The Funnel Magazine #7 | Fall 2019 | Israeli Edition

Autumn 2019

VISA: A Brazilian Journey page 8

Innovation at EL Al page 14

Jaguar Land Rover Corporate Startup Studio page 18

Internally ready for open innovation? page 30

CONTENTS Business Title

06

Innovation for a Better World

08 VISA: A Brazilian Journey

10 Innovation Book Club Scaling Lean by Ash Maurya

12 To ERR is Human… but Who is responsible for machinemade decisions?

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14

Innovation at EL Al BUILDING AN INHERENT ABILITY TO DIGEST INNOVATION OPPORTUNITIES

16 Innovation as an ongoing practice at Superpharm

18 Jaguar Land Rover Corporate Startup Studio

22

Ayalon Insurance Taking the innovation leap

26 The Right Way

30 Open innovation is great. What about internal readiness?

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EDITOR’S NOTES Dear reader, Autumn is the season when nature renews itself, discarding the old and preparing to create the new which appears in the springtime. It is autumn now in the Northern hemisphere and this issue of The Funnel focuses on open innovation. The reason that open innovation is so essential to the long term success of organizations is that it opens the organization to new possibilities of change and growth, driven by technologies and concepts that were conceived and nurtured outside the organization. However, in order to be ready for growth in the springtime, organizations must be willing to prepare the infrastructure for this growth and shed certain outdated concepts just as autumn does before winter and spring.

In this issue, you will learn how open innovation impacts established corporations.

You will read what the CDO of a major airline has to say about how the ability to digest innovation internally is an essential tenet of long term innovation success. In this issue, the CDO of an insurance company discusses the need for innovation to be both top-down and bottom-up for such a skill to exist. In addition, we have a rare glimpse into the cutting-edge model that Jaguar Landrover uses for open innovation and a fresh perspective on the implications that new technologies may have on corporate responsibilities.

This issue of The Funnel is all about openness and renewal.

I wish you an enjoyable read!

Ahi Gvirtsman

Chief Editor & Duco Global Partner

Innovation shorts 01 AI in the banking world Understanding humans better than other humans

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JPMorgan recently collaborated with Presado, an AI marketing company, and will use AI technology to write more attractive marketing content.

With machine learning and machine messaging technologies, Persado makes AI write articles in human form. There are millions of words in the AI database, classified with different tags. In the JPMorgan test, the marketing content written by AI caused interaction rates to grow by 450%. With such significant improvement, JPMorgan will now take the collaboration with Persado to its next step.

02

Airbnb Innovating the competition away

A tough challenge that all startups deal with is their business model being copied by competitors.

Airbnb experienced this type of challenge in their early stages. Wimdu, a competitor of theirs, was using a similar business model but with more employees and funds.

AirBnB had two choices: (1) collaborating with Wimdu, which is hard because you would need to integrate different corporate cultures; (2) competing with Windu to become the unicorn in the industry.

After long deliberations, Airbnb founder, Brian Chesky, gave up on the collaboration option and started the blitz-scaling strategy. The blitzscaling strategy’s core concept is to use the amount rather than the efficiency route to take more market share, attracting more investment and building a positive circle to rapidly grow the startup. Clearly, this strategy must have worked because in 2018 Q3, Airbnb reached its highest-income - 10 billion dollars.

04

A Swiss startup, Energy Vault, raised $110 million from SoftBank Vision Fund to build its 1:1 prototype. Energy Vault started in 2017, inspired by the hydropower industry, dedicated to generating green energy with a low-cost method.

The concept that Energy Vault uses to store power is “converting kinetic energy into electricity.” Cement bricks are piled into towers using cranes when extra energy is available and thus potential kinetic energy that is stored in those bricks can be made available. When power is needed, the tower is taken apart one brick at a time and the brick tied to a cable spins an energy generating turbine on its way down as it utilizes gravity for the creation of electricity. It is the most straightforward technology in energy storage.

Energy Vault CEO, Rob Piconi, said they could reduce the cost to 150 dollars per kWh of stored electricity once they build up the 1:1 prototype in several years which is superior to lithium-ion batteries. There are some challenges that Energy Vault needs to solve, like how to find so much cement, as a brick resource, and facility security.

