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2011 by Stanford Strategic Decision and Risk Management. All rights reserved. Page 1

Strategic Innovation:The Power of Design Thinking in Business

Stanford Strategic Decision and Risk Management Certificate Program


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Carl SpetzlerCEO, Strategic Decisions Group

Program Director, Stanford SDRM

[email protected]

[email protected]

1-866-234-3380

Paul MarcaDeputy Director, StanfordCenter for Professional

Development

[email protected]

http://strategicdecisions.stanford.edu

Bill BurnettConsulting Assistant Professor

of Mechanical Engineering, Design GroupExecutive Director, Stanford Design

Program

[email protected]

Meet Todays Speakers


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71% of business leaders rank innovation as a Top 3

priority and are more satisfied with the financial return.

8% 10% 6%

26%

23%

43% 39%45%

23% 25% 26%

26%

2008 2009 2010

Source: Innovation 2010, BCG Senior Management Survey

Not aPriority

Top 10Priority

Top 3priority

Toppriority

100%

Where does innovation rank among your

companys strategic priorities?

57%

48% 45%

43%

52%55%

2008 2009 2010

100%

Are you satisfied with the financial return

on your investments in innovation?

Noor DontKnow

Yes


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Poll: How satisfied is your organization with the

financial return on your investments in innovation?

Very dissatisfied 7% (13)

Somewhat dissatisfied 30% (57)

Somewhat satisfied 54% (104)

Very satisfied 9% (18)


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Strategic Innovation

1. When is Innovation Strategic?

2. Design Thinking as a Business Tool

3. A Better Model: Innovation with Value Discipline

4. Learning More


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Strategic usually means affecting shareholder value.

Different needs in different times

1946 2011 DJI Average


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Formulaic growth strategies

1946 1966

1982 - 2000


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1966 1980

2001 2011

Innovate to survive and transform without adding

permanent cost structure.


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In business and in life you innovate to change or you

die. There are many reasons why that is true

Business life cycle transitions

Disruptive events internal or external

Business model shifts

A proactive decision to change strategic direction due toopportunity or threat

Merger or acquisition


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There are three fundamentally different stages in

strategic management.

DirectionalDecisions

Choose the roadChoose the road

OperationsManagement

Run better andfaster than the

competition


competition

Leadership

Management

ChangeImplementation

Make the turnMake the turn


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DirectionalDecisions

Choose the roadChoose the road

OperationsManagement


competition


competition

Leadership

Management

ChangeImplementation

Make the turnMake the turn

Strategic innovation focuses on directional decisions

and big change.

StrategicInnovation



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Strategic Innovation is

Creative Significant Real


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4. Learning More


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Design Thinking and Innovation

Source: Stanford d.school


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Design Thinking is both a Culture and a Big Idea.

The most successful businesses in the years tocome will balance analytical mastery and intuitiveoriginality in a dynamic interplay that I call DESIGN

THINKING. Design thinking is the form of thoughtthat enables forward movement of knowledge, andthe firms that master it will gain a nearlyinexhaustible, long-term business advantage.

Roger Martin, dean of the Rotman School ofManagement in The Design of Business

TIME, June, 2009 Fast Company,September, 2010

Harvard Business Review,December, 2009

The Economist,February, 2010

Business Week, April, 2010

Business Week, June, 2006


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The focus on design thinking is being led by

universities and design firms.

the d.school at Stanford

University of Toronto

Illinois Institute of Technology

Design firms are becomingstrategy firms

IDEO,point>Forward,

Doblin, and others


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Design Thinking Explained

Problem Finding + Problem Solving = Competitive Advantage

A new approach to problem finding

The highest leverage is found in re-framing problems

A dynamic approach to problem solving

Works well on poorly bounded problem

A new perspective on value

An empathy-based, human-centered process focused on user

needs


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How is it different?

Engineering Thinking Solves its way forward

Business Thinking Decides its way forward

Design Thinking Builds its way forward


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TECHNOLOGY

Engineering AnalysisMechanical EngineeringElectronics & MechatronicsComputer ScienceBioengineering

MANUFACTURING

Manufacturing TechnologyManufacturing Strategy & Process

BUSINESS

Business PrinciplesFinanceMarketingMarket Research

ORGANIZATIONAL BEHAVIOR

Team BuildingBusiness StrategyEntrepreneurship

HUMAN VALUES

Social SciencesNeed-FindingPsychology, Anthropology, SociologyArt / Industrial Design

DESIGN & INTERACTIVITY

Human-Computer interactionVisual ThinkingDesign for Sustainability

Source: Stanford d.school


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What is Design Thinking in a strategic context?

