphasis activities through the Ofce of Innovation
Additional emphasis on collaboration across the organization seen in the global solutions ofce,
AIP, and through participation in communities
Continued support for experiments though the use of spaces where experimentation is
encouraged, which includes innovation centers, centers of excellence, and grants programs
Alliances to develop new opportunities such as Pragyan, which currently involves thousands of
students, and several universities.
Learnings/Key Advice
CSCs key advice to help embed innovation is a continued emphasis on communication and
experimentation. Te Oce of Innovation recommends bodies similar to their communities,
which allow employees to share information and oat trial balloons. Communities, in addition to
information sharing, foster the creation of a collaborative culture across regional and business unit
lines. Experimentation is also vital; activities such as Pragyan and the grants program are thought of
as opportunities to experiment. Additionally, the oce stresses the need to give innovation activities
sucient time to take root.
Future Plans for Innovation
In the future, the Oce of Innovation expects to further entwine innovation with business
processes in order for the business units to develop creative new solutions for clients. Te oce
seeks also to establish a more formal measurement process to be backed with more in-depth
simulation models.
E
thicon Endo-Surgery, a Johnson & Johnson subsidiary, makes surgical devices and equipment
for general and minimally invasive procedures. Its products include endoscopic tools; breast
biopsy systems; and the harmonic scalpel, which minimizes damage but using ultrasonic technology
to cut and coagulate tissue during surgery. Te organization also operates the Endo-Surgery Institute,
an educational facility in Cincinnati, as well as additional training centers in Germany and Japan.
Ethicon Endo-Surgery markets its products worldwide.
Johnson & Johnson is divided into three sectors: pharmaceutical, consumer, and medical device
and diagnostic (MD&D). While Ethicon Endo-Surgery is one of approximately 200 Johnson &
Johnson companies, it plays a signicant role in the MD&D sector. Te organization, an expansion
of Johnson & Johnsons Ethicon division, was founded in 1992 to develop and market minimally
invasive surgical devices and procedures. In addition to the approximately 1,400 employees at the
Cincinnati headquarters, Ethicon Endo-Surgery has a growing presence in China and India.
Ethicon Endo-Surgery describes its overall mission as enabling surgical options that make a
dierence via:
earlier detection and treatment,
reduced pain and anxiety,
quicker return to normal activity, and
greater access to care.
Te organization points to the Johnson & Johnson Credo as the underlying philosophy of the
organization. Written in 1942, the credo stresses the organizations responsibility to its customers,
employees, community, and stockholders. Ethicon Endo-Surgery is proud to note that most
employees are well-versed in these principles and can explain how the credo aects their work.
An excerpt follows:
We believe our rst responsibility is to the doctors, nurses and patients,
to mothers and fathers and all others who use our products and services.
In meeting their needs everything we do must be of high quality.
We must constantly strive to reduce our costs
in order to maintain reasonable prices.
Customers orders must be serviced promptly and accurately.
Our suppliers and distributors must have an opportunity
to make a fair prot.
Ethicon Endo-Surgery notes that its story of transforming patient care has been one of change.
Te organization rst focused on developing products for the marketplace (market follower). By
developing new technologies, it was able to become an industry leader. Te organization became a
market innovator by developing both new technologies and new marketplaces.
Ethicon End-Surgery is organized around technology platforms and leverages those technologies
to address important diseases and conditions. In addition to the harmonic scalpel, products include
mechanical devices, such as the circular stapler; endocutters, which enable the transection of tissue;
the gastric band, used in weight loss surgery; endoscopic tools, which provide access to the abdominal
cavity; and the Mammotome system, which provides a less invasive method for breast biopsies.
Ethicon Endo-Surgery notes that not only is it currently the share leader in the market, it also has
more than 800 patents. Te organization is proud of its achievements in other areas as well:
Community leadershipTe organization notes that it is among the top ve donors to the United
Way in the Cincinnati area and that it participates in various types of community work.
Recognition for innovationTe organization is the recipient of numerous medical design awards,
and each year it distributes internal awards to teams whose ideas lead to patents and other
excellent work.
Process excellenceEthicon Endo-Surgery uses processes such as Six Sigma in its product
development process.
PeopleTe organization highly values its people and strongly believes in people development.
Defining Innovation
Ethicon Endo-Surgery denes innovation as a customer-valued solution for a customer-
recognized problem. Innovation is a central focus of the organizations vision statement,
Transforming patient care through innovation, And is considered part of every employees job.
While there is no separate department for innovation, two divisions are primarily responsible for
innovation: franchise development (FD) and product development (R&D). FD is charged with
developing new growth platforms, co-inventions, and early acquisitions, while the R&D division
oversees product development, commercialization, and existing-platform development. Each of these
divisions is governed by a worldwide vice president.
As one of the two groups largely responsible for innovation, FD focuses on new technologies, new
growth platforms, and new disease states. In the 1990s, senior leadership at Ethicon Endo-Surgery
commissioned a study of the sources of rst-market innovations. Once the organization identied
these innovators, it engaged a third party to benchmark these inventors development processes.
As a result, the organization discovered that, in top-performing organizations, the vast majority of
innovations originated from startup operations, which were commissioned as larger organizations
once the innovations were proven successful. To cultivate this idea-rich environment within its own
enterprise, Ethicon Endo-Surgery developed an atmosphere that aligned innovations with the overall
business strategy. While R&D continued traditional current-market development, FD was created to
encourage next-market thinking.
Te resulting structure is a pipeline management process, governed by Vice President of R&D
John Carlson, in which FD and R&D own specic phases of the product development process. Tis
process starts with idea inception and continues through to six months post-launch. Te front end of
the process focuses on concept development, for which FD uses a model they describe as a spiral. In
this model, a review is conducted after the completion of each revolution to determine the need for
more resources. , After the project passes through the stages of the front-end development process, it is
then handed o to R&D, where the project continues in a Six Sigma development process as it moves
through four gates for commercial development within the R&D group. Currently, there are ve
startup FD teams, totaling approximately 110 people, and 30 R&D teams, totaling approximately
230 people.
