Innovation Excellence E-Book

Stephan Scholtissek

• Herausgeber: mi-Wirtschaftsbuch
• Kategorie: Fachliteratur
• Sprache: Deutsch
• Veröffentlichungsjahr: 2011

Seitenzahl: 164

Beschreibung

In this book, author Stephan Scholtissek examines innovations as they relate to companies in the energy and natural resources sectors (e.g. energy, utilities, chemicals, mining and metals companies), sectors which are incorrectly assumed not to be innovative and which are undergoing massive change as the balance of power shifts towards emerging economies and as the world looks to a range of low carbon technologies. Scholtissek argues that innovation (strictly defined as the sum of invention and market success) is the only answer for competitive success in a multi polar world where the essential ingredients of business can no longer be used to differentiate companies. He states that companies must be restructured to be run as portfolios of innovations. Scholtissek sheds light on different forms of innovation (product, service, process, organization and business model) and argues that R&D resources must be extended across all these forms. And he includes a number of detailed case studies from the energy and natural resources industries that demonstrate leading practice. The book will also address an end-to-end innovation process/framework that helps the innovation process run more smoothly. It will also include the key success factors that increase the likelihood of success of an innovation in a given company. Finally the author draws conclusions regarding the future of innovation. The goal is to provide the reader with a holistic approach to increasing the success of innovation in his/her company.

Leseprobe

Stephan Scholtissek

Innovation

Excellence

Creating Market Success in the Energy

and Natural Resources Sector

This book was developed as part of the research programme at the Accenture Innovation Centre for Energy and Utilities. The centre is a research and innovation hub developed to bring innovation, thought leadership and insight to the topics of policy, consumers, sustainability, technology and industry transition within the context of the energy and utility industry landscape. For more information, visit www.accenture.com/innovation-center.

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A CIP record for this book is available from the Library of Congress.

First published in Germany in 2011 by mi-Wirtschaftsbuch, an imprint of FinanzBuch Verlag GmbH, Munich, Germany, as “Innovation Excellence: Creating Market Success in the Energy and Natural Resources Sector” by Stephan Scholtissek. All rights reserved.

Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced to a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the publisher.

© 2011 by mi-Wirtschaftsbuch, FinanzBuch Verlag GmbH Nymphenburger Str. 86 D-80636 München, Germany www.mi-wirtschaftsbuch.de

ISBN 978-3-86880-124-8

Edition Kogan Page 2011

Published and distributed in Great Britain, United States and India by Kogan Page Limited.

ISBN 978 0 7494 63465

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Coverdesign by Jarzina Kommunikations-Design, Holzkirchen, Germany Typeset by Julia Walch, Bad Soden Illustrations page 17, 20, 28, 75 by iStockphoto.com; page 18, 109, 110 by Getty Images Printed by Stürtz GmbH, Würzburg Printed in Germany

Foreword

Time and time again in my 20 years as a management consultant, corporate executives have asked me the same two questions: “How can we grow without snapping up rivals?” and “How can we secure lasting success when competition is getting fiercer by the day?” These questions have lost none of their urgency, but since the implosion of the dot-com bubble and the sharpest recession in generations triggered by the credit crisis, I am also regularly asked a third: “What can I do to shield my business against similar earth-shattering events in the future?”

My answer to all three questions is the word that is at the very heart of this book: innovation. The word is powerful, I’ve found. It usually triggers lively discussions. “So, you recommend hiring more scientists?” top-level managers tend to respond. Or, “OK, then, please set up an innovation project for us lasting, say, three months.” Or, in a clear indication that innovation is still widely seen as something purely for manufacturers, I also often hear, “Well, you know, we’re into services here. We don’t make products.”

All these responses are evidence of widespread misunderstandings around what innovation is, how it comes about and how it should be conducted. Contrary to popular belief, it is not made in laboratories – a scientist’s bright idea is always only as good as its commercial success. Innovation is not just for transitory use in a company. And of course it is certainly not something that can only be applied to physical products. You can bring about innovation by revamping what you market, your business model, your processes or even the organisation of your company. And in all these cases it does not just happen in dribs and drabs, here and there, only now and then. To become really effective, innovation must be deeply rooted in a business’ DNA.