Design Thinking requires the following to be active:

It becomes part of the firms Culture Multidisciplinary teams Radical Collaboration Fluency trained Semantically aligned

It becomes a Processfor problem solving Experience-based, user-centered research Prototyping to ask good questions Iteration is part of the process

It requires Focus to move the needle

See: The Role of Design Thinking in Firms and Management Education

Bruce A. Heiman, San Francisco State University, USA

William R. Burnett, Stanford University, USA


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Apple under Steve Jobs is an example of a company

that profits from design, and is considered by some tobe the most innovative company in the world.

2010 Rank* 3-yr. StockReturns (%/yr)*

2011 Rank** 3-yr. StockReturns (%/yr)

1 Apple 35% Apple 36%

2 Google 10% Twitter Private

3 Microsoft 3% Facebook Private

4 IBM 12% Nissan 5%

5 Toyota Motor -20% Groupon Private

6 Amazon.com 51% Google 0%

7 LG Electronics 31% Dawning Private

8 BYD Auto 99% Netflix 199%

9 General Electric -22% Zynga Private

10 Sony -19% Epocrates -55% (Feb IPO)

The World's Most Innovative Companies

* Business Week and Boston Consulting Group survey** The Worlds Most Innovative Companies 2011, Fast Company


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Product & ServicesProduct & Services

Business ProcessBusiness Process

& Platforms& Platforms

Apple is a role model for design innovation at all

levels.

Business ModelBusiness Model

Artists

Hollywood

Advertisers

Developers

Products

Platforms

Content


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Poll: How much has design thinking become a

driver of strategic innovation in your firm?

We dont know what "design thinking" refers to. 33% (60)

We are aware of and introducing design thinking. 25% (45)

We have pockets of capability. 30% (54)

It is part of our strategic competence. 13% (24)


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4. Learning More


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In most organizations, creativity opposes evaluation.

Currently design-innovation often falls into this trap.

ValueDiscipline

ValueValue

DisciplineDiscipline

CustomerExperience

ShareholderValue

AppliedCreativity

AppliedApplied

CreativityCreativity

WowFactor

Excitement Number-Crunching

SpreadsheetAnalysis

FuzzyBean Counters

Evaluation is asword in the handsof the controllers.

Creativity is anice-to-have oncewe hit our targets.


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Organizational hurdles to strategic innovation exist in

many places.

ExecutionExcellence

AppliedAppliedCreativityCreativity

ValueDiscipline

ValueValueDisciplineDiscipline

GrowthOpportunities

ValueGuidance

Weak structuralsupport forapplied creativity

Processes arelinear, not cyclical

Implementationfailures

Learning failures


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900 600 300 0 300 600 900

Change in NPV: High-End TV Strategy

($ millions)

Base Case value = ~ $2 Billion

Analytic tools like tornado charts can inform and

direct innovation and design.

Appeal to Market Size 0.5x Base 2x Base Estimate

Next-Gen Cost None 1.5x Initial Design

TV Cost High Low

New Broadcast Standard None Rapid Changes

Screen Size 40 50

Development Costs 2x Estimates

TV Replacement Cycle Slow Rapid

Distribution Markup Low High

Display Resolution Low High

Base Case

Product andmarket

characteristicscan be defined

and valued

Product andmarket

characteristicscan be defined

and valued

Understanding of the rangeof impact can be valuable

to the design team

Understanding of the rangeof impact can be valuable

to the design team


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The Innovation Competency Model:

An Effective Value Driven Innovation Cycle

Value Guidance

Value Creation

Opportunities

Cycle buildslearnings and

buy-in

Respects & leveragesthe practical natureof business analysis

Respects &nurtures theopen-ended

nature ofcreativity

1

2

3

ValueSignificance

ValueValue

SignificanceSignificanceApplied

Creativity

AppliedApplied



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The New Yorker Collection 1986 Frank Modell from cartoonbank.com. All Rights Reserved.


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Innovation Competency Model

3

4

AppliedApplied


Value

Discipline

ValueValue


Value CreationOpportunities

ValueGuidance

ReinforcingCycle

ExecutionExcellence

1

2


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GE under Jeff Immelt has the four elements working

together.

3

4

AppliedApplied


Value

Discipline

ValueValue


Value CreationOpportunities

ValueGuidance

ReinforcingCycle

ExecutionExcellence

1

2

1. Growth is driven withimaginationbreakthroughs and

dreaming sessions.

1. Growth is driven withimaginationbreakthroughs and

dreaming sessions.

2. The strategic valuediscipline has beendeeply embedded in GEfor some time.

2. The strategic valuediscipline has beendeeply embedded in GEfor some time.

3. It is a cycle in whicheveryone has toparticipate.

3. It is a cycle in whicheveryone has toparticipate.

4. Execution discipline is intense,with adequate funding and thebest people being assigned todeliver on the innovationinitiatives.

