Innovation Toolbox. Transform Your Business PREPARED BY: Australian Institute for Commercialisation. and

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1 Innovation Toolbox Transform Your Business PREPARED BY: Australian Institute for Commercialisation Queensland Department of Employment, Economic Development and Innovation and May 2011 Version 2.0

2 TABLE OF CONTENTS 1.0 INTRODUCTION LEADERSHIP AND CULTURE Does your business culture support innovation? BUILD THE RIGHT TEAM PLAN FOR GROWTH BUSINESS MODEL MONITOR PERFORMANCE Innovation Measures UPTAKE TECHNOLOGY PROGRAMS AND SERVICES Australian Institute for Commercialisation

3 1.0 INTRODUCTION When Apple introduced the ipod with the itunes store it revolutionised portable entertainment, creating a new market and transforming the company. In three years the ipod/itunes combination became a nearly $10 billion product and Apple s market capitalisation skyrocketed from $1billion in early 2003 to over $150 billion by late However Apple was not the first company to bring digital music players to market, there were two other players in 1998 and in Both products worked well, were portable and stylish. The key different was that Apple did something far smarter than take a good technology and wrap it in a snazzy design. It took a good technology and created a great business model. Apple s innovative business model combined hardware, software and service and made downloading digital music easier and convenient. Apple essentially gave away the lowmargin itunes music to lock in the purchase of the high-margin ipod. This model defined value in a new way and provided industry-changing convenience to the customer. 1 You can transform your business through: Leadership and culture Build the right team Plan for growth Business model Monitor performance Uptake technology Programs and services 1 Johnson, M., Christensen, C., and Kagermann, H. Reinventing Your Business Model. Harvard Business Review Australian Institute for Commercialisation Page 1

4 2.0 LEADERSHIP AND CULTURE Leaders who are able to successfully transform businesses are incredibly ambitious but their ambition is first and foremost for the business, not themselves. Time and again research reports have shown that organisations that provide effective leadership and an environment in which innovation can thrive, are increasing their market share, profitability, customer satisfaction and other key performance indicators considerably faster than those that don t. Early in its life, while it is still small, a business is agile and flexible, seizing opportunities, taking calculated risks and building its culture on the fly. There s a sense of urgency in developing ideas through prototypes and taking them to the market as quickly as possible. The culture encourages creativity and calculated risk-taking. As a company grows and becomes more complex (more people, customers, products and orders) problems surface and more defined processes are introduced to manage the business. The problem is often these systems kill off the entrepreneurial spirit of the business. How can you continue to encourage a culture of innovation as the business grows? Here are some suggestions: Ensure that everyone knows the innovation goals of the business and are working towards them. Make innovation everyone s job, not just the job of managers or the new product development group. Give people the freedom and responsibility to deliver on the strategic direction within a framework. Make it easy for people to act on good ideas give feedback about suggestions quickly. Encourage a sense of urgency. Encourage reflection and learning from what worked and what didn t. Make sure that your reward and recognition system support the behaviours that you want. Reward people for successful outcomes, not for the number of ideas they generate. Be willing to take calculated risks and tolerate mistakes. If you don t tolerate mistakes no-one will try anything radically different. Encourage diversity employ people who are different from you. Breakthrough innovations often happen at the intersections (of views, of cultures, of disciples) Employ people who are smarter than you and learn from them. 2.1 Does your business culture support innovation? 1. Do you mention innovation in your vision, strategies or business plans? 2. Do you include the importance of innovation when inducting staff? 3. Do you have methods or processes to encourage and capture new ideas? 4. Do your people discuss new trends or models emerging in your field? 5. Do you apply any resources to new ideas? Australian Institute for Commercialisation Page 2

5 6. Do you reward or recognise people who come up with new ideas? 7. Do you encourage experimentation? 8. Do you tolerate failure? 9. Do you communication and measure outcomes from innovation efforts? If you answered yes to most of these questions you are well on the way to developing a healthy innovation culture. If you would like some ideas on how to help your business become more innovative go to the Why Innovate? module. Australian Institute for Commercialisation Page 3