Ethicon Endo-Surgery uses a 2x2 innovation model (Figure 21) to illustrate each departments
innovation scope. Te organization also uses this model to emphasize that everyone plays a role in,
and is accountable for, innovation within the enterprise. Te model places technology/innovation
on the vertical axis and the customer on the horizontal axis, then divides these into new and current.
Quadrant 1 represents the organizations current growth platforms technology, or what is currently
in the market. Quadrants 1 and 2 are the responsibility of the R&D team. R&D ensures high
satisfaction among current customers while seeking increased market share (Quadrant 1) and also
aims to extend technologies to new markets/customers (Quadrant 2) by continually asking what more
can be done with each technology. Because Quadrant 1 is an important and less risky area for the
organization, many resources are allocated to these initiatives.
Figure 21
Innvovation Model
T
e
c
h
n
o
l
o
g
y
New
Current
3 (Franchise Development)
1 (R&D)
New Current
4 (Incubator)
2 (R&D)
Customers
Quadrant 3 involves current customers asking for new technology and requires resources primarily
from FD (and sometimes from R&D), with the objective of moving these initiatives into Quadrant 1.
Quadrant 4 is particularly challenging for the organization, since it does not involve current
customers or current technologies. Business development in this area is likened to an incubator
and involves heavy uncertainty and risk. Here, the strategy-planning teams objective is to quickly
learn about new customers and technologies in order to develop innovations that can be moved into
Quadrant 1. If the strategy-planning team discovers a potential project, it presents the idea to the
global management board and asks for resources to be allocated to development.
Ethicon Endo-Surgery stresses the importance of understanding the needs of customers before
entering new innovations or technologies into the pipeline. Te following are the four primary
stakeholders that are considered:
PatientsTe organization uses consumer advertising to engage this group.
PhysiciansEthicon Endo-Surgery uses a standard voice-of-the-customer interview to assess
the needs of physicians.
Providers or hospitals
Payors or insurance companiesAn insurance company advisory panel oers input on behalf
of the industry.
Product development resulting from innovation involves trade-os among the above four
stakeholders.
Te funding of innovation is managed within Ethicon Endo-Surgery as a business franchise of
Johnson & Johnson, which does not provide separate funding for innovation projects. All projects
have to be balanced with the business plan through portfolio management.
Innovation Strategy
Ethicon Endo-Surgery relies on the Johnson & Johnson Credo to embed innovation in the work
force because it is the driving force behind all of the organizations pursuits. Te organization also
leverages its vision statement, which stresses the importance of innovation in patient care.
Although there is no formal, documented innovation strategy at Ethicon Endo-Surgery, the
organization is developing a corporate initiative under which strategic planning processes dene
innovation objectives for business segments, which then have their own strategic innovation activities.
Strategic planning also includes the creation of technology road maps to determine future
innovation projects.
To further support innovation, the Ethicon Endo-Surgery mission has ve strategic imperatives:
solutions, stakeholders, portfolio, global, and fast/exible business processes. Te board of directors
sets these imperatives for the strategic horizon. Tese imperatives are often referred to as lenses
because they are not tasks or objectives but are a way for the organization to examine its overall
business. Identifying and collaborating with stakeholders (patients, physicians, providers, and
insurance companies) is one of these ve strategic imperatives or lenses. As an example of how its
attention to stakeholders developed, the organization cites its journey to become a market innovator.
At rst, when Ethicon Endo-Surgery was a market follower, the organization examined competitors
catalogs and aimed to improve upon their products. As it evolved into a market leader, the
organization developed products superior to those of competitors. Shifting its focus to discovering the
next innovative technology transformed the organization into a market creator. During this journey,
the organization evolved from striving to understand its competitors, to understanding its customers,
to anticipating its customers future needs. Ethicon Endo-Surgery notes that the interests of these
stakeholders are now taken into consideration during all decision making.
Getting close to customers is of particular importance at Ethicon Endo-Surgery. Te Ethicon
Institute hosts numerous training sessions for customers such as surgeons. Te organization will often
send engineers and development teams to visit with customers during these sessions, and engineers
nd talking with surgeons about their needs to be a very valuable experience.
Alliances
Regarding alliances to foster innovation, Ethicon Endo-Surgery values open innovation and
is seeking to further develop this area of opportunity. Te organization also participates in some
consortium work, mainly physiological research, with universities.
One of the challenges of open innovation in partnerships and alliances is determining ownership
of intellectual property. Many partnership contracts can take up to six months to nalize, and partners
often want the majority of the royalties. Terefore, Ethicon Endo-Surgery prefers to collaborate with
universities and research rms that already have a patent led so the partners can enter into a mutually
agreeable co-development arrangement.
Another example of the open innovation model is the methodology for early business develop-
ment activity. Tis refers to the organizations active role in data mining, secondary research, and
looking for and understanding new growth opportunities.
Roles to Support Innovation
On the front end, Ethicon Endo-Surgerys innovation support structure includes business unit
leadership teams. Tese teams, comprising the FD director, R&D director, marketing director, and
operations director, own the strategies for the pipeline of products related to a specic technology
or disease. Business unit leadership teams are responsible for engaging employees in that unit.
For example, an obesity team that works on gastric banding shares both FD and R&D resources
and examines opportunities for growth. On the commercial side of the innovation process,
governance comes from a sponsor team comprising operations directors as well as marketing
and R&D representatives.
Various councils also support innovation. For example, the R&D council at the Johnson
& Johnson corporate level meets periodically to discuss innovation. Tis council comprises vice
presidents of various operating companies. Another council is the proactive technology development
council, which meets with the strategic partners to set direction for manufacturing technologies.
Ethicon Endo-Surgery rates its senior leadership as extremely engaged in driving innovation
throughout the organization. Innovation is a regular subject during meetings of the board of directors,
and board members actively participate in monthly stage review meetings, during which a portion
of time is dedicated to the discussion of innovation and other front-end issues. Senior leaders visibly
support rewards and recognition programs that encourage creative thinking among employees,
management, suppliers, and customers.
