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SOLVING FOR INNOVATION RISK ERM 004
Speakers: Scot Schwarting, Director, Risk Management, Whirlpool Corporation
Larry A. Warner, President, Warner Risk Group
Learning Objectives
At the end of this session, you will: • Understand the various types of innovation
• Understand the breadth of innovation risk
• Understand potential tools to address innovation
INNOVATION DEFINITIONS
• “The act or process of introducing new ideas, devices, or methods.” (Merriam-Webster Dictionary)
• “Something different that has impact.” (The Little Black Book of Innovation, Anthony 2012)
• A solution for the customer that did not exist before. The solution has to have intellectual property. It also has to drive margin over what it’s replacing. (Whirlpool)
INNOVATION RISK
• The risk that new products, services, or technologies do not meet the needs, expectations, or value requirements of the consumer – “Consumer failure”
• The inability to produce new products, services, or technologies at the right time, at the right cost, in the right quantity, and with the proper quality – “Product and production failure”
• The failure to anticipate changing consumer tastes and preferences - “Marketing failure”
• The failure to innovate, frequently resulting in the failure to remain competitive – “Resting on your laurels.”
- Larry Warner, RIMS Innovation White Paper 2015
TYPES OF INNOVATION
• Products
• Technologies
• Packaging
• Processes – Manufacturing, Financial, or Operational
• New Markets
• Financial Instruments, including insurance
• Acquisitions
GREAT INNOVATORS
• Apple
• Amazon
• Biopharmaceuticals
• Whole Foods
• Netflix
• Whirlpool
FAILURE TO INNOVATE
• Polaroid
• Bell & Howell
• Blackberry
• Kodak
• Weight Watchers
ERM IN INNOVATION
• Workshops
• Funnel
• Standardized Review Processes
• Toll Gate
ERM WORKSHOP
Key Risks Key Risk Treatments Risks Treated Who/What/When
Risk 1 Risk Treatment 1 1,3 J. S. – Ac6on -‐ 6/1/13
Risk 2 Risk Treatment 2 1,2,5 R. J. – Ac6on – 4/30/13
Risk 3 Risk Treatment 3 2,4 B. A. – Ac6on – 3/31/13
Risk 4 Risk Treatment 4 3,4,5 B. D. – Ac6on – Q2/13
Risk 5 Risk Treatment 5 5 H. H. – Ac6on – YE 12
OBJECTIVE Risk Drivers Risk Ra=ng
Probability of Success
Warner Risk Group © 2015
STANDARDIZED REVIEW
• Provide a continuous, risk assessment, and monitoring program in order to support corporate wide innovation activities in a uniform way
• Develop a standardized methodology and set of tools to
evaluate innovation options • Evaluate current activities and capabilities • Develop a matrix for consistent scoring of projects
• Adapt the program based on audits
Scale Classification Example
Ques6on Insignificant Minor Moderate High Major What is the poten=al benefit to revenues or expenses?
$100,000
$250,000
$500,000
$1,000,000
$5,000,000
In how many countries will the product be marketed?
US Only
North America
North America
& Europe
North America, Europe, & Asia
All
Scope Example
Ques6ons Scope Score What percentage of the business’ does this product/process benefit?
All Major
Are mul=ple business processes, products, divisions, or func=ons benefited?
N/A N/A
What is the poten=al impact to revenues or expenses? $20M Major What profits will be generated? $2.5M Major Will we be first to market with this type of product? Yes Major
Overall Score Major
Complexity Example
Ques=ons Complexity Score Do are plants already have the technology to manufacture this product?
Yes Insignificant
How much complexity with the product/process add to manufacturing?
Minimal Minor
How much training will our sale force need to market the product?
None Minor
What impact will this have on our plant efficiency? Moderate Moderate Will this process or product have an impact on employee safety? No Insignificant
Overall Score Minor
INNOVATION AT WHIRLPOOL
Innovation at Whirlpool
Innovation at Whirlpool
Whirlpool Methodology
WE
N
SSTRATEGICFOCUS PROJECT EXECUTION
Deliverand Grow
SelectDomains
DiscoveryDevelop
Opportunities
OBPApproval
Early Experimentation
Whirlpool’s Discovery Lenses
Enterprise Risk Management Incorporate risk into Whirlpool’s strategic processes in order to
create a competitive advantage by being prepared for and properly rewarded for the risks we do take:
Design Deploy Embed
Create a process of continuous learning that embeds risk management into operating decisions, optimizes strategic activities and delivers business performance
Whirlpool’s Discovery Lenses Project Delivery Excellence (PDE) System: • Training provided for Project
Leaders • Tools are linked to processes • ERM becomes a technical
competency
Since its launch, PDE Leads have registered 186% increase in risks identified
Enterprise Risk Management Incorporated risk into the CAPEX review assesses the impact of a project on each major risk: • Increases corporate governance • Reduce material surprises • Influence mitigation activities • Become better prepared • Influence risk profile • Increase knowledge base
Innovation Case Studies
• Horizontal compressor
• Microwave sound sensors
• Working with suppliers – new blowing agent
Results Include
• Reduced Whirlpool’s total cost of risk by 38%
• Reduced total cost of quality, warranty claims, liability claims, and product recalls
• 5% operating margin improvement in last three years
• Early alert system to identify and correct new failure modes
OPPORTUNITIES FOR RISK MANAGERS
RECOMMENDATIONS
• Understand the drivers of innovation in your company
• Develop a partnership with the innovation team
• Learn the innovation language at your company
• Highlight the upside as well as downside of risk within innovation process
Contacts
• Scot Schwar6ng, Whirlpool – [email protected]
• Larry Warner, Warner Risk Group – [email protected] – 703-‐856-‐0864
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