The New Business Model - Subscription

Many corporations are modifying their pricing models to subscription based services. For example, Microsoft, Sony, Netflix, and Nike. Customers can subscribe to games, software, and music from Sony. They can now subscribe to children's shoes from the Nike Adventure Club. There are more and more companies looking to use service-subscription to replace the product ownership model.

There are two main reasons for making subscriptions your new business model: Firstly, technology makes subscription feasible for industries where this wasn’t so in the past. Thus, it lowers the barrier of trying what was a product and is now a new service to customers. Customers can use services easily to get anything they want.

Secondly, ownership becomes non-essential. For example, the customers do not need a car to drive them to the destination, but they want a service to take them there.

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03

Energy Vault - Energy storage through elementary school physics

INNOVATION

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FOR A BETTER WORLD

The concept of innovation is, amusingly, a very old one. The development of agriculture, the invention of the wheel, and the first bank-note were all innovations that changed humanity irrevocably.

Over the last decade, Israel has become known around the world as the “Startup Nation”, but in fact, Israel has been a leader in global innovation since before its establishment. Israeli innovators have pioneered developments in fields such as agriculture, Information and Communications technologies, medicine and healthcare, security and aerospace, and most importantly – social and cultural advancements empowering individuals and groups to become agents of positive change.

Indeed, innovation is not just about things – it can also bring people together, create lasting personal connections, and build bridges for understanding and shared-living.

The Peres Center for Peace and Innovation was founded in 1996 by the Ninth President of Israel and Nobel Peace Prize Laureate, Shimon Peres, and is dedicated to advancing his vision of a prosperous Israel within a peaceful Middle East. Today, the Peres Center is a leading non-profit NGO developing and implementing cutting-edge programs that promote peace and innovation in the fields of medicine and healthcare, business and entrepreneurship, education, and technology. Programs are developed together with local, regional and international partners, and serve hundreds of thousands of participants of all ages, religions, genders and cultural backgrounds.

Throughout President Peres’ life, he drew upon his unwavering optimism, innovation, and creativity to pursue and promote peace and prosperity in Israel and the region. He firmly believed that peace and innovation are two sides of the same coin – to build peace we must innovate, and when innovating, the process must be undertaken with a focus on positively contributing to society as a whole. In this

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spirit, his flagship initiative was launched in 2016: The Israeli Innovation Center.

The Israeli Innovation Center at the Peres Center is Israel’s first innovation destination of its kind - an interactive hub for the Israeli startup and innovation ecosystem located in Tel Aviv-Jaffa. It showcases how Israel became one of the most innovative countries in the world, with an emphasis on how innovation is a mindset – a method of approaching and addressing needs and obstacles with vision, drive, and unique perspectives, translating them into never-before-seen solutions to tomorrow’s challenges. Visitors from Israel and around the globe take part in a dynamic journey, where they learn about the past, the future, and the here-andnow of Israeli innovation, getting a sense of the magnitude of how it has impacted communities around the world, changing lives for the better.

But the visitor’s center is only the beginning – it is the platform upon which the Peres Center is building the greatest gateway to Israeli innovation for international leadership, communities, and companies who seek to embrace the concepts and methodologies of Israeli innovation for their prosperity. The unique positioning of the Israeli Innovation Center, attracting tens of thousands of visitors from around the world since its opening last February, including Prime ministers and government officials, CEOs of top global companies, students from Ivy League universities, and more, enables visitors to enjoy not only an interactive tour, but also meetings with top Israeli startups and companies, workshops on innovation, and lectures on trending topics in the ecosystem.

One of the Peres Center’s latest initiatives, as part of the overall strategy to provide tools and methodologies for driving innovation, is the launch of the “Leaders of Innovation” course. A specialty course for innovation managers representing large organizations. The course, developed in

collaboration with Duco, Innovation Ecosystem Design, focuses on providing practical and proven methods for driving internal and open innovation, promoting innovation on a company-wide scale, and understanding how social elements like diversity, inclusion and corporate responsibility are also part of the elements that build an innovative company.

The first cohort will begin in October 2019, with further local and international programs being planned.