6 3.0 BUILD THE RIGHT TEAM The saying people are your most important asset isn t quite enough. The right people are actually your most important asset. To transform your business you need to hire the right people in the right roles to best utilise their talents, interests and abilities, and move the people who are not the right people on. Having the right people enables the business to make the changes it needs. The right people don t need to be tightly managed or fired up, they are self-motivated. Some tips for building the right team are: When in doubt, don t hire keep looking. When you know you need to make a people change, act. Put your best people on your biggest opportunities, not your biggest problems. Look at building teams that contain right and left brain people so that creativity is encouraged but in a structured environment. Australian Institute for Commercialisation Page 4

7 4.0 PLAN FOR GROWTH Are you so busy working in the business of today that you don t have time and energy to focus on building the business of tomorrow? The three horizons model 2 can help. It provides a framework to help you think about growing your company in a way that balances the competing demands of focusing on the present whilst investing for the future. Figure 1. The Three Horizons of Growth Value Horizon 3 Horizon 2 Create options for future business Build momentum of Horizon 1 Defend and extend Time Horizon 1 Defend and extend core businesses Horizon 1 contains the businesses that generate profits and cash flow today. These businesses may still have some growth potential but, eventually, they will flatten out or decline. They provide the skills and resources for growth. 2 Adapted from The Alchemy of Growth Australian Institute for Commercialisation Page 5

8 Innovation in horizon 1 businesses is about finding better ways to deliver the current business. You should aim to shore up your competitive position and unlock the remaining potential in the core businesses. Although businesses may spend 100% of their resources on horizon 1 activities, you should aim to limit this to around 85% to free up resources to invest in future growth activities. Horizon 2 Build emerging businesses Horizon 2 contains businesses on the rise: fast-moving, entrepreneurial ventures that may or may not be generating profits in the short term. They need continuing investment to finance rollouts. They are expected to become significant profit generators over the medium term. Innovation in horizon 2 businesses is about bringing new ideas to fruition. You should aim to build capabilities and fuel growth in new businesses. Businesses typically spend about 12.5% of business resources on horizon 2 activities. Horizon 3 Create options for future businesses Horizon 3 is about seeding options today for the future, some of which will prove successful and contribute significant profits in the long term. This may involve undertaking or partnering in research activities (see the Develop Your Idea module for assistance available), pilot projects and possibly start-ups. Innovation is horizon 3 is about identifying and nurturing options for the future. Businesses typically spend around 2.5% of resources on horizon 3 activities. How do you rate your business? Horizon 1 (H1) 1. Are your core businesses generating enough profit to allow you in invest in growth? 2. Do you have a strong performance orientation to push profits higher in the next few years? 3. Is your cost structure competitive with that of the rest of your industry? 4. Has your operating performance been stable? 5. Has your market share grown? 6. Is your company reasonably well protected from new competition, technologies, or regulations that could significantly change things? Horizon 2 (H2) Australian Institute for Commercialisation Page 6

9 7. Do you have any new businesses capable of creating as much profit as the current core businesses? 8. Are these new businesses growing in the marketplace? 9. Are you willing to make substantial investments to accelerate new business growth? Horizon 3 (H3) 10. Does your leadership team set aside time to think about growth opportunities and industry trends? 11. Have you developed a portfolio of options for reinventing businesses and creating new ones? 12. If so, are these ideas very different from those on the list last year? Three years ago? Five years ago? 13. Are you developing ways to turn these ideas into new businesses? If you have answered yes to all or the majority of these questions you are doing well maximising the current businesses while planning and investing for the future. If you have answered yes to the H1 activities but not to the H2 or H3 activities, you are very focused on the present, which can easily happen, particularly in tough economic times. However you need to invest for the future upturn and beyond as well. Answering yes to a majority of H2 and H3 activities but not H1 means that you may be excessively focused on growth and may not be able to finance that growth unless you can generate sufficient revenue today. If you have answered yes to the majority of H1 and H2 questions you are fueling profitable growth but unless you are developing a stream of new options, growth will stall sooner or later. Australian Institute for Commercialisation Page 7