As a young biochemical scientist I was able to witness how inventions conceived in my native Germany often failed to bring economic benefit to their originators. This was either because bureaucracy stood in the way, society and politics had been slow to mobilise enthusiasm, or the companies themselves simply failed to spot the potential commercial merits of their own brainchildren – and competitors ran away with them.

I left the academic ivory tower with a PhD under my belt to join the corporate world, where I soon noticed that even blue-chip companies find it difficult to build a system that turns excellent ideas swiftly into revenue. To this day corporate entities are frequently held back by compartmentalised thinking, rigid legacy cultures or awkward silo structures. It is therefore hardly surprising that many lack a stringent innovation process: a suite of defined frameworks combined with driving minds free enough to propel good ideas uninhibited to market.

Cross-pollination is key to this. Imagine the following: young graduates applying to your company are asked at the job interview what they would like to do – marketing, research and development, production or sales. “All of that together!” replies one. If your human resources officer looks up and says, “Hired!” your business has caught the innovation bug and you have probably discovered a true innovation talent. But if the response is, “Sorry, you have to pick one,” your business may have a way to go.

It was as a consultant that I was finally able to see innovation processes up close in real businesses. Over the years I have had the privilege of meeting numerous true innovators. They included shrewd owner-operators of family firms, visionary upstart entrepreneurs and clever minds embedded in huge corporate environments. Each of them had led a product or service to market success. Talking to and working closely with them allowed me to discover the views, rules, patterns, procedures and ultimate success factors that made up their approaches. This solidified into a clear set of stages and practical rules that could guide the building of a viable innovation process in any company.

All this know-how is packed into the compact book you hold in your hands. In it I analyse and structure the innovation process theoretically, then square it immediately with real examples of successful innovation in the energy and natural resources sector. This is not only an industry that has my natural attention as a trained biochemist, but one that, being extremely competitive globally, has come up with a series of truly remarkable innovations. It should make the book a particularly useful read for executives in the raw materials, energy, chemicals and utility industries as well as for industry association leaders and those who buy from or sell to these companies. However, the basic innovation principles described here are universal and can benefit your company no matter what sector you are in.

Acknowledgements

Much like a good innovation process, this book has been a team effort. Its development has involved numerous people from around the world coming together to achieve a common goal. They contributed through interviews, assessments of the innovation process and reviews of the manuscript. I would like to express my appreciation to each of them.

In particular, I would like to thank the following for sharing their valuable time and insights: Ewald Beinhardt, Wolfgang Dörmer, Jackie Fionda, Philip New and Patrick Wendeler (Aral and BP); Don Sheets, Shelley Bausch (Dow Corning); Dr. Alfred Oberholz, Dr. Peter Nagler (Evonik Degussa); Ignacio Sánchez Galán (Iberdrola); Kevin Bogard, Dave Hesher, Don McCord and Cheryl Miller (Marathon Oil); Emmanuel Manichon (Nestlé Waters); Professor Udo Ungeheuer, Dr. Hans-Joachim Konz, Dr. Lutz Klippe, Dr. Friedrich Siebers (Schott); Barbara Kux, Dr. Reinhold Achatz, Andreas Hauser, Dr. Jochen Koelzer and John Lombardo (Siemens).

I owe a special debt of gratitude to those of my Accenture colleagues – Dr. Matthias Feistel, Felix Hessel and Wolfgang Popp – who helped with the development and refinement of the innovation framework and success factors, which form the very core of this book.

The text would also not be what it is without the excellent advice and help I have received from my editorial team – Ulf Henning, Laura Kopec, Matthew McGuinness and Jens Schadendorf. Warmest thanks to all of them.

Other Accenture colleagues I would like to thank include Mark Davisson, Bettina Igler, Ken Johnson, Colin Lowenberg, Valentín Miguel and Haralds Robeznieks.

I am also hugely grateful to my Munich-based publisher mi-Wirtschaftsbuch/FinanzBuch Verlag GmbH, in particular CEO Christian Jund and Editor Michael Wurster for their extraordinary enthusiasm, professionalism and wonderfully quick and flexible handling of this project.

Finally, I would also like to thank Helen Kogan, head of Kogan Page, London, and her team, in particular Jon Finch, for their lively engagement and their industrious and adroit support in bringing this book to the global market.

