PD IMPACT LIVE BLOG - DAY THREE

For the Day One Blog, click here.

For the Day Two Blog, click here.

APRIL 9, 2008

Today is Open Innovation Day.

7:00am

BREAKFAST SESSION - JAY ANDERSEN, ELI LILLY

It's 0700, the O stands for "Oh my Gosh, it's early" (apologies to Robin Williams). We're starting up this am with an early breakfast session. We had so many talks that we wanted to put into the conference and had a real hard time fitting everything in (this relates to the "killing projects" discussion we've been having about portfolio mgmt). Jay Andersen from Eli Lilly has been one of our most highly rated speakers from a past event, so we really wanted to include him but only had space in this early morning slot.

To entice folks to get up early, we're providing a hot breakfast with eggs, bacon, sausage, potatoes, lots of protein. It's a good tradeoff, I'd say. It's been a very busy conference so far with a packed agenda, so an early start on day 3 can be risky, but we've lured a good size group in.

Jay is responsible for Lilly's portfolio review system and is here talking about how they make decisions about 'molecules', the basic material of their products, "molecules' seems synonymous with 'project'.

Jay has said regarding canceling projects, in Pharma it's usually one of two decisions. One, the molecule is found to be unsafe, that's a no-brainer kill. The second is much more difficult, it's when the molecule is safe, but is not successful in application, it doesn't create the necessary treatment. The problem there is that molecules can be reallocated to drugs to treat other diseases, so they are always tempted to keep it alive and keep experimenting with it.

Lilly has a new view of their pipeline, now much more integration of internal and external sources, partners, university research, stuff from Mergers and Acquisitions, etc. These multiple types of external relationships creates a complex spectrum of working conditions, IP rights, scheduling, partnership parameters and lots of other considerations and categories.

It was a large strategic effort to adjust their portfolio process to fold in Bin 3&4(what they label these external things) into what was previously only an internally focused process. Their biggest issue was discovering that there was completely decentralized and incomplete data and record keeping on all these projects. They discovered several projects they believed were dead, but were active because they sold the rights to it to another company. When trying to reactivate these projects for themselves, the problem was they no longer had access to current data to do projections on for portfolio decisions.

Lilly has only been doing this for about the past year, but it is integral to their go forward strategy, especially as partnership and alliances continue to be a more standard business condition.

--

8:00am

KEYNOTE - DR. GENE SLOWINSKI

We've worked extensively with Dr. Slowinski, author of books such as the Strongest Link, and a 'goto' guy on today's subject, open innovation and alliance mgmt. Plus, he's a very entertaining and funny presenter, very good for these early mornings, his style is already waking people up.

On open innovation, he's using the example of Lipton Tea, and how in order to compete with bottled teas like Snapple, it required a vast partnership model, including bottling facilities, liquid rather than tea bag product, and a host of business processes they just had no experience in. They were forced to partner and this phenomenon is facing all companies in all industries right now.

Gene is posing his theory than internal projects are less creative than co-developed projects. It makes sense, two separate entities have complete expertise structures that a greater than either individually.

"The history of organizations is the anchor around our necks" - Gene asks why did Apple bring us iTunes and not the people who own the content? Because they are "trapped in the cubicles of their minds."

Gene is now showing his infamous "want, find, get manage" model. I've heard this described as "powerful simplicity."

PATH DEPENDENCE - once you take a few steps down a path, it's very hard to step off. Similarly, once you take on a few alliances, it's hard to step off that path as well.

This illustrates the importance of partner selection. If you pick the wrong partner, you can manage it as best you can and it won't do any good.

SIM deals - Simultaneous Interdependent and Multiple. If one of these bubbles collapse, they all collapse. CoDev partnerships are exactly that. Gene has his AHA about this during the burst Internet bubble.

Caveat - your co's procurement people can not help you with this. This is not supply chain mgmt and doesn't fit in with traditional negotiation procedures.

Someone is asking the question, "is this the same when you're just purchasing components from a company?" Gene's answer is YES, but does your procurement process anticipate the SIM dependencies? Typically not. It's when deals fail and collapse and you have to deal with IP rights, etc that this comes into play.

Gene has a 7 point scale where a 7 is a totally networked company and a 1 is not networked at all. He's asking where people place their own company and where you think you'll be in 3 years.

Gene says there's a chair called "partner of choice" , it's the seat you want to sit in, but how do you get to be that? P&G is a company that does this well with thier "connect and develop program" and Gene also points out that breakfast speaker Jay's company, Lilly is similar in the pharma industry and advises reading their annual report as a treatise on alliances.

A+B=C Internal resources + external resources = meet customer needs

Again, simple model, but requires freedom of thought and that's hard.

Gillette is his current example, previously their idea of innovation was adding more blades to the razor, but recently they made an agreement with Palomar, who makes light (laser) based hair removal for dermatologists. Gillette's foresight is if they can apply this tech to consumer shaving, they want to own it.