10 5.0 BUSINESS MODEL Leaders frequently define their business in terms of the products and services they deliver and so focus on these for innovation. However with technological advances and globalisation presenting so many new opportunities, and threats, leaders are now looking to gain a competitive advantage through innovative business models. Business model innovations have the power to transform businesses and reshape entire industries. Business model innovation is about being different really different. And you can be different in ANY industry. The business model is the way(s) that businesses make money out of their ideas, resources and technologies. Osterwalder and Pigneur 3 in their book Business Model Generation discuss nine key elements of a business model. They are: Customer Segments defines the different groups or organisations an business aims to reach and serve. Value Proposition describes the bundle of products and services that create value for a specific customer segment. Channels describe how a business communicates with and reaches its customer segments to deliver a value proposition. Customer Relationships describes the types of relationships a business establishes with specific customer segments. Revenue Streams represents the cash a company generates from customer segment. Key Resources describes the most important assets required to make a business model work. Key Activities describes the most important things a company must do to make its business model work. 3 Osterwalder and Pigneur, Business Model Generation, 2010, John Wiley & Sons Inc. Australian Institute for Commercialisation Page 8

11 Key Partnerships describes the network of suppliers and partners that make the business model work. Cost Structure describes all costs incurred to operate a business model. Osterwalder and Pigneur have developed a tool which incorporates the nine elements of a business model. The tool is referred to as the business model canvas which allows people to paint a picture of new or existing business models. For more detail refer to the Business Model Generation website: To determine whether you should change your business model consider: 1. What makes your existing business model successful? For example, what customer problem does it solve? How does it make money for you? 2. Are there signals that your model needs changing such as tough new competitors? 3. Is reinventing your business model worth the effort? Will it result in a significant competitive advantage for your business? There are significant opportunities to transform your business through moving to an open business model, through new revenue streams and a reduction in costs. The most common business model innovations include 4 : Organisation structure changes Major strategic partnerships Shared services Alternative financing/investment vehicles Divestitures/spin-offs Use of third-party operating utility 4 Expanding the Innovation Horizon. The Global CEO Study IBM Global Business Services, Australian Institute for Commercialisation Page 9

12 6.0 MONITOR PERFORMANCE Benchmarking is an excellent way to gain feedback about your businesses performance. Benchmarking compares the measures such as cost, cycle time, productivity, or quality of a specific process or method to what is widely considered to be an industry standard or best practice. Essentially, benchmarking provides a snapshot of the performance of your business and helps you understand where you are in relation to a particular standard. The results should be used to inform actions for improvement. Financial benchmarks are available for many industries through the Queensland government website at Innovation Measures How do you know whether your investment in innovation has been worthwhile? Measuring innovation performance through the use of a handful of carefully chosen measures will help focus and ultimately increase the return on your innovation activities. Some potential innovation measures 5 are shown below. Choose a manageable number that are most relevant for your business and monitor them on a regular (quarterly) basis. Communicating business performance against measures is a powerful way to engage people in the business. Post performance against key measures in highly visible areas. Use graphics to help people quickly interpret results. Start talking about performance and set goals for the next timeframe Input measures Financial resources committed to innovation Human resources committed to innovation Operating expenses Capital expenditure Process Measures Number of ideas generated Average time from idea creation to implementation Percentage of ideas abandoned at each stage 5 Measuring Innovation 2007 A BCG Senior Management Survey, Boston Consulting Group, Australian Institute for Commercialisation Page 10

13 Number of suppliers and partners involved Output measures Revenue from products launched in the last three years Number of new products or services launched Market share growth Return on innovation spending New product/service success rate Number of new customers Customer satisfaction Cannibalisation of existing product sales by new products Brand strength (third party ratings) Employee satisfaction Australian Institute for Commercialisation Page 11