Introduction

Innovation – the hunt for a gem in a new age of competition

Early economists asked a simple question: why is it that something as useful as water is available so cheaply whereas diamonds, with such limited practical use, are so expensive? The answer to this intriguing riddle was that water is widely available and diamonds are not. From this we derive a fundamental economic principle: it is the degree of scarcity that puts different price tags on different things.

The deeper dimensions of this idea are best left to academic lecture theatres. For the practical world of economic enterprises the principle sheds a useful light on vital business inputs such as labour, capital, land or ideas. Their scarcity, availability and affordability will change dramatically over the next twenty years when the balance of global economic power shifts further towards emerging countries, reflecting the trend towards globalisation.

Let’s look at it like this: there is the old world that most of us are familiar with and the majority of enterprises still see themselves as being up against. Here, things like skilled workers, suitable factory sites, natural resources, access to funding, affordable energy or even the right customer groups are vital business ingredients and hard to come by. Our experience tells us that these ingredients are available to different degrees – and therefore today still command substantially different market prices – around the world. Hence, a software engineer in Bangalore is still paid a fraction of the wage his identically skilled colleague in Boston receives. And it is certainly still true today that getting hold of a hard-currency loan in Botswana is more difficult and expensive than it is in Berlin.

But this is the core point about the not too distant future: in the new world of global competition – the birth of which we are witnessing – the hunt for rare business factors, these diamonds of various quality, purity and value, will become much less important if not, at some point, insignificant. Labour, capital, knowledge and other inputs necessary to set up shop will adopt the quality of commodities and be available – almost like water – at more or less globally harmonised prices. That does not necessarily mean they will become more affordable, but their still widely differing market values will gravitate into a narrower band. When virtually everything is available to everyone at a similar price, businesses around the world will find themselves in pursuit of a last remaining precious gemstone – innovation. Unlike the other inputs, this factor, by definition, is always “rare” enough to command outstanding prices. A distinct product, an exclusive patent, a pioneering production process, distribution channel, supply-chain mechanism or brand promise – any of these could make the difference for a company. In the new age of hyper-competition, what will distinguish you in the eyes of customers, rivals and shareholders will simply be the quantity of successful innovations you can come up with. This all-important capacity will hinge on you having a viable innovation process in place and the consistency with which you can make it work for you.

You might think innovation is something relative. How can novelty be measured accurately? How good is a good idea or a clever invention? There is a surgically precise answer: a good invention is nothing unless it can prove itself to be a success in the market place. Numerous truly good ideas falter because of bad implementation on their way to market. And an equal number initially thought to be wonderful end as hopeless cases because, contrary to preliminary assumptions, they simply fail to strike a cord with customers. The Austrian-American economist Joseph A. Schumpeter put it in a nutshell back in 1911: “Innovation is the process of finding economic applications for inventions.” This means it is only when an invention has been marketed successfully that we can call it an innovation. The yardstick is simple: new ideas are successful on the market when increased sales and decreased costs push the invention across the threshold of profitability.

We can get a clear, practical sense of innovation’s power by looking to Germany. The country has only recently lost its status as the world’s biggest export nation to China. Of course China has won the game (for now) by playing according to different rules: most of its products are still less sophisticated and manufactured with much lower labour costs. Germany, by contrast, was able for many decades to produce globally sought after export goods even with some of the world’s highest labour costs. The feasibility of this approach came down to one thing: innovation. This factor alone kept and still keeps a large number of German products and services in the game worldwide and many of those are still way ahead of the competition.

China has outmanoeuvered Germany as the biggest producer of solar panels

Moreover, despite their success, German companies have hardly been the world’s most active takeover buccaneers, which leads to another interesting point about innovation: having the capacity and knowledge to turn good ideas swiftly into huge commercial successes on the market will also eventually be the last viable alternative to buying rivals or crowding them out by lowering prices. Both of the latter strategies, numerous studies have made clear, show only mixed long-term results in margin improvement or shareholder value enhancement. From that point of view, even today a buzzing innovation pipeline already makes for the healthiest way a company can stem competition and achieve sufficient growth. In that regard, innovation will definitely be your best protection in any rough weather the globalised era might have in store.