Ethicon Endo-Surgery uses a number of methods to capture new and innovative ideas. One
method is ethnographic research, which involves learning by observation. For example, the FD and
R&D teams observe surgical procedures to learn how they might be improved through new products
or technologies. Tese teams have also visited seemingly unrelated venues, such as hardware stores, to
study how other tools are designed and nd inspiration for their own projects.
Another ideation tool is the Idea Center, a Web site that allows both outside parties and internal
inventors to submit ideas. Te organization also uses cross-functional teams, with representation
from FD and R&D and facilitation by Six Sigma Black Belts, to brainstorm and review proposed
product ideas.
Te FD group also uses guides to evaluate opportunities. Tese guides are called the Black Book
and the White Book. Tese play books provide examples of best practices in past innovations. Te
Black Book is a high-level overview of why innovation is important, while the White Book details how
to grow a technology platform into a business and the steps for nding and evaluating new ideas.
Additionally, the organization sponsors competitions and events during which employees work
in teams to generate solutions for a given problem. Te ideas resulting from these events could spark
further research and development. More details on these events are discussed in the following section.
At Ethicon Endo-Surgery, both individuals and teams can receive rewards and recognition for
innovative thinking. Te FD group notes, however, that even though it receives good recognition, the
true reward is the opportunity to save lives, and other types of rewards do not truly drive behavior.
In addition to participating in idea-generating events and competitions, employees can also
receive recognition by earning a spot on the organizations wall of fame. Tis form of recognition is
available for all career levels across the organization, and it is used to recognize engineers and inventors
who have received multiple patents. Tis wall is placed in a highly visible location within the product
development area and has the pictures and names of the honorees. Inventors and engineers receive
monetary rewards for patents submitted and patents issued. Many engineers have the opportunity to
supplement their incomes by 25 percent to 40 percent.
Ethicon Endo-Surgery cites its credo as the primary driver of innovation within the organization
because it obligates each employee to be innovative. For example, FD employs a cross-functional
culture team is to embed the credo within the organization and in its stakeholders. Te culture team
coordinates many team-building exercises and events.
One such event is the Invent-a-thon, In which members of the FD team participate in
brainstorming sessions to nd a solution for a given problem. In the past, these events have generated
as many as 30 executable ideas.
Another event that fosters innovation, teamwork, and creativity is Te Battle of the
Masterminds. Tis is an organized, annual competitive event in which teams of employees
collaborate to solve a dened problem not necessarily related to the medical device industry.
Invent-O-Rama events invite customers to participate in idea-generating sessions and join
employees in innovative thinking activities. Tis event lasts between two to ve days, and at its
conclusion, teams bring prototypes back to the customers for testing. Te prototypes can then be
transferred to a team that will continue development in the relevant space.
Te common themes of these events, according to the organization, are that senior leadership
allows employees to experiment, create an innovation environment where it is safe to fail (and better
to fail fast), stimulate a learning environment, and have fun. Failure is not considered a negative
outcome; recovery from failure is also a success.
In addition to team-building events, Ethicon Endo-Surgery stresses the importance of a working
environment that encourages innovation. Te organization worked with external consultants to
design a space within the FD organization that would stimulate creative thinking. Te result is an
open space that has the feel of a warehouse, with fewer walls and less structure. Tis open-team design
is being replicated for the R&D group.
According to Ethicon Endo-Surgery, hiring the right people is another critical element of
successfully embedding innovation into the organization. When hiring, the organization does not
evaluate only the technical or functional capabilities of a candidate; more than 50 percent of the
hiring criteria focus on people/leadership skills. To nd people with these skills, the organization
uses a technique called behavior-based interviewing. It is a fairly rigorous interview process in which
the organization screens for cultural t from the beginning. Te Johnson & Johnson Credo is the
overarching guidepost in the hiring process, and a candidate must meet or exceed core competencies
before being oered a position. In addition to specic technical skills, leadership competencies include
integrity/credo values, customer focus, innovative solutions, and talent development.
Ethicon Endo-Surgery realizes that there are some barriers to embedding and maintaining an
innovative culture. One such barrier is what they refer to as a perspective problem. For example,
some employees in the FD or R&D group may not feel as though their roles are innovative,
although customers would view their roles as highly innovative. Additionally, sometimes employees
feel as though innovation is relentlessthat it is never complete. Te organization notes that
these perspectives can lead to lower morale among the sta. Other barriers include organizational
memory (reluctance to change established processes) and the belief that innovation is not necessary
in successful organizations. Te organization uses many of the previously discussed enablers, such as
competitions and creative events, to overcome these barriers because it realizes it must be innovative to
remain competitive.
Te most signicant challenge to embedding innovation within Ethicon Endo-Surgery is learning
to take more risks; however, the organization feels it is developing this competency. One way that
it is addressing this issue is to continuously rotate personnel between the FD and R&D groups.
Approximately 30 percent of the groups sta participates in both FD and R&D projects through this
rotation. Many R&D sta members are also embedded in the FD group. Additionally, the groups
collaborate on various projects, especially as projects transition from FD to R&D. Te rotation
between these teams and the collaboration program develop trust that enables those involved to take
more risks as they work together.
Ethicon Endo-Surgery also stresses the importance of this inter-group turnover to encouraging
creative thinking. Te organization believes that sta must make connections with those who have
knowledge in areas other than their own in order to remain creative. Terefore, by rotating new people
into a given group, the team composition is regenerated, which facilitates new ideas.
Technical Enablers to Embed innovation
Ethicon Endo-Surgery notes that it does not rely very heavily on special software or other
applications to enable or embed innovation, though it does hope to improve in this area. Microsoft
Project and mind-mapping software, such as Mind Manager, are employed to break ideas into sub-
units for analysis, and other software packages manage IP submissions and track new ideas submitted
by employees. For the most part, however, the organization shares ideas using displayed thinking.