4. Execution discipline is intense,with adequate funding and thebest people being assigned todeliver on the innovationinitiatives.


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Sources: July 2005 interview of Jeff Immelt by Fast Company. June 2006 interview in HBR

When I got the job, I knew I wanted the company to be moreinnovative, more global, and more focused on the customers.But it does take a year or two or three to really put ideas into

initiatives and get the team aligned.

The big difference is that the business leaders have no choiceshere. Nobody is allowed not to play. Nobody can say, I'm goingto sit this one out. That's the way you drive change.

When I got the job, I knew I wanted the company to be moreinnovative, more global, and more focused on the customers.But it does take a year or two or three to really put ideas into

initiatives and get the team aligned.

The big difference is that the business leaders have no choiceshere. Nobody is allowed not to play. Nobody can say, I'm goingto sit this one out. That's the way you drive change.

It takes time and real commitment from the top.

When we have an idea factory like IDEO talk to us aboutinnovation, its my job to translate what they say into GE. Thatmeans putting it in terms of process and metrics.

When we have an idea factory like IDEO talk to us aboutinnovation, its my job to translate what they say into GE. Thatmeans putting it in terms of process and metrics.


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Poll: What is the benefit of establishing a creativity-

value cycle in your organization?

50-100% increase in shareholder value 38% (79)



Little or no increase in shareholder value 3% (6)

More than 100% increase in shareholder value 12% (24)


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4. Learning More


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In the 2.5-day course, we cover the three main

components of strategic innovation.


Day 3

Identify OrganizationalRequirements

Day 1

Learn Design Toolsand Process

Creative

Day 2

Apply Design Thinking toBusiness Issues

Significant Real

INSTRUCTORS: Bill Burnett, Executive Director, Stanford Design ProgramCarl Spetzler, CEO, Strategic Decisions GroupCynthia Benjamin, Director Innovation, IMS Health


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Stanford Center for Professional Development

Degrees, Certificates, Individual Courses

to meet your education and schedule requirements

Stanford UniversityCurriculum and Research

Meeting education needs of technologyprofessionals, managers and executives

ProfessionalEducation

AcademicPrograms


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Aeronautics and Astronautics

Biomedical Informatics

Chemical Engineering

Civil and EnvironmentalEngineering

Computer Science

Electrical Engineering

Management Science and

Engineering

Materials Science andEngineering

Mechanical Engineering

Statistics

Graduate Areas of StudyGraduate Areas of Study


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Strategic Decision & Risk Management

Advanced Project Management

Global Entrepreneurial Leadership

Accelerating Technology Leadership

Leading Corporate Entrepreneurship

Financial Engineering

Advanced Computer Security

Professional/Executive Programs


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Directed by Professor Ron Howard, Management Science and Engineering

Developed in partnership between SCPD and Strategic Decisions Group

Available online, at Stanford, and at work

Meets the career-long education needs of professionals, managers, and executives

Unique University/Industry Collaboration


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Strategic Decision and Risk Management

DecisionAnalysis

DecisionQuality

CollaborativeDecision-

Making and

Negotiation

Modelingfor StrategicInsight

Value-Driven

EnterpriseRisk Management

Strategic

Innovation& DesignThinking

Biases in

Decision-Making

Managing Riskin HealthcareOrganizations

StrategicPortfolio

Decisions

LeadingStrategicDecision-Making

AdvancedProject

ManagementProgram

Converting

Strategy intoAction

Earning the CertificateComplete 2 required courses and 4 electives.

Additional Electives: Advanced Decision Analysis Ethical Decision-Making Decision Quality Practicum

NEW!

NEW!

2011 S h d l


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2011 Schedule

http://strategicdecisions.stanford.edu

D E C E M B E R I N H O U S T O N *

Decision QualityLeading StrategicDecision-Making

S E P T E M B E R A T S T A N F O R D

Decision Analysis

Decision QualityStrategic Innovation& Design Thinking

Collaborative Decision-Making & Negotiation

Converting Strategyinto Action

*Houston program offered in collaboration with the Center for Lifelong Engineering Education,University of Texas at Austin.

Pricing for on-campuscourses (per course):

Regular price: $2,600 Early registration price:

$2,340 (Decemberearly registration ends

October 17)

For more information:Patty Harris, CustomerRelationship Manager+1.866.234.3380+1.650.475.4490

[email protected]

http://strategicdecisions.stanford.edu/texas


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[email protected]

1-866-234-3380http://strategicdecisions.stanford.edu

To contact one of todays speakers:

Carl Spetzler

[email protected]

Paul Marca

[email protected]

Bill Burnett

[email protected]


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The Art and Science of Good Decision-Making

October 19, 2011910 a.m. PDT

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