Gene is now going through the Alliance Framework, developed by his colleague, Dr. Matt Sagal, who spent 15 years doing all of Bell Labs partnership deals.

Gene is mentioning that all his articles are available on his website for free.

Also, June 01, invivo magazine, look up an article by Eli Lilly on Alliance mgmt - he recommends that highly as well.

One hole in company structure is HR. Alliance managers are new function, therefore apt to be viewed as "weird" in a company, but since the importance of this is ramping up, companies need to make it a defined, attractive career path.

We are now moving into the X-talk segment, people are forming small groups to talk about what Gene has presented and he will move among the groups and visit with each.

--

9:30

RECKITT BENCKISER CASE STUDY

I think I mispronounced the company name when I introduced our speaker, Tim Cusack, I'm sorry Tim.

Tim has a tough spot following Dr. Slowinski, but it's really good to now get a more indepth look at a specific companies codevelopment and open innovation experience. RB is a consumer goods provider - stuff like woolite, air wick, vanish, Tim works in the surface care and germ protection product group. .

Customers don't care about your open innovation or where an invention comes from, they just want to know the product benefit and the cost. Tim says, so why should WE (Benckiser) care? RB CEO says they have no pride, they'll take ideas from anywhere, competitors or elsewhere. Open Innovation fits the RB culture very well, they had an article in Financial Times recently that mentioned they're aggressive culture is their competitive advantage, which is embedded right in their recruitment/hiring practices.

RB has the lowest R&D spend as a ratio to sales in their industry. BUT, the highest output of their peers. OI helps them leverage their internal capabilities and accomplish this.

They spend about as much on consumer research as they do on R&D. But they use OI extensively on new invention research and basic applied research. They value time to market over the source of innovation and realize that building internal competencies is a slow approach.

They start with a strong customer understanding, then they look at what tech applies and product gaps, and then they analyse if external sources can help them launch product faster for that customer segment and then they look at what type of relationship is needed with potential partners and alliances.

To do the type of technology scouting he does, you need a strong information monitoring capability, and deep understanding of IP considerations. Also, the ability to network is key, going to meetings and conferences, including things covering industries outside their own.

They have a website as a central point of managing idea submissions. You get a lot of weird stuff when this happens, but you also get access to real creativity. One weird idea he's showing the picture of is a baby-mop, and outfit you put on your baby where they clean the floor as they crawl. Of course, they have legal filters on these devices to protect themselves.

Some of their successes include Finish dishwashing detergent from Europe which is based on a chemical technology that was driven by consumer input that customers didn't want to touch the material. "Ready to go" hand sanitizers is another example, and they used OI to speed to market, as they got a partner that had a product being sold to hospitals and institutions and they adapted the package to a consumer good, it was a good Plug and Play type arrangement.

Another type of arrangement builds on strong brands and licensing, like a partnership with con-air and a new type of steam cleaning lysol mop, also done with air wick and woolite products.

They've also done co-marketing with their dishwashing product and a dishwasher manufacturer (bosch) and he showed a video of the commercial.

--

10:30pm

HAWKER BEECHCRAFT CASE STUDY

Ed Petkus joined Hawker last May as VP of NPD, a pretty big job by the sound of it in the aerospace industry. Gene Slowinski talked a lot about becoming a "partner of choice" and Ed is going to talk about how Hawker is trying to do that in a constrained supply base.

I had to step out and check out of the hotel (couldn't get a late checkout), so I'm stepping in here a bit late, sorry.

Ed is pointing out the importance of assembling the right internal team made up of the key stakeholder functions, you can't neglect anyone and their participation is essential.

When they started to do the OI model, they really had to sell the concept of the new way of business to all their partners, not a smooth experience with the typical fears and resistance. Once they get the players aligned and evaluate capabilities, then they begin to negotiate the alliance deals.

They have Alliance Framework teams, training sesions for select suppliers, and are trying to reengineer the financial relationships between the OEM and supply chain. They are updating their gated process to include a requirement to use the alliance frameworks.

They are engaging several of the SIM type deals that Gene mentioned. Also, now people are coming to them for partnerships than the other way around. There are still some naysayer, take it or leave it the way it is partners too that they need to work on.

--

11:15am

AIR PRODUCTS CASE STUDY

Vince Magnotta is here to talk about what AP calls their "open for business" program. Originally he was co-presenting with John Tao, but he recently left the company and had to bow out.

They're currently focused on 4 growth platforms: electronic materials (chemicals for electronic devices), performance materials (organic chemicals), energy (eg hydrogen), and healthcare (they've recentlly acquired some companies in this space).

In 1995, they formed a group called "corp tech partnerships" as a support group to technology and business leaders to do OI with partners and between divisions. They also gathered competitive intel.