Te objective of this method, which the organization attributes to the Walt Disney Company, is to
enable someone entering into a creative workplace to understand project concepts just by looking
at the walls. Ethicon Endo-Surgery uses whiteboards and bulletin boards on every wall to visibly
communicate ideas.
Te organization uses portfolio management tools such as GenSight to maintain a balance of
high-risk projects, such as those in quadrants 3 and 4, and lower-risk projects. Te GenSight tool
contains risk assessment capabilities for areas ranging from regulatory to technical risks.
Ethicon indicates that widespread, positive communication has been vital to successfully
embedding innovation throughout the entire organization. To facilitate innovation within the
organization, Ethicon Endo-Surgery uses various communication vehicles. Tese vehicles include the
Web site/newsletter, the recognition/rewards programs, and face-to-face meetings. Additionally, it
uses team centers, e-rooms, and Web meetings to communicate remotely.
Te organization also cites informal communication as an integral part of encouraging innovation
and notes that it is sometimes more eective than structured communication. Many people within
Johnson & Johnson move from one operating unit to another, and the resulting personal relationships
facilitate knowledge sharing between the operating units across the entire Johnson & Johnson
organization.
A current project at Ethicon Endo-Surgery is the development of a communication framework.
Tis will be a collection of guiding principles to help employees recognize innovation. Te
organization is developing this framework to increase innovation awareness among all employees.
Ethicon Endo-Surgery points to trust as one of the most important factors for facilitating any
type of change within the organization, as well as for embedding innovation into the organizational
culture. Te organization believes that when employees support organizational goals, they are more
willing to trust one another to act in the best interests of the organization and their colleagues.
Reinforcing positive behavior and successes has also contributed to a high level of trust and,
consequently, has facilitated change.
While there is not one specic group responsible for change management, there are people,
known as process drivers, within the pipeline/stage-gate process whose jobs include driving change
through continuous communication. Te organization has found that its people are exible and
open to change if they feel informed and know how they are contributing to the overall goals of
the organization. Tere fore, senior leadership uses communication vehicles such as newsletters,
meetings and recognition to present its vision and deliver the message that everyone is part of the
innovation process.
For example, the organization notes that one of its biggest challenges was transitioning from a
siloed organization to a process-focused organization. Te board of directors and senior management
drove this change, and the organization notes that is was the visible eort of the senior leaders to make
this transition successful that secured buy-in from the employees.
Tere is not a lot of formal training associated with innovation at Ethicon Endo-Surgery.
Most of the time, informal discussions take the place of formal classes. Te organization sometimes
uses outside consultants to conduct training courses on inventive thinking for design teams.
Engineers from both FD and R&D participate in teach-back sessions, in which sales trainers
practice by teaching FD/R&D members how to use the various devices in surgical procedures.
Tis activity not only helps with sales presentations, but it provides a unique customer experience
for employees.
Te industrial design group, which reports to a director of product development, conducts
ethnographic research, like the FD and R&D teams, and archives its on-site learning so that others
can learn as well.
Additionally, when new employees start work at Ethicon Endo-Surgery, they are assigned a
buddy as part of the on-boarding process. Te organization will also help new employees learn the
industry quickly by enrolling them in the teach-back sessions and courses such as anatomy.
Innovation Metrics
Metrics is an area of development at Ethicon Endo-Surgery. While the Johnson & Johnson
organization tracks certain metrics such as new product revenue (from products released in the last
three years), number of projects in the pipeline, and number of patents submitted, etc., it is adding
more metrics to its dashboard. Te organization is also developing leading or predictive metrics based
on strategic value, cycle time, and business growth opportunity.
John Carlson, vice president of the R&D group, leads the pipeline governance group, which
comprises the vice presidents of the clinical division, business development, marketing, and supply
chain. Tis group owns the metrics for the output of the pipeline process, such as the number of
products launched, new product revenue as a percentage of total sales, and equity investment metrics.
Tese metrics are reported to the corporate level of Johnson & Johnson.
Te credo survey is one of the most helpful indicators of the state of innovation within the
organization. Tis survey, administered across all organizations in the Johnson & Johnson family,
asks employees to indicate their level of job satisfaction and asks for their perspectives on the
innovative nature of the organization. Ethicon Endo-Surgery tracks these results to determine how
it can improve its innovation eorts. Te organization believes that if employees feel innovative, the
organization will continue to be innovative, as well.
Ethicon Endo-Surgery has identied the following critical success factors for embedding
innovation throughout the organization.
Burning platformTe organization must create a sense of urgency for each project. Engendering
growth and maintaining industry relevance need to be high on the organizations list of priorities.
FlexibilityAll employees must be willing to change their ways of thinking and shift their
priorities without losing focus on the organizations strategic goals.
Behavior modeling by those in leadership positionsLeaders must meet the expectations that they
set if they want others to follow suit. Leaders have to dedicate themselves to innovation if they
want to successfully embed it in the organization.

Hewlett-Packard Imaging and Printing Group
H
ewlett-Packard (HP) is a dynamic player in the computer hardware and computer services
industries. Founded in 1939 by Bill Hewlett and Dave Packard to produce the model 200A,
an audio oscillator used for testing sound equipment, HP is currently ranked eleventh in the
Fortune 500. Te organization enjoyed $7 billion in organic growth during scal 2005, resulting
in $86 billion in revenue. With more than 150,000 employees, $16 billion in cash, 30,000 patents,
and 650 products introduced over the past year, HP is No. 1 or No. 2 in almost all of the market,
customer, and region segments in which it competes.
HP is divided into four main business unitsthe Personal Systems Group (PSG), the Imaging
and Printing Group (IPG), the Technology Services Group (TSG), and HP Financial Services
(HPFS)of which PSG, IPG, and TSG are the primary units.
PSG manufactures and markets notebook, desktop, and workstation PCs as well as handheld
devices. Te business unit generates $26.7 billion in annual revenues and is currently the No. 2
market leader in its segments. TSG is HPs enterprise group, which builds servers, storage, and
networks and provides support and consulting to enterprise clients. TSG has annual revenues of
$33.3 billion; it is the market leader in total server units, external storage, and storage area networks
and is also No. 3 in IT services.
