Innovation:
Options Before Corporations
Niraj Kumar
niraj@dmi
Revenue from new products…
• More than 25% of the revenue and profits comes from new products (last 3 years):
10% Top 25%
% of revenue from 27% Average
new product
36% Bottom 25%
10%
% of profit from
new product 25%
32%
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Source: BCG Report, 2013
Relationship between Investment and return
Financial
Success
Investment in
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R&D
Relationship between Investment and return
Financial
Success
Investment in
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R&D
Relationship between Investment and return
Financial
Success
Investment in
niraj@dmi
R&D
Relationship between Investment and return
Financial
Success
Investment in
niraj@dmi
R&D
Relationship between Investment and return
Financial
Success
Investment in
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R&D
Relationship between Investment and return
Financial
Success
Investment in
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R&D
The most innovative companies
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The most innovative companies
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What do executives think about Innovations ?
• Where does innovation rank in your company’s strategic priority
% of respondents
45
26 23
06
Top priority Top 3 Top 10 Not a priority
priority priority
niraj@dmi Source: BCG Innovation Survey ,2010
Satisfaction about Innovations ?
• Satisfaction with the financial return on investment in Innovation
% of respondents
52 55
43
2008 2009 2010
niraj@dmi Source: BCG Innovation Survey ,2010
Measuring success of Innovations ?
• How does your company measure success ?
% of respondents
45
40 35
29 27 26 26 25 20 15
Customer Overall %age of Higher New Time Patent
satisfaction revenue sale from margin product to
niraj@dmi growth new success market
product ratio
Source: BCG Innovation Survey ,2010
Hurdles in getting benefits of Innovations ?
• What are the biggest hurdles in generating ROI in Innovations ?
% of respondents
31
30
26 24 22 22 21 21 21 20
Risk Lengthy Difficulty Inability to Not Not Insufficient
averse development in measure enough enough support from
niraj@dmi culture time selecting performance great customer leadership and
right ideas insight management
ideas
Source: BCG Innovation Survey ,2010
Approaches…
• The way we think
• Exploitation
• Exploration
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The way we think…
Ray Ewry, Olympic Gold Mildred McDaniel, Olympic Gold Richard Fosbury, Olympic Gold
Medal; London – 1908; Medal; Melbourne – 1956 Medal; Mexico – 1968
World Record: 1.98 mtrs World Record: 1.98 mtrs World Record: 2.24 mtrs
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The way we think…
• The Flip Camera
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The way we think…
• The Flip Camera
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The way we think…
• GE’s Electrocardiogram
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The way we think…
• GE’s Electrocardiogram
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The way we think…
• Electrocardiogram
A sophisticated medical instrument
an electronic consumer product
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The way we think…
• Vijay Govindrajan (a Professor at Tuck School of Business, USA)
“ Reverse Innovation ”
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The way we think…
• Jugaad Innovation ?
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Exploitation v/s Exploration
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Basic Premise…
• Balancing Short-term Profitability with Long-term Sustainability
Profitability Sustainability
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Meaning
• Exploitation: from what you have
• Exploration: From something new created
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Origin
March, James - “ Exploration and Exploitation Organisational
Learning” Organsation Science, 2 (1), 71-87, 1991.
• Exploration: Captured by term “search, variation, risk taking,
experimentation, discovery, innovation > radical and disruptive
innovation
• Exploitation: Captured by term “ refined, choice, efficiency,
selection, implementation, execution > incremental, performance
improving innovation
niraj@dmi Source: March (1991)
Exploitation & Exploration
Exploitation Exploration
Strengthening and Creating a new
extending the core
Existing Business New Business
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Exploitation & Exploration
Exploitation Exploration
Strengthening and Creating a new
extending the core
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Exploitation & Exploration
Exploitation Exploration
Strengthening and Creating a new
extending the core
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The Question…
• How much weightage on Short-term Profitability and how much
on Long-term Sustainability ?
Profitability Sustainability
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Barbie is back …
• Barbie as super-hero
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But ….
• Sale continues to suffer and…
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But ….
• Sale continues to suffer and…
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What should Mattel do ?
or
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Ambidexterity
• Ability to hold to opposite idea in the mind at
the same time, and still retain the ability to
function.
and
• Ability of the company to work simultaneously
both on exploration and exploitation.
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Hurdles in getting benefits of Innovations ?
• What are the biggest hurdles in generating ROI in Innovations ?
% of respondents
31
30
26 24 22 22 21 21 21 20
Not
Risk Lengthy Difficulty Inability to Not Insufficient
averse in enough support from
development measure enough
niraj@dmi culture selecting great leadership and
time performance customer
right ideas management
insight
ideas
Source: BCG Innovation Survey ,2010
Hurdles in getting benefits of Innovations ?
• Answers ..
% of respondents
31
30
26 24 22 22 21 21 21 20
Not
Risk Lengthy Difficulty Inability to Not Insufficient
averse in enough support from
development measure enough
niraj@dmi culture selecting great leadership and
time performance customer
right ideas management
insight
ideas
Source: BCG Innovation Survey ,2010
In A Typical Organisation
14%
38% Exploration
61%
86%
62%
39% Exploitation
Type of Launch Revenue Profit
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Source: PDMA study, 2010
In the end…
• Exploration is profitable, but more assumption based and un-
predictable – Higher Risk
• Exploitation is less profitable but knowledge based and more
predictable - Lower Risk
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Answer lies in “Better Balance of Both”
Thank You !
niraj@dmi