Today, this group is still around with similar support functions, now in charge of out-licensing, gov't contract mgmt.

OI to them is defined as using external tech/resources to supplement internal R&D and commercialization efforts.
Their focus is really on bringing in technology through sponsored rd, consortia, joint dev and in-licensing.

Their reasons for doing this include the ongoing pressure to do everything faster, better, cheaper. Also, no company has more than 1% of global R&D capacity, so why not tap into outside resources. Plus the reduced inflow of scientific talent is getting worse, also with less foreign talent coming to the US. They also need OI as a means to meet growth targets as set down by upper mgmt.

He also mentions the increased pace of innovation, global business complexity, easier access to external tech, and energy/environmental stability drivers.

Vince's list of org barriers: NIH syndrome, Not Invented Here (surprised nobody's mentioned that one yet), defining the role of the technologists, making distinction between inventors and solution providers, incentivizing employees for new behaviours, and technology outsourcesing vs insourcing solutions. How do you make people focused on the end goal rather than just their piece.

The Open for Business model tries to broaden tech transfer into and out of the company as well as within it. Lots of barriers to break down.

In terms of outsourcing, you need to view existing IP portfolio as a source of value with a revenue stream that can hit the divisional bottom line.

"patent offensively" - patents should be used to attract people in with outlicensing in mind rather than just defensively as a protection shield. They are just starting on this.

Some of the tools and processes:

They have a contract mgmt database - you can access historical agreements.
Also, an internal IP database with patent status and what countries have coverage.

He's listed a ton of external providers for OI such as yet2.com and nine sigma, innocentive, many others folks can google to find out more.

They do some sponsored R&D such as with Penn State Univ, where they have an agreement for over 80 projects in the last 10 years where the deal is a prenegotiated IP agreement which gives them a lot of speed to market and lower cost advantages.

They're also working with Russian institute and universities (over 400 of them). Theyve doen over 100 projects there since 92 on emerging tech, process improvements on core technololgies and find that work gives them great new perspectives on problem solving. The russians are highly educated, but lack lab equipment resources which AP brings to them.

They do a lot of govt sponsored research with the DOE.

For in-licensing, they've partnered with UConn to license conductive polymer tech for organic displays to address a strategic plan to offer new products in an emerging market much quicker than normal.

For outlicensing, they had some semicon processing tech (thin films tech) and were able to monetize their IP with the royalties going back to the div, which they love and want to do more of.

An example of Internal OI is Air Products Brazil, a partnership to jointly dev. and commericalie oxygen applications for pulp (paper) industry. Theyh developed the IP and the brazil group brought the applications expertize and bus. prospects which resulted in faster adoption of the new tech and a pull through gas sales.

They must also work with china, who is producing 5x the # of engineers as the US.

What's next for them?

Imperative to be open internally and externally - an ongoing process.
OI budgets of Fort 1000 shows this a necessary activity.
NIH again - convert it to "proudly found elsewhere" and reward it.
Increased out-licensing.
More Strat. partnering with the gov't, but they must have strategic value.
More tech partnering with china and india - a big focus.

--
LUNCH
--

Had a big breakfast and need to stay up here to test things with Prof.. Tushman, so I think I'll skip lunch again. He has a video to show and also is presetting some flipchart material. He mentioned he wants the group to move forward and come closer together as he wants that to interact better. He also said that way I don't need to run the mike such distance. Prof. Tushman warned me he may go over his time, but we have large buffer following him with the Integration Jam Session, so it shouldn't be a problem.

Last on the agenda is a tough spot, as the crowd always thins out by the end. That's a funny thing in the conference business, no matter what time you end, the crowd thins. We could end at noon today and the same thing would happen. Something about the behavioral psychology of scheduling.

I've asked his colleague, Andy Binns to help me introduce Prof. Tushman, as he's worked with him closely and will be able to set the stage for this session better than I. Andy has been attending the conference and facilitated a breakout group yesterday, so people are already familiar with him.

Be back when we start up after lunch.

--

1:00pm

Time for the home stretch, our final presentation and Andy Binns of Change Logic is encouraging folks to move forward in the room so we can get more intimate.

Mike Tushman is an expert in organizational change and will also be doing a brief post conference session for a small group when we're done with the conference.

He's showing a slide with a bunch of company name including Levi Kodak, Ciba, IBM, Polaroid, NYPD and asking what they have in common. The commonality is their all big orgs that went through major transitions where their markets and technologies changed. All suffered disruption in their core businesses that forced them to change bus. models. All have had strong leadership positions and lost them.