IPG, is the market leader in inkjet printers, laser printers, scanners, wide-format printers, print
servers, and photo media. IPG generates annual revenues of $26 billion and is active in markets
ranging from home and small-oce printing to retail applications and commercial and industrial
printing. As the worldwide leader in inkjet and laser printing for more than 20 years, IPG has shipped
more than 400 million printers since its initial creation.
Te key business units are supported by functional units, such as corporate marketing, IT, the
oce of strategy and technology, corporate nance, human resources, and others. Each unit reports
to an executive vice president and is responsible for its own prots and losses. In keeping with
HPs management approach, which involves driving decisions down to the most appropriate level,
executive vice presidents are given wide latitude to make operational decisions within their divisions.
HP strives to create an environment in which executives who understand specic lines of business are
able to establish challenging but achievable goals for functional groups, managers, and employees.
Another signicant component of HP is HP Labs, which is part of the oce of strategy and
technology. Jon Meyer, the director of digital printing and imaging for HP Labs, participated in the
Hewlett-Packard Imaging
and Printing Group
site visit in order to communicate his perspective on embedding innovation in the organizational
culture. Another representative from the oce of strategy and technology, Director of Strategic
Initiatives Debra Brackeen, also attended the site visit and oered a corporate perspective on
innovation.
Te structure of IPG mirrors that of HP as a whole. Te large operational units that make up
IPGthe LaserJet business group, the imaging and printing supplies group, the inkjet systems group,
the digital photography and entertainment group, and the graphics and imaging business groupare
given latitude to make decisions on the best ways to meet the revenue targets set by IPG Executive
Vice President Vyomesh Joshi. Each IPG operational unit is itself a large entity and is supported
by worldwide marketing, operations, and sales functions. (Sales is further broken into geographical
regions and enterprise sales.)
Defining Innovation
HP denes innovation broadly: Any idea or activity that materially improves the organizations
performance is considered an innovation. Te organization takes the view that innovation can mean
doing something dierent, as well as the more classic denition of inventing, or doing something both
new and dierent. Te organization takes a similarly expansive attitude toward the areas in which
innovation can occur. Rather than limiting innovation to technology, HP has a history of promoting
innovation in various aspects of its business, including:
products and services,
business models,
business strategy,
business operations,
marketing and sales,
organization,
institution, and
culture and behaviors.
HP believes that its approach exemplies the Total Innovation Management (TIM) model. Te
TIM model was developed in China and stresses that innovation should occur anytime, anywhere,
and by anyone. Tis philosophy complements a quotation by one of HPs founders, Dave Packard:
Everybody should gure out how to do his or her job a little better every day.
As a technology and product innovator, HP points to its long track record, including technology
innovations such as thermal inkjet printing, industry standard servers, secure platform architecture,
and nanotechnology. Important product innovations include the audio oscillator, light emitting
diodes, laser printers, and laser interferometers.
Regarding strategy innovation, HP notes that its strategy has evolved signicantly over the past
decade. In 1999, the organization spun out its testing and measurement products business into
Agilent. In 2000, HP adopted a triad strategy, which focused on enabling customer transformation
through always-on Internet infrastructure; pervasive e-services; and intelligent, connected devices and
environments. Since 2003, the strategy at HP has rested on four pillars:
the best return on information technology for business and government customers;
a radically simple and rewarding experience for consumers;
a world class cost structure; and
focused innovation, which involves prioritizing investments to maximize impact.
In the area of partnership innovation, HP cites its unique relationship with Canon, in which
HP eectively productized Canons laser-printing-engine technology and created a new worldwide
market. Marketing innovations have also helped the enterprise: Although HP was known almost
exclusively as a business-to-business organization for many years, it was able to become a global leader
in the consumer IT industry by creating several new sales channels.
Michael Menke, chief portfolio advocate for strategic planning and modeling, identies cultural
innovation as one of HPs most distinguishing attributes. Te organizations overall cultural
environmentknown as the HP Wayis based on the vision of the original founders, Bill Hewlett
and David Packard. Te HP Way is built on a set of ve enduring organizational values, all of which
are supported by corporate objectives. Te ve core values are:
trust and respect,
a high level of achievement and contribution,
uncompromising integrity,
teamwork, and
fexibility and innovation.
According to Menke, these values were considered fairly radical when they were formalized in the
1950s. However, in recent years, similar tactics have spread throughout Silicon Valley, and the values
are recognized as a cornerstone of HPs success. HPs innovation culture is further supported by the
Rules of the Garage, which are guiding principles that the organization communicates to encourage
widespread employee innovation. Te rules are as follows.
Believe you can change the world.
Work quickly, keep the tools unlocked, work whenever.
Know when to work alone and when to work together.
Share tools, ideas. Trust your colleagues.
No politics. No bureaucracy. (Tese are ridiculous in a garage).
Te customer defnes a job well done.
Radical ideas are not bad ideas.
Invent diferent ways of working.
Make a contribution every day. If it doesnt contribute, it doesnt leave the garage.
Believe that, together, we can do anything.
Invent.
Innovation Strategy
According to Menke, HP is more of a loose confederation than a highly centralized enterprise,
and there is no master plan for innovation. However, although the HP corporate level has no explicitly
dened innovation strategy, IPG maintains a set of formal growth strategies, one of which addresses
the creation of new business. According to Jim Cook of the IPG new business program oce,
We can build on our core and emerging businesses by developing new business models and annuity
streams in adjacent markets. Cook says that this approach guides individual creativity within IPG.
All the various areas of HP maintain specic innovation goals. IPG strives to ensure that a certain
percentage of its business comes from the new business category, whereas HP Labs aims to supply at
least three to ve distinct contributions to HPs business each year. At the corporate level, executives
set innovation targets that include the number of businesses that will proceed to a certain phase and
how many initiatives will be recommended for funding.