In addition to building on the Innovation Center’s role in inspiring visitors and promoting innovation, the Peres Center engages with the Israeli, regional, and global ecosystem in a multitude of projects in the fields of entrepreneurship, technology, knowledge development, and business development. The private sector, startups, and entrepreneurship are a driving force behind the Innovation Nation, but not all communities have access to this unique ecosystem.

The Peres Center focuses on shaping a more diverse, inclusive, and thriving innovation ecosystem in Israel and the region by creating economic opportunities and entrepreneurship and bringing together relevant key actors. At the foundation of entrepreneurship and leadership is the belief that every person – regardless of their background, gender, or religion – can change reality for the better. Over the years, the Peres Center has developed various projects to empower young Israelis and those from around the Middle East to take part in activities that build leadership, confidence, community awareness, and peace, in the spirit of President Peres’ words: “The role of a leader is not to manage what already exists, but to enable what is new to take its place.”

Through the Israeli Innovation Center, as well as the Peres Center’s ongoing programs in a variety of sectors, diverse groups from Israel, the region, and the world continue to gain skills and build bridges, creating a new generation of inclusive communities ready, willing, and able to advance a better tomorrow.

VISA:

A BRAZILIAN JOURNEY AS PART OF A GLOBAL NETWORK OF PUBLICATIONS, THE FUNNEL IS PROUD TO HOST A GUEST ARTICLE FROM KYVO, OUR BRAZILIAN PARTNER. AUTHOR: GUILHERME MANECHINI, SÃO PAULO

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INTERVIEWEE: BEATRIZ MONTIANI, PRODUCT AND INNOVATION MANAGER AT VISA BRAZIL

“What if money became only alpha-numeric data?

A range of electrons and photons that move at the speed of light and bounce around the universe, being at any individual’s disposal, at any moment, wherever they would go, 24/7.”

If this quote were read nowadays, it would add excessive complexity to something that is already a fact - even though, only in 2017, products like Visa Direct started to allow real-time transactions at large scale. In fact, the quote belongs to Dee Hock, founder of the multinational Visa about 60 years ago, and it comprises one of the main purposes pursued by the company he had just launched.

Showcased in one of the walls of the Innovation Studio of the headquarters in São Paulo, Brazil, the statement is a constant inspiration for Visa’s executives, partner banks and fintech entrepreneurs, and a reminder to rethink of the way we deal with money. It is a movement that gained momentum and started to impact most employees since 2016, according to Beatriz Montiani, Product and Innovation Manager at Visa Brazil.

“The innovation tipping point came along with a new CEO, Fernando Teles, in 2016, who embraced the mission to transform the strategy of the company. It would demand a great cultural transformation”, says Beatriz. According to her, several initiatives have been adopted to develop an entrepreneurial mindset among the employees. Some of them are: • Structuring a new innovation area; • Startup acceleration programs and other open innovation programs; • Intrapreneurship initiative, which is based on the mentoring of one founder of Singularity University - Salim Ismail; • Creation of squads for specific projects.

INNOVATION AND INTRAPRENEURSHIP Visa Brazil has been promoting a movement of hierarchy downgrade by empowering its employees towards an entrepreneurial vision and positioning the consumer in the center of the business strategy. For this to happen, structuring a specific area was crucial. The space is also shared and utilized by Visa’s partners, who collectively discuss their issues there in order to search for or create a solution together.

The greatest interchange with clients and partners is based on design and service thinking, from which initiatives like Visa Startup Acceleration Program, Hackathons and the project Cities of the Future, among others, were designed.

“Currently, the fact that we are more consumer-centered has to do with understanding their issues and co-creating solutions,'' says Beatriz. “The idea that something either belongs to Visa or to the client no longer exists. Everything is now shared by everyone,” she adds.

Along with the innovation team, Salim Ismail’s mentoring has also boosted the creation of squads to prompt business, product and solution development. All employees can provide their own ideas and suggest new initiatives. Therefore, since 2016, it has become a routine to research, experiment and establish the culture of creating a Proof of Concept (POC) and Minimum Viable Product (MVP).