14 7.0 UPTAKE TECHNOLOGY Do you continuously explore new technologies that could change your business? Is technological change an input to your strategy development process? What are you doing to maintain or recreate an entrepreneurial atmosphere in which business and technology integration occur naturally? Are you shaping the technology agenda in your industry or following it? If you have answered yes to these four questions you are probably using technology well to enable innovation in your business. If you are not, technology can accelerate innovation and enable it. It can play a key role in new products, services, channels, market-entry strategies, operational transformation and industry-altering business models. It can also support other innovation activities such as collaboration. Whilst businesses should not fall behind in the use of technology, businesses should not be wowed by technology and should utilise new technology aligned with strategic focus, business operations, products and services. For example, some companies have very successfully used social networking tools to consult with customers about their needs and wants and gain rapid feedback on prototypes. Others have used technology to effectively communicate daily performance against critical numbers to employees in remote locations to assist in maintaining focus. Australian Institute for Commercialisation Page 12

15 8.0 PROGRAMS AND SERVICES Here is a list of funding programs and services designed to assist in innovation activities. Organisation Program Name Description Innovation Grants Australian Institute for Commercialisation TechFast Solutions to technical product, process or service issues or growth opportunities Innovation Coaching Innovation Coaches have been engaged by the AIC to support innovative Queensland businesses through a range of activities directed to the commercialisation of new ideas as well as innovation in the broader economy. Technology Clinics Solutions to technical product, process or service issues or growth opportunities Commonwealth Government AusIndustry R&D Tax Concession Funding for Industrial Research and Development in Australia Commonwealth Government Skills and Knowledge Provides funds to access to Commercialisation Australia au/pages/home.aspx specialist advice and services to build the skills, knowledge and linkages required to successfully commercialise new ideas. Proof of Concept Provides grants to successful applicants to test the commercial viability of the business model for a product, process or service. Early Stage Provides funding for activities Commercialisation that develop a new product, process or service to the stage where it can be taken to market. Enterprise Connect Manufacturing Technology Small or Medium Enterprise seeks advice and funding to improve productivity, increase competitiveness and realise growth potential Australian Institute for Commercialisation Page 13

16 Organisation Program Name Description Gold Coast Innovation Centre ICN ilab Incubator Innovation Centre Sunshine Coast Queensland Government Department of Employment, Economic Development and Innovation (DEEDI) dsdweb/v4/apps/web/content.c fm?id= dsdweb/v4/apps/web/content.c fm?id= dsdweb/v4/apps/web/content.c fm?id= dsdweb/v4/apps/web/content.c fm?id= dsdweb/v4/apps/web/content.c fm?id=7326 GCIC supports the growth of knowledge-based start-up companies looking to take on the challenges of significant business growth Industry Capability Assists in procurement and Network - Queensland project management to maximise local content. ilab provides early stage, high growth technology based companies with the resources necessary to support them during this challenging phase. The Innovation Centre provides an attractive package of business services, designed to give entrepreneurs and small businesses an edge in today s competitive global economy National and Funds for collaborative research International Research projects Alliances Program Proof of Concept Fund Funds to demonstrate commercial viability of an innovation Innovation Projects Facilitates the development of Fund: new or improved products - Research Industry processes and systems that will Partnerships Program achieve a commercial return or (RIPP) deliver a public good within four years Partnerships-Alliances Funds to formulate and facilitate Facilitation Program collaborative funding proposals Business and Industry Funds for projects that will lead Transformation to transformative change in both Incentives (BITI) the business and an industry or Australian Institute for Commercialisation Page 14

17 Organisation Program Name Description region dsdweb/v4/apps/web/content.c fm?id= dsdweb/v4/apps/web/content.c fm?id= dsdweb/v4/apps/web/content.c m?id= resilience manufacturing QUT Creative Enterprise Australia Climate Change/Energy Grants Commonwealth Government AusIndustry gov.au/ Innovation Skills Fund: Funding to entice experienced - Smart Futures and distinguished researchers of Premier Fellowship national and international prominence to lead research teams in Queensland universities, Innovation Skills Fund: Supports talented early and mid - Smart Futures career researchers, working in Fellowship leading Queensland based research teams Innovation Skills Fund: Aim to improve industry uptake - Smart Futures of new technologies and assist Commercialisation research organisations to Fellowships commercialise their research, technologies, and ideas Improving a business - Information about building Building Business business resilience Reslience workshop and webpages - High Performance Information to help improve Workplace (HPW) manufacturing businesses workshops - Tendering for Government Business workshops - Support programs for manufacturers QUT Creative Enterprise Australia is Australia's only specialist business incubator and business support organisation dedicated to meeting the needs of the creative industries sector. Re-Tooling for Climate Funds to offset costs of Change improved production processes and reduced environmental footprint Australian Institute for Commercialisation Page 15