IPG works closely with its R&D team to align innovation goals with market and customer
demands. Tis process begins when the marketing, nance, and R&D teams create market landscapes
identifying potential growth areas. Business units or new business teams then investigate each area
to assess the viability of HP entering the market. Once goals are identied, IPG further landscapes
the market to determine how it can grow its business by addressing customer needs within particular
market segments. Studying market trends and performing prot pool analyses help IPG evaluate both
where prots currently reside and where they may be over the next ve years; this kind of forward-
looking research ensures that the prot pool will not be depleted by the time IPG enters the market.
IPGs recent moves into commercial digital printing and retail photo solutions were initiatives that
emerged from this analysis process.
Enablers and Challenges of Embedding Innovation Strategy
Although HP has no formal, enterprise-wide innovation strategy, the organization relies on a few
simple enablers to promote its innovation goals and objectives. First are the principles outlined in the
HP Way, which are still actively promoted throughout the organization. All new employees are
expected to read these guidelines, and managers are encouraged to review the principles, along with an
accompanying video, with new employees during the orientation process. Another tool for reinforcing
HPs innovation mentality is the slogan HP Invent, which has been incorporated into all business
cards and most corporate literature.
Meyer notes that decentralizing the decision-making process and trusting employees are critical
success factors for fostering innovation. When making new hires, Meyer seeks out candidates
who have an unquenchable desire to invent. If employees demonstrate good judgment over time,
Meyer gives them increasing latitude and authority to make decisions. Instead of pushing his ideas
onto employees, Meyer focuses on providing the necessary support to spur innovation among
team members. Additionally, Meyer notes that a really innovative person leaves a wakethat is,
employees who are innovation leaders inspire creativity and inventiveness in those around them.
At HP, the real challenge is not embedding innovation, but rather sustaining the original
innovative culture established by Hewlett and Packard. Te organizations innovation eorts have
faced certain obstacles over the years. For example, when the technology industry was experiencing
major setbacks between 2000 and 2003, HP was forced to initiate budget cuts and work-force
reductions, which led to a loss of institutional memory. Additionally, when HP acquired Compaq
Computer Corporation, the strength of the HP Way became slightly diluted as it was introduced
to a large number of new employees. However, the organizations culture of innovation has survived
these trials.
Innovation at HP aects many diverse stakeholders, ranging from high-level positions such
as the CEO, executive vice presidents, and chief technical ocers to employees and external
alliance partners.
One enterprise initiative designed to promote and communicate innovation ideas is HPs
annual Technical Conference, or Tech Con. Each year, the organization solicits paper submissions
from employees on the topic of innovation and technology. From approximately 1,000 entries, HP
selects the top 40 to be presented orally at the conference; an additional 80 are included as poster
presentations. Between 600 and 700 employees typically attend this conference, which facilitates
cross-fertilization and educates employees about the organizations latest technology and R&D
developments. Te conference has proven to be an excellent forum for networking and brainstorming.
A similar outlet for contributing new and innovative ideas is the IPG poster fair, during which
employees present their ideas in one large forum. Tese fairs enable innovators to receive recognition
for their initiatives and gain access to senior leaders. Attendees from all levels of the organization walk
around the poster fairs and discuss the presented plans and ideas. Winners receive recognition, and
some get small funding awards to begin working on prototypes.
IPG also conducts business plan competitions. Tese competitions typically involve small teams
and can incorporate non-technological innovation areas, such as business model innovation. Te
primary purpose of these competitions is to recognize good ideas and to promote innovative thinking
across a wide range of business functions. Winners receive recognition throughout the organization,
invitations to attend an innovation program at MIT, and possible e-awards.
To educate employees about the results of its innovation eorts, IPG recently introduced a new
event, called Power Up, during which representatives of the various groups that comprise IPG traveled
to HP oces through the world. Participants in the event made presentations only to other HP
employees; the event showcased IPG products that had been introduced over the previous year and
provided information about future projects. Goals of this roadshow included building employee
enthusiasm for new IPG products and promoting innovation ownership across the organization.
Although this event received very positive feedback, planning and executing the event was a very large
undertaking, and the organization has not decided how often it will take place.
HP recognizes the importance of involving external partners in the innovation process. According
to Menke, HP has an explicit strategy statement that says, Invent where we can make a dierence;
partner for the rest. HP realizes that it should limit its innovation eorts to areas in which the
organization can claim a competitive position. In cases where an outside party can make a valuable
contribution to an initiative, HP will pursue the collaboration.
HP points to its collaboration with customers as one example of external alliances that contribute
to innovative ideas. Te organization obtains a signicant amount of market research by conducting
customer focus groups. It also solicits customer input through its technology customer advisory board,
which meets on a quarterly basis to discuss new opportunities and identify areas in need
of improvement.
Regarding other external alliances, HP has worked closely with numerous organizations
including Intel, AMD, Microsoft, Oracle, Cisco, Canon, P&G, and Nokiaon a variety of
technology-related projects. Tese larger collaborations are viewed as highly strategic and are managed
by HP vice presidents.
Innovation and Knowledge Management
In addition to informal conversations, which HP views as very valuable for knowledge sharing,
the organization has established certain knowledge management processes to support its innovation
activities. IPG and HP Labs use online forums and discussion boards where employees can post
questions. IPG has created a group called the Research Alliance, which is responsible for providing
research expertise and helping teams gather information relative to their investigations. Te Research
Alliance group also collects information from prior research and makes it accessible to others.
HP Labs relies on documented output from the Tech Con proceedings to facilitate innovation
and knowledge sharing. Another tool is the HP Labs library, which contains research reports
summarizing past projects (writing these reports is optional). HP Labs is also in the process of
developing a community of practice to act as a collective brain.
IPG uses a formal, funnel-like stage-gate process to justify its innovation investments and manage
the creation of new business. Te ve stages (called phases) represent a combination of business
innovation and product/technology innovation.
Phase 0 identifying markets of interest, generating ideas, and selecting opportunities
Phase 1 business proposal and idea investigationis there a value proposition?