An example of this movement, according to Beatriz, is the internal intrapreneurship program that, in 2017, started with more than 130 initiatives, and resulted in the creation of a solution to pay for the subway in Rio de Janeiro either with credit or debit cards. “That product came from the squads - multidisciplinary groups with business, technical and marketing employees,'' says the executive. “But, above all, it came from a change of culture,'' she adds.

ACCELERATION PROGRAM 2017 was also a milestone for Visa in the area of startup acceleration in Brazil. In three years, the company had already accelerated 53 startups and become a reference for fintechs in the country. Just for reference, in 2018, there were an estimated number of 500 fintech startups in Brazil - of which more than 270 applied to the Visa Acceleration Program.

As an example of culture change, Beatriz shares that “some of our meetings at Visa consist of tips from ‘how to make a pitch’. It has been adopted as a natural way to present and stand up for one’s ideas inside the company. A good idea must prove it has marketplace, a good user experience and perspective of results.”

There is also a dedicated area for business with startups. It is a specific focus of the acceleration program, and also of other workforces within the organization. Named the “new business section,” the department has quadrupled its size in the last year. One of the reasons for that growth was the effort put in to turning fintechs into Visa card issuers in a short period of time - less than six months - in addition to enabling partners to benefit from a banking-as-a-service modality. Retail and mobility have also been areas of interest.

HUMAN RESOURCES

It may seem obvious, but managing people is still the most crucial agenda within a corporation aimed at developing innovation from the inside out. The arousal of new careers has been demanded, the corporate structure as it is has been reevaluated (managing models usually demand revision), and the entrepreneurial mindset has become part of the organization’s daily routine.

“It is fundamental to cooperate with the HR department.

I saw the difference from when we had the mentorship program,” Beatriz says. By joining their program to the HR, from 2018 through 2019, there were virtually twice the number of employees undergoing training.

According to the executive, more than a third of all employees (not just executives) are currently startup and personnel mentors. Engagement changed the culture of the company.

“The way we perform business has changed. Beyond that, I believe we have transformed into a more inclusive way of being. Everyone has something to teach and learn. By downgrading hierarchy, we have also changed the mindset”.

LEADERSHIP Once he took charge of leadership of Visa Brazil as Country Manager, Fernando Teles came with a more collaborative, goal-sharing approach proposal to the teams. Happily, they agreed. They had set the blueprint for cultural transformation at Visa Brazil.

Teles opened a direct communications channel to him, and all executives started an open-door policy.

Internal communication also became a greater necessity, particularly to keep everyone on the same page concerning guidelines and novelties, in order to maintain an engaging environment.

The greatest example of collaborative and engaged behavior, led by Visa’s innovation sector, was pivotal to the accomplishments of the last three years. In 2018, Teles held 58 mentorships with startups. He also actively participated in the program and shared its outcomes, showing that innovation is a priority for the company. “Everybody has their own goals, but if the CEO can find the time in his schedule, how can I not?”, concluded Beatriz. Innovation appreciates it.

SCALING LEAN ASH MAURYA INNOVATION BOOK CLUB

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BY: AHI GVIRTSMAN CARL VON CLAUSEWITZ WAS A PRUSSIAN GENERAL AND MILITARY THEORIST IN THE EARLY 19TH CENTURY. ONE OF HIS APPROACHES WAS THAT YOU MUST IDENTIFY WHERE YOUR ENEMY’S HEART OF OPERATIONS IS, WHERE HIS MAIN STRENGTH LIES - SUCH AS THE HIGH COMMAND POST - AND THEN CONCENTRATE YOUR FORCES ON ATTACKING IT. IF WE CAN NEUTRALIZE THE ENEMY’S CENTER, THE REST WILL CRUMBLE AND SUCCUMB TO OUR FORCES LIKE THE ARMS OF AN OCTOPUS ONCE WE ATTACK ITS HEAD.

For those of us who move in the circles of the startup ecosystem, the name Ash Maurya needs no introduction. He is a serial entrepreneur and the mind behind The Lean Canvas tool, which has become one of the leading techniques for entrepreneurs to formulate abstract and complicated ideas in their nascent stage into clearly articulated concepts that can then be validated with The Lean Startup methodology. Ash’s more recent book, published in 2016, takes on the daunting task of actually dealing with reality as the rubber meets the road and budding startups attempt to scale their ideas which they assume have