Business Transformation Forum Finance by Visuele Notulen

Keynote Welcome

page 38

page 11

Wrap-up page 44

Keynote page 16

Dinner Break-out Sessions page 27

page 52

Keynote

page 58

Program

Introduction and welcome message

Leadership in Innovation The role of the CFO

Derk Lemstra, Managing Partner Stibbe welcomed the participants to the second Business Transformation Forum in Slot Zeist, which brought together top level CFOs to learn about, share and discuss the forum’s main theme ‘Leadership in Innovation’. Before the start of the forum, preparatory meetings were held with many of the participants. It was interesting to see the similarity in the innovation challenges that all CFOs face, while at the same time recognizing the particular individual approaches used. CFOs must deliver short-term results, while at the same time stimulate innovation to ensure future success. This dilemma was the starting point for the discussions between CFOs and their peers.

Many CFOs are finding that the traditional approaches to innovation are not suited for the rapidly changing technology and increasing customer expectations. Therefore, today’s finance leaders are looking for new approaches to capture and manage innovation.

Michael Wade

Professor of Innovation and Strategic Information Management at IMD

The first keynote speaker of the day was Michael Wade, Professor of Innovation and Strategy and the Cisco Chair in Digital Business Transformation at IMD Business School. Michael Wade indicated that, in preparation for his keynote, he spoke to several executives about the role of the CFO in innovation. Some of them considered the CFO as ‘the kill switch’ for innovation. But one CFO of a US company, Wade said, put it more nuanced: ‘finance has a role of balancing innovation, bringing discipline to the process.’ Wade indicated that he liked the nuance, and his speech would focus on three key issues (that) he considered relevant for the CFO: how to manage innovation across the value chain, how to manage different types of innovation and how to sustain a culture of innovation. First, Wade emphasized that you cannot focus on one activity in the value chain: ‘If you really want to succeed in innovation, you need to play chords on the innovation piano, not just the notes. If you’re just playing notes, for example, just focus on R&D to develop a new product, it is very difficult to profit from innovation. Successful

innovations do not just focus on the product; it is also the design, the delivery, the channel etc. So for successful innovation you cannot only focus on products, but also on different elements that bring value to the product in the eye of the customer.’ Another issue, Wade argued, is that innovations often fail. That in itself is not a problem, as long as you learn from it: what can you do better next time? Successful firms such as Google emphasize that failure is important: if you haven’t failed, you haven’t tried hard enough. However, once you have learned from previous mistakes and launch a successful innovation, you will face the ‘S-curve’. The ‘S-curve’ is a life cycle model of innovations; all successful innovations go through the S-curve, yet the time that it takes to enfold may differ across industries and companies. For example, you introduce a new mobile phone in the market. In the beginning of the life cycle, competition is limited and sales pick up quickly. Next, competition enters the market, and sales growth slows down, eventually dropping as competitors also bring successful innovations to the market. In the beginning you can keep

Keynote

profits at an adequate level by reducing costs and innovating incrementally, yet in the long run you’ll have to ‘jump the S-curve’. That is, to remain successful in the long run, you have to manage your innovation portfolio and bring a new successful radical innovation to the market. A key problem that organizations face, is that one single innovation process for all types of innovations will not work; organizations have to distinguish between radical and incremental innovations. In addition, two difficulties have to be solved in the innovation funnel: what is the problem (i.e., how will the innovation solve the problem of the customer), and commercialization (i.e., how do you bring the product profitably to the market).

innovations work and which do not. Startups, new ideas and companies are different, but there are structures you can organize to create a successful innovation. In a startup it’s very simple: spend less than you receive.

Wade also mentioned the example of Lego. Near the end of the 1990s, Lego was facing some challenges: patents were ending, manufacturing problems were luring and their main customer group was heading for different products. Lego reacted by initiating a number of new initiatives; this resulted in many problems, as they were unable to handle all of them. Eventually, the CFO brought balance to the process. Nowadays at LEGO, 90% of the innovations are incremental while only 10% are radical, breakthrough innovations. As in Lego, CFOs can fulfill a key role in the innovation process by evaluating the success of different innovations (on the S-curve), evaluating the adequacy of business models, and closely monitoring the innovation portfolio. Depending upon the portfolio, CFOs would have to step on the brake (to prevent excessive innovation) or step on the gas (to increase radical innovation projects).

Michael Wade concluded his keynote speech by talking about specific elements of an innovation culture. First, autonomy, i.e. providing both the time (to individuals or teams) and resources (budgets) for exploring new ideas. Second, rewards, i.e. the organization should recognize the success of a new innovation and tie it to remuneration or recognition for the individual or team that initiated it. A third key element is tolerance for failure, i.e. does the organization provide ‘psychological safety’ to its members? Wade indicated two questions that should be posed: if projects fail, does the organization learn from it and can people that headed failed projects still be promoted in the organization? A web-based application indicated that providing financial benefits to successful team members and promotion of organizational members in failed projects are likely to be the challenges that face the respondents in the audience.

Michael Wade mentioned that Shell has a monitoring system for products released in the past three years, so they can track which

Shell founded its GameChanger program in 1996 and has long practiced open innovation, inviting ideas from outside and working with others. The program has been designed to prove the technical and commercial viability of an idea quickly and affordably. To date, GameChanger has worked with over 1,700 innovators and turned more than 100 ideas into reality – some with massive potential.

â&#x20AC;&#x153;Innovations often fail. That in itself is not a problem, as long as you learn from it: what can you do better next time?â&#x20AC;?

Paul de Wit CFO GreenPeak

‘‘Today was a very good day for me. It’s great to see so many colleagues and talk with other CFOs about innovation. After this forum I will try to bring more structure to innovation into our company and focus more on efficient implementation and marketing of the innovations. Most of what I’ve heard today was known already, but it’s good to focus on certain areas to sharpen the mind.’’

Erwin Smit

Executive Director Marsh

‘‘The discussions and subjects were very interesting. It was good to discuss about innovations in such an open matter and to define what that means for your company. I’ll definitely keep in mind the example of playing chords on the innovation piano, not just notes. The S-curve was a very clear and useful graph, too.’’

Interviews

Break-out sessions moderated by

Saskia Bomas

Han Gerrits

Huib Costermans

Engelhardt Robbe

Renier Vree

MariĂŤlle Vogt

Focko Dorhout Mees

Remko Wessels

CFO IBM Benelux

CFO KPN Netherlands

CFO ARCADIS

CEO Marsh Netherlands

Professor E-Business & IT-Industry VU Amsterdam

CFO NS

Finance Director TU Delft

VP Finance Global Home Care Unilever

CFOs in dialogue Remko Wessels welcomed the attendees and stated that, listening to Wade’s keynote, he started to think that too much structure kills creativity. ‘One of Wade’s closing remarks about diversity of opinion leading to innovation was very interesting. Let’s prove him right during this breakout session.’ The group talked about good and bad practices of innovation in their business and changing markets. One change that was noticed in the group is that the market for professional service firms (for example, law firms) is shifting from a ‘knowledge industry’ to a ‘skills industry’. In this particular example, the professional service firm allowed its members to be a key part of the innovation process; that requires new skills (such as recognizing innovation opportunities, commercializing knowledge) in addition to the professional knowledge of the organizational members. Another example of innovation that was brought to the table was Philips LED-lighting. Philips LEDlighting became successful because of discipline in the innovation process. Philips chose to put a lot of money in the innovation process, at a time when barely anyone was using LEDs. Nowadays, Philips LED-lighting is the market leader and 40% of the lightning is LED. The innovation process was successful because Philips wanted to be ahead of the market and accelerated the growth of LEDlighting. Finance played a critical role in the process by keeping things transparent. Finance created space to accelerate the market development and in providing and installing transparent product

development and monitoring processes. At Philips, there was room for failure in the process. One question that came up from the other participants was whether the CFO, who is involved in the process, can still ‘pull the plug’ on the innovation project. The answer was that ‘You do it collectively and well considered. In addition, most CFOs don’t pull the plug, but the CFO should bring up that you’re running out of funds, forcing the rest of the participants to consider whether to continue or stop the project’. Other interesting remarks were made about one of the key takeaways from Michael Wade’s presentation: ‘Innovation is also about evaluating business models and commercialization. It’s not ‘just another flavor’ in the process, but it is about what we can do as a business and where we can add value’. Another group discussed whether the CFO should make sure that all alternatives come to the table. As one CFO indicated: ‘I always ask for alternatives and better solutions, and I don’t take no for an answer’. The role of the CFO in innovation processes is that you should evaluate the feasibility of a solution and challenge other team members for better solutions. In other words, the CFO should organize ‘the other side of the coin’ and make sure that ’alternative opinions are heard in the process’. In addition, the CFO should be able to link the processes of radical and incremental innovations through his/ her professional skills and facilitate small (scalable) projects that can make innovation happen.

â&#x20AC;&#x153;A KEY PROBLEM THAT organizations face, is that one single innovation process for all types of innovations will not work; organizations have to distinguish between radical and incremental innovationsâ&#x20AC;?

â&#x20AC;&#x153;The CFO should be able to link the processes of radical and incremental innovations through his or her professional skills and facilitate small, scalable projects that can make innovation happenâ&#x20AC;?

“WHAT CAN YOU achieve by mobilizing people? That’s interesting to me.” “THE CFO SHOULD organize ‘the other side of the coin’ and make sure that ’alternative opinions are heard in the process’.” “GOING FROM A knowledge to skill industry requires a lot of attention.”

Han Gerrits

Partner KPMG Professor VU University

After being introduced by Bas van Werven, Professor dr. ir. Han Gerrits, Partner at KPMG and Professor at VU University, started his enthusiastic keynote speech by explaining the difference between innovation and exploitation. There is a different set of rules for each of them. Exploitation means rules, structure, detailed testing, part of architecture, long cycles. Innovation requires a lack of rules, chaos, trying out in the real world, outside of existing architecture and short cycles. Like Google says: ‘You can manage chaos, and that will lead to better ideas.’ They also test in the real world in ‘beta’. ‘Make it as simple as possible, push it out, and see how it comes

back,’ Gerrits advised. ‘We base our ideas on assumptions. We have to test our assumptions; we don’t know if something is going to work before we start. That makes the difference between a big and a small company. A startup is not just a small version of a big company. Big companies know their pricing and customers; startups have a lot of unknowns. What you should do: control a startup or innovation business as an operational manager. Make your products small, cheap and get it out there. Define buckets in your innovation budget for long term and short term. When you start an innovation, don’t start measuring output. Use input (time, money) and change this over time to output.’

Keynote

“When you start an innovation, don’t start measuring output. Use input (time, money) and change this over time to output.”

“YOU CAN BUY A NEW idea, but bringing it into the business is a real challenge. Integrating systems and processes is something that needs serious attention.” After the talk of Gerrits, Michael Wade returned for the wrap-up. After being briefed by the breakout moderators and one representative from each group, Wade discussed a few common themes of the breakout sessions with the audience. The first topic was ‘big bets, small bets’. The trend appears to be that companies are placing a large number of small bets (rather than a few ‘big bets’), and scale up the successful ones. One key issue when placing a large number of small bets is that unsuccessful projects have to be killed as soon as possible; if not, you will get chaos. Wade: ‘In Google they take pride in killing their projects. They even have a physical graveyard for them.’ One of the roles of the CFO is facilitating small bets, yet also making sure that unsuccessful projects are eliminated as soon as possible. Another theme that came up is how to handle different types of innovation within the firm. Companies can either develop different types of inhouse innovation, or purchase innovations outside the firm. The CFO is, of course, involved in such an acquisition. However, a key issue is how to integrate the new business in current operations without

disrupting these operations. Wade: ‘You can buy a new idea, but bringing it into the business is a real challenge. Integrating systems and processes is something that needs serious attention’. A third theme that had been discussed in several groups is the timing of innovations. For example, the taxi service Uber was not a new idea; it has been successful because it provides better value for customers in terms of delivery, technological support and service. Similarly, although Google Glass has been a commercial failure, Google has learned a lot from it and is currently working on the new generation of this technology. Finally, one of the attendees had worked with the company that invented WiFi. WiFi only took off when a leading customer was willing to include it in its electronic devices. The company built upon that idea by making sure that a leading customer was also willing to include the innovation in their products. The use of large customers, with big networks, is key in making the innovation successful. You need to use your existing network and the entire ecosystem.

Wrap-up

â&#x20AC;&#x153;One of the roles of the CFO is facilitating small bets, yet also making sure that unsuccessful projects are eliminated as soon as possibleâ&#x20AC;?

Interviews

Bert Cornelese

CFO Continental Bakeries ‘‘I’ve heard inspiring things from other attendees. It makes me think about the situations in my own business. Do I hear things that can help me? Especially creating enough space for innovation was an interesting idea that I will want to further explore.”

Peter Zijlema Vice President IBM

‘‘Innovation is an important theme for everyone, so this forum is good for the community and for peer-to-peer discussions. It’s also perfect for networking, the level of the speakers was great; they all have very interesting stories to tell.’’

Introduction Chef Watson

“JUMPING THE S-CURVE; I was more thinking about timing: who’s the first to jump?” Before dinner, Peter Zijlema, Vice President and Director of Sales IBM Netherlands, introduced the attendees to Chef Watson: We talked about ‘Jumping the S-curve’; I was more thinking about timing: who’s the first to jump? One of the first IBM products more than 100 years ago was meat slicer…since then we transformed our company visibly at least three times. For me it changes almost everyday, that’s the life that we live nowadays constant change. Today we all together create 2,5 million terabytes of information, mainly with our mobile devices. That’s more per day than our entire civilization since the age of the clay tablets has documented. Most of this is unstructured data, and Watson was made by IBM to deal with this as it understands natural language, is self- learning and understands context.

By taking on the winners in the game of Jeopardy, it might have been seen as a gimmick, but it became mainstream now in our business. Chef Watson is using knowledge of taste and taste perceptions. Cooks work with few known ingredients, but with these we have much more unexplored combinations only a machine like Watson can fathom. An innovate way of cooking.’ Chef Onno Kokmeijer concluded that it is a wonderful, creative tool for chefs and the food industry. However, chefs will always be needed, preparing dinner, adding flavor and surprising the guests.’

“Chef Watson is a wonderful, creative tool for chefs and the food industry.”

Hein Kruyt

Managing Director Solynta

Hein Kruyt’s company creates hybrid potatoes from seeds. Relative to the current way of growing potatoes, hybrid potatoes have several advantages: they can been from seeds, which are easier to store than tubers; it only takes three years to grow a new crop; and less poison is needed in the process. Therefore, the hybrid potato is an important innovation to feed the planet and keep it healthy. Kruyt: ‘The whole adventure started when I was CFO for a seed company. As our main business was in established markets, we needed something to tap into new growth opportunities. We set up exploration teams with people with different skills and experience, and trained them in how to look at value, products, markets etc. We gave the teams three months to come up with new ideas; they came back with crazy ideas: pricing, business models, all really important and new ideas.’ Next, the company made a portfolio of these ideas. It plotted the required investments and expected returns over time. This was key, as Kruyt indicated: ‘You don’t just need things that are important in fifteen years, but also things that bring value tomorrow.’ As a CFO, he had an important role in the process:

the finance team was able to appreciate and evaluate the risks of all projects, which helped to develop the desired portfolio. One of the projects that came up was the hybrid potato; not everyone liked the project. Potatoes were an established product and others had more experience in this. However, the hybrid potato had some advantages that became clear when the different options were evaluated. Kruyt: ‘What I learned from this: don’t say no too early.’ Currently, Solynta is doing well because it keeps focusing on potato seeds. The company does not venture into other areas. In addition, it learns from other companies. One of the key issues in Solynta is retaining the entrepreneurs within the company: ‘Entrepreneurs leaving the company is a waste. These are rare people; if you find people with those skills, keep them close and have fun with them.’ As a result of Solynta’s activities, there is a paradigm shift in potatoes. By having seeds as starting material, Solynta can also help the developing world. Solynta can use the seed as an excellent starting material to grow seeds everywhere in the world, with less water and less land.

“DON’T SAY NO too early”

Key take aways

1. FOR SUCCESSFUL INNOVATION YOU CANNOT ONLY focus on products, but you should also focus on different elements that bring value to the product in the eye of the customer. 2. THERE IS A DIFFERENCE BETWEEN EXPLOITATION and innovation. Exploitation means rules, structure, detailed testing, part of architecture and long cycles. Innovation requires a lack of rules, chaos, trying out in the real world, outside of existing architecture and short cycles. 3. FAILURE IS IMPORTANT FOR FUTURE SUCCESS: IF you haven’t failed, you haven’t tried hard enough. If projects fail, does the organization learn from it and can people that headed failed projects still be promoted in the organization? 4. COGNITIVE COMPUTER SYSTEM WATSON TOOK ON the challenge and built software to extract knowledge and wisdom from this data. And it’s getting mainstream in business. 5. THE FINANCE TEAM HAS A ROLE TO PLAY IN appreciating and evaluating the risks of projects, which help to develop the desired portfolio. 6. THE CFO SHOULD ORGANIZE ‘THE OTHER SIDE OF the coin’ and make sure that alternative opinions are heard in the process. 7. A KEY ISSUE FOR A CFO, THAT NEEDS SERIOUS attention, is how to integrate the new business in current operations without disrupting these operations.

Business Transformation Forum - Finance is supported by the Partners: Delta Lloyd, IBM, KPMG, Marsh, Spencer Stuart, Stibbe and VU University.