Phase 2 business concepts and solution feasibility
Phase 3 business design and solution development
Phase 4 business start-up (pilot through accelerate)
Use of this pipeline management tool ensures that teams investigating ideas obtain appropriate
support and feedback as their projects progress. To move from one stage to the next, teams must
obtain approvals by conducting review meetings, at which the team members present information
on the current state of their investigations and then receive guidance from experienced managers and
peers. IPG compares the requirements of its stage-gate process to the steps involved in seeking venture
capital funding for a new business idea.
At HP, innovation ownership is distributed across the organization. Each executive vice president
is responsible for innovation in his or her segment, and this accountability is shared with the segments
chief technical ocer(s). In addition to top-down innovation programs funded at the corporate level,
IPG is working to promote innovation from the bottom up. Tese bottom-up innovation eorts focus
on creating products and services that will appeal to customers, as well as on leveraging technology
and capabilities that will enable HP to control the market.
Groups such as HP Labs and IPGs New Business Organization strive to encourage innovation
ownership at lower levels of the organization. Te employees who work in the New Business
Organizationwhich is part of IPGs R&D functionhave nancial, marketing, and engineering
backgrounds. Te group is responsible for investigating new business opportunities that leverage
capabilities from IPGs core businesses to address customer needs in adjacent markets. In addition, the
New Business Organization strives to promote innovation throughout IPG by hosting employee idea
forums, running business plan competitions, and conducting employee poster fairs.
HP Labs is also active in fostering technology, product, service, and business model innovation,
usually in conjunction with sponsors in one or more of the various business units. Te engineers and
scientists at HP Labs are expected to pursue breakthrough innovation projects, as well as projects
that will allow the organization to establish new lines of business, such as digital photography and
commercial digital printing. According to Meyer, there is a strong sense of innovation ownership
within HP Labs.
Funding for innovation at HP comes both from the corporate level and from the individual
businesses. Approximately 4 percent of the organizations $3.5 billion R&D budget is set aside for
innovation at HP Labs. In addition, HP allocates certain portions of the IPG, PSG, and TSG budgets
to fund innovation and new business creation. Within IPG, R&D investments are divided into
separate allocations for core, emerging, and new businesses. Te divisions overall funding goal is to
maintain sucient investment in the future of the business. Investment decisions are largely driven by
visionary leadership, rather than quantitative analysis.
According to the site visit participants from HP, senior management has always taken a proactive
attitude toward promoting HPs innovative culture. Within IPG, this commitment is exemplied by
the active roles that executives play in business plan competitions, poster fairs, and other innovation-
related events. IPG leaders recent sponsorship of the Power Up roadshow is another demonstration of
senior-level commitment to innovation. In addition to travel and shipping costs, signicant quantities
of executive time were required to ensure the events success.
Both HP Labs and IPG have processes for capturing and managing ideas for new products and
technologies. At HP Labs, innovation concepts are screened via a project review mechanism. Review
sessions, which involve a project team of six to eight people, are held annually for every active HP Labs
project. Te project manager begins the review by describing the idea or plan; each member of the
project team then has the opportunity to speak about his or her various ideas. Anyone with an interest
is welcome to attend these reviews and provide immediate feedback on the proposals. According to
Meyer, this process has proven to be an eective forum for testing ideas and networking.
Managers at IPG employ the groups new business stage-gate process (described earlier in
this section) to screen innovation proposals, monitor active investigations, and facilitate the
transformation of ideas into new lines of business. Te stage-gate process is optional, but all projects
must go through a nancial management process before they can move forward. Te nancial
management process helps managers ensure that IPG meets its commitments and targets.
When a promising idea emerges from an event such as a poster fair, IPG typically funds a
team to further investigate the opportunity. LightScribe, a product for writing CD labels using
the same laser that records the data, is an example of an innovation that originated at a poster fair.
When managers rst encountered the idea for LightScribe, they assigned teams with marketing
and technology expertise to assess the projects feasibility and determine whether it represented a
marketable opportunity. Such teams are typically more business-focused than product-focused. As the
LightScribe example demonstrates, IPG encourages employees to submit their ideas, but all projects
must undergo established screening processes before they can become fully realized.
In sponsoring poster fairs and other innovation events, IPG management emphasizes that
employees must work diligently to gain visibility for their ideas: Tere is no guarantee that any
particular concept will be funded or further investigated. According to Meyer, most employees are
not discouraged if the organization fails to pursue their innovation proposals. Te majority of HP
employees want to work on projects that will eventually result in productsthis is seen as the most
signicant reward for R&D work. Terefore, if a project is cancelled, but the project team is given the
opportunity to work on another project that is being supported, the team is usually exible enough to
take on the new project. According to Menke, the fact that employees are continually able to submit
their ideas keeps them motivated.
IPG employs a variety of standard reward and recognition methodsincluding e-awards, stock
options, and salary increasesto compensate managers and employees for innovative thinking. For
certain employees, rewards may include invitations to training events or small funding allocations to
begin work on prototypes. Although rewards structures are similar across HP, discretionary budgets
for the awards vary among the business units.
HP also considers its business plan competitions and poster fairs to be recognition mechanisms,
given that these events are vehicles for evaluating and acknowledging employee contributions to
innovation. As previously mentioned, business-plan and poster-fair winners receive recognition
throughout the organization, exposure to senior leaders, and possible e-awards. It is HPs policy to
pay employees a small amount for each invention disclosure; these rewards increase as the disclosure
proceeds towards a patent application.
Defining an Innovative Culture and Cultural Enablers
Te primary enablers of HPs innovative culture are the values embodied in the previously
mentioned HP Way, the cultural framework established by founders Bill Hewlett and David
Packard. IPG notes that, although the organization has been very innovative throughout its history,
the emphasis has changed with the maturity level of the business. Because the IPG management team
recognizes that HPs growth depends on business model evolution, the team continuously encourages
its employees to develop new and innovative ways of addressing customer needs.
After the merger with Compaq Computer Corporation, HP hired an external consulting group
to help the newly merged organization develop decision acceleration strategies and strengthen its
innovative culture. Te consulting groups ndings eventually evolved into Garage-works, a meeting
environment and process designed to bring employees together and encourage innovative thinking.