The global harmonisation of business input costs discussed above will probably happen in just a decade and a half or so – with innovation remaining the sole exception. In fact, Indian outsourcing firms concede already that an IT specialist in Boston will, in only a few years, rival their staff in Bangalore on pay. In this general equalisation trend, the knowledge market will explode in volume – particularly driven by the transparency the internet creates. Patents and trademarks, the powerful protectors of intellectual property, will be traded easily on a deep and liquid world market between Shenzen, Stuttgart and San Francisco. Globally harmonised patent laws will make concepts and inventions available to anybody who feels entrepreneurial and wants to set up a business. They will turn into a resource like, say, energy is today. Companies in this environment will need to ensure they do not fall between the cracks, wasting money on poorly conceived internal R&D, then being unable to compete as buyers in the innovation market. Quicker idea generation will also be decisive, as innovations lose value faster in this highly competitive environment. Remember, it took one million years for mankind to modernise the axe and develop metal knives. Today a computer mouse becomes technologically dated within just five years.

Innovation pioneer Joseph A. Schumpeter

The scenario laid out here is a multi-polar world. It will unfold at many economic epicentres and various poles of corporate power scattered around the globe. Whoever has deep enough pockets will be able to set up shop anywhere in no time and create difficulties for an established blue-chip company even on its home turf. We see plenty of early evidence of this already. Over the past decade, China, India, Russia and Brazil have turned up the heat on the USA, Western Europe and Japan – the economic establishment of the last century. Yes, the latter three regions are still the predominant well of technological and scientific innovation. Yet just a few recent headlines indicate the tectonic shift that is underway. Brazil has overtaken Germany as the world’s fourth largest car market. Russia has launched commercial passenger jets to rival an established duopoly of Western manufacturers. The same is true of China, an economic powerhouse that has already outmanoeuvred Germany as the biggest producer of solar panels and recently registered the most worldwide patents in a year. India, meanwhile, has come up with the most affordable mass car ever developed, while South Korea’s universities churn out more engineers every academic year in absolute numbers than the United States.

In a striking additional development, more and more world-class executives and managers are crossing the lines to head ambitious corporate organisations in emerging countries. In doing so, they are transferring the leadership skills and innovation experience they have garnered in the mature markets of the West to new hotspots in fast growing markets. Even this segment of the labour market is turning global as pay packages for international talent begin to harmonise.

In the energy and natural resources industries the new world has already knocked at the door

Why are the historic shifts described above especially vital to the energy and natural resources industries, our main focus in this book? Put simply, there is less time left in this sector before these changes begin to bite. In many respects the markets for these industries – raw material groups, power producers, oil and gas companies and chemicals manufacturers – are undergoing massive change as the balance of power shifts towards emerging economies and the world looks to a range of low carbon technologies.

With the economic boom propelling emerging countries like China, India and Brazil, markets have become tight for most companies in the energy and natural resources sector as the global run to secure deposits of oil, gas, uranium and fertilisers reaches new heights. In one of a string of similar deals, the state oil company Petroleos de Venezuela (PDVSA) and China National Petroleum Corporation agreed to extract and refine 2.9 billion barrels of crude oil annually in Eastern Venezuela over a 25-year period. Chinese energy companies are also desperate to secure energy supplies in the Middle East, West-Africa and Central Asia for the country’s rapidly growing economy.

Many other state-owned emerging world energy companies have entered the race. In the oil sector, for instance, they are increasingly pushing the big diversified Western oil majors into new territory where innovation is becoming vital. As oil producing countries go for the easy oil and gas in their own ground, Western exploration expertise is increasingly left with technologically ambitious, costly and risky projects such as deepwater drilling, oil sand or shale gas.

For the moment the raw materials sector is enjoying the second super-cycle since the turn of the century. Spot prices for everything from industrial metals to rare earths, coke and coal are booming, largely driven by the voracious appetites of countries like China, India and Indonesia that have a relative dearth of rich deposits in their own soil. Dividends and returns for shareholders in the sector have never been higher. The success of raw material companies is actually almost too much for them. Bottlenecks arise in the shape of transport capacity limits, a difficulty that nevertheless looks like a nice problem to have from the perspective of other sectors facing stubborn structural growth problems.