18 Organisation Program Name Description Green Building Fund Retrofitting and retrocommissioning of existing commercial office buildings to improve energy efficiency Climate Ready Funding for Research, Development and Commercialisation into clean, green technologies Green Car Innovation Funding for Research, Fund Development, Commercialisation and Pre- Production activities for low emission fuel-efficient cars and components Innovation in Climate Funds to assist with the Change consequences of the carbon Small Business Capital pollution reduction scheme Allowance (CPRS) Community Organisation Capital Allowance Structural Adjustment Provision for Workers and Communities Commonwealth Government Department Renewable Energy Funds to demonstrate viability of of Resources, Energy and Tourism Demonstration large-scale renewable energy technologies default.aspx Queensland Government Environmental Protection Agency (EPA) Queensland Government EPA environmental_management/ sustainability/energy/queensl Second Generation Funds for Research, Biofuels R&D Development and precommercialisation of second generation biofuel technologies ecobiz Queensland To employ cost-saving measures which improve environmental performance Queensland Sustainable Funds to develop innovative Energy Innovation Fund technologies to reduce usage of (QSEIF) fossil fuels or water Australian Institute for Commercialisation Page 16

19 Organisation Program Name Description and_sustainable_energy_in novation_fund_qseif/ Queensland Government Office of Clean Energy _savings_fund.cfm gov.au/ Industry Grants Australian Technology Showcase Commonwealth Government AusIndustry gov.au/ Commonwealth Government Department of Agriculture, Forestry and Fisheries Enterprise Connect QMI Solutions Smart Energy Savings Fund SME or non-profit organisation seeks advice and/or funds to invest in commercial energy savings projects. Secured concessional loans for up to 100% of a project's capital value, or grants up to 50% of a project's capital value Queensland Renewable Funds for development and Energy Fund deployment of renewable energy generation technologies A national networking program aimed at promoting and developing export markets for innovation technology based products. Automotive Australian Motor Vehicle Competitiveness and Producer seeks investment Investment Scheme incentives (ACIS) TCF Small Business Textile Clothing or Footwear business seeks project funding to improve business operations FarmReady Industry Funds for groups of farmers to Grants adapt to climate change Researchers in Small or Medium Enterprises Business seeking a researcher to work on a project Product and Service Advice on improving product Development development processes Sustainable Advice on more efficient Manufacturing manufacturing processes Manufacturing Access to advanced Technologies manufacturing technologies Benchmarking, Supply Manufacturer seeks advice on Chain Management Benchmarking or Supply Chain Australian Institute for Commercialisation Page 17

20 Organisation Program Name Description Management Other Assistance Commonwealth Government Department of Innovation, Industry, Science and Research Griffith Enterprise Queensland Government DEEDI smartlicence Queensland Government DEEDI SMART Small Business Service Queensland s Biotechnology and Medical devices Industry Forum (BMDIF) QUT Blue Box Business.gov.au Access to Government information, transactions and services Commercialisation arm of Griffith University SmartLicence and A service to enable Queensland SmartLicence Online businesses to access Local, State and Commonwealth licensing and registration information in one place Bright Ideas for The Bright Ideas innovation Business innovation diagnostic tool helps identify the diagnostic tool level of innovation within a business and provides information and links to services, programs and organisations, targeted at the businesses level of innovation. Commercialisation The Commercialisation matrix matrix provides links to programs, services and organisations that can assist with the commercialisation of biotechnology and medical devices products and services. University technology Technology transfer and transfer and commercialisation of commercialisation Queensland University of Technology Uniquest University technology Main commercialisation transfer and company of the University of commercialisation Queensland Australian Institute for Commercialisation Page 18