Te Garage-works area contained various toys, costumes, and books to facilitate the creative process.
Te space was particularly eective for dealing with conictsfacilitators could bring disputing
parties to this area to build consensus and resolve outstanding issues. More recently, IPG expanded
on the Garage-works idea to construct a new business creation room. Tis space was converted
from conference rooms and provides an unstructured, creative environment in which to discuss
business concepts.
According to Meyer, HP Labs facilitates innovation by giving employees the freedom to pursue
new ideas. If an HP Labs employee would like to explore a particular insight or opportunity, the
employee is allowed to devote 10 percent of his or her weekly hours to working on the idea with
lab resources.
HP concedes that it has encountered occasional challenges to maintaining an innovative culture.
Specic obstacles have included the technology recession and the merger with Compaq Computer
Corporation. According to Menke, the largest restraint on innovation is the need to maintain HPs
protability: If the organization is not making money, then it is dicult to nd resources to support
innovation. Regarding the merger with Compaq, HP considers the cultural transition to be a success.
Shortly after the merger, people divided themselves into Compaq pre-merger employees and HP
pre-merger employees, but this no longer occurs. HP managers feel that continuous reiteration of the
rules of the garage was instrumental in facilitating the integration of the two organizations.
Allowing employees to take riskseven if their initiatives sometimes failis another way in
which HP promotes innovation. IPG managers give employees some latitude to take chances as they
pursue ideas. However, this freedom is balanced with prudent oversight at key stages of the innovation
process. When investigating the viability of an opportunity, IPG attempts to quickly determine
whether pursuing the new idea represents the best use of available time and resources.
HP Labs conducts a three-level risk analysis on proposed ideas and projects, which consists of a
technical analysis, a competitive analysis, and an organizational analysis. Te competitive analysis is
the responsibility of the project manager, who must use his or her connections with the manufacturing
and product divisions to assess what currently exists in the market. Te organizational analysis refers
to ideas that may be valuable but there must be an analysis of whether the organization can adequately
respond to the idea.
HP primarily uses Share Point to disseminate ideas and ndings among its various teams.
Te organization also relies on other tools, such as Net Meeting and telephone and video
conferencing, to enable real-time communication across dierent sites and locations.
At HP, widespread, positive communication has been vital to successfully embedding innovation
throughout the organization. Communication occurs at all levels and includes the previously
discussed IPG poster fairs, Power Up roadshow event, and business plan competitions. Additionally,
IPG uses electronic newsletters, informal coee talks, and peer reviews to convey its latest
innovation developments to employees.
IPG uses an internally developed implementation program referred to as the Transformation
Ambassadors to facilitate and manage organizational change. Te programs name was adapted from
a 2005 exercise, during which all IPG employees participated in a comprehensive re-evaluation of
the groups markets and business models. Te program involves assigning specic transformation
ambassadors who strive to give changes a personal face and smooth the adjustment process. Te
ambassadors, who are usually site managers, conduct face-to-face meetings with as many employees
as possible in order to address concerns about a particular change. Tis program, combined with the
Power Up event, has educated a signicant number of HP employees about the organizations current
strategies and innovations.
Hewlett Packard also uses training to support innovation activities. For example, IPG has
developed a course to teach employees about innovation processes and familiarize them with IPGs
future plans and objectives. Another course focuses on strategic nancial analysis. Tis course covers:
how to make decisions and formulate strategy;
how to manage risk;
how to commercialize innovation; and
how R&D, marketing, and strategy teams can partner with the fnance department to foster
meaningful innovation.
Menke created the strategic nancial analysis course in response to the IPG nance teams
requests to feel more integrated with the R&D and marketing teams. More than 300 people from all
parts of HP have attended the course, and its teachings are beginning to inuence the ways in which
employees prepare and evaluate business and product strategies.
In addition to developing training courses, HP regularly engages external consultants and
university professors to host lectures on a variety of topics pertaining to innovation. One such visiting
lecturer series is sponsored by the corporate marketing department and is called Te Brand Innovation
Lab. Te lecturers in this series are authors and other practitioners who have radical ideas about new
social trends. As a reward, certain employees may be sent to universities to attend week-long programs
focusing on entrepreneurship.
Innovation Metrics
IPG has adopted the following metrics for evaluating innovation in its core businesses:
return on investment (ROI),
new product/service success rate,
new product/service survival rate,
cumulative new product or service revenue and proft,
growth impact, and
long-term expected net present value (NPV).
When assessing initiatives that involve proven technologies, IPG looks at future benet streams
in combination with the metrics listed above. For example, IPG has recently launched a retail
photography business in shopping malls and other venues. Managers know that the technology
behind this business works, but it will be several years before the nancial success of the business
model can be properly evaluated.
HP and its various business units also consider their track records over the years in order to
measure the long-term success of their innovation eorts. Tis is a more subjective type of analysis,
but in some areas, predictive measures cannot be obtained. According to Meyer, raw innovation does
not come from formalized structure and cannot be predicted accurately. Meyer notes that, although
part of the success of HPs innovation strategy depends on its measurement system, managers
individual judgment calls also play an integral role in facilitating innovation. According to Meyer,
With innovation, you cant measure it; you go where it takes you.

HP, HP Labs, and IPG have identied the following critical success factors for embedding
innovation.
According to Meyer, successful innovation results from the right combination of environment,
circumstances, support, money, and personnel. It is then imperative for the organization to trust
its employees to make intelligent creative decisions.
Senior management support for innovation is essential: An organization cannot build an
innovative culture exclusively from the bottom up.
It is also important that senior management sustain its innovation support over time. Inconsistent
support for innovation undermines morale and usually results in signicant brain drain.
Te inclusion of employees with diverse backgrounds and unusual career paths can beneft
innovation teams. One of the most important decisions in promoting innovation is hiring the
right people. For example, a candidate with a quirky sense of humor is viewed as a good t for
IPG and HP Labs.

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