Mike has a great, engaging style, I wish more of my college professors had his qualities

He's making an example of what happened in the swiss watch industry and the disruption of quartz technology that a lot of watchmakers failed to adopt because it was not in their core competency. But why didn't the sr. leaders of these companies lead their companies this way. They were making lots of money in 1970 so they didn't perceive a performance gap, but by 1978, the bottom was falling out of sales and they were caught behind the curve. Also hard to change the swiss culture value prop that a watch is an expensive heirloom rather than a cheap commodity.

They bounced back once they adapted, but it should have happened sooner before bankruptcy. The transformation was tardy.

Mike is posing a counter idea to what we've been hearing about - that processes like rmapping and process mgmt gets in the way of innovations that could have solved these types of probs. He's holding up our agenda and calling it a waste of time (oh gosh, I won't take that personally, he makes great points). He's also invoking disruptive technology ala his colleague Clay Christensen and how customers can actually lead you away from these solutions.

Someone's arguing you need both types of process discipline, the structured type for established, incremental things and more fluid process for true innovation. Mike is saying that is actually his point, but warns about the "religion" (or orthodoxy) of tools that people use and the threat of letting them blind you.

Exploitation prevents Exploration. The capabilities for each are at odds with one another and the key reason a WalMart can overtake Sears over a very long period with Sears unable to make the moves to prevent their death.

HBS does a 60K 8-week executive program, but will online learning disrupt them? Can you transform Harvard? At MRT we're pretty concerned about this as well.

He's now offering the Ball company (who makes jars, canning, plastic bottles) as the 'poster child" of the type of transformation he's trying to talk about - they went through 4 distinct transformation over 126 years. He says they have the recipe for how to change. It's not about strength, it's about responsiveness to change.

Now we're being shown a video of HBS's oldest case study about a naval officer, Jr. Lt. Sims, who was ignored by the gov't when he was pushing a new way of firing naval guns with 3000% accuracy was but summarily dismissed, ignored and discredited. After getting screwed by the system, he went straight to the top, President Roosevelt, and suddenly was able to champion this new way of gunnery. Dennis from Boeing adds to the story an irony that when aircraft carriers were being offered as the next gen distance firepower, now Admiral Sims was it's biggest opponent.

This reminds me of a story I heard from Sandy Munro, a DFM/A expert who once designed an airplane cockpit that reduced instrumentation from over 300 dials to under 10, simplifying interfaces with great safety advantages. But when they tested it, pilots rejected it wholeheartedly for not being complex enough, which was essential to their identity as pilots being highly skilled, they didn't want it more accessible.

Mike is offering the concept of "ambidexterity" that you need to take care of your core business but also do innovation in fast failure mode to try to find potential disruptions yourself.

--

2:25pm

INTEGRATION JAM SESSION

Irene is wrapping us up now that Prof. Tushman has stirred up our mental pots. She points out that we still need the tools and processes we've all been learning and talking about, but it requires flexibility and applications within proper context, as Irene says in her grad classes, the answer to every question is "it depends". These efforts can't be separated from business drivers, sometimes incremental isn't where you want to work but it's the most necessary focus and other times it's disruptions, and sometimes you need both (ambidexterity).

Andy Binns is pointing out that it wasn't a lack of technology that killed companies like Polaroid, it was a lack of belief.

Suna from P&G is mentioning how her CEO just put out a book called Game Changers where he talks about their innovation and how stage-gate brought their project failure rates down from 75 to 50 % but that he wanted the improvement frozen there for fear that otherwise it will keep them from taking risks and hurting innovation that way.

Someone is asking how you budget for OI projects, Suna says as the culture started to accept the practice, they built separate funding mechanisms. Another person says they took engineering funds, because they were available. Ed Petkus says at Boeing, they kept an "exploratory" fund, but now at Hawker, they look to partners to share in the risks with funding.

Someone is asking how you deal with OI projects when there is failure in the system and a partner turns sour. An exit plan should be a part of any arrangement or well thought out part of the partnership process rather than just the rosy side of things. If a partnership just needs help, Sarah Audet is mentioning they're ongoing review process where they have specific checkpoints where they review the health of the partnership.

Irene is now wrapping us up with a call to action - to think about What is Innovation? To think deeply to define it for yourself and get your custom context right and then extrapolate how far that may reach in your company and your key drivers. Plato: "know thyself". She adds: know thy people and what motivates them, know thy brand and what drives success, know thy technology, know thy pipeline nad how to manage and expand it, know they environment and how to leverage it, and know thy business, its many processes, even the ugly.

Some takeaways:

Channel diversity and disagreement into creative discussion - turn negs into positives.
Go from being all knowing to all seeing - a senser, become more aware. This takes moving away from proprietary paranoia and more willing to share openly.
Sustainability is not repeatability.

--

That's it! PD IMPACT is a done deal for this year. We'd love to be able to make this event an annual and greatly appreciate any input on constructive changes to the content, format, whatever.

Thanks to all participants, speakers, advisors, sponsors and anyone I may have forgotten.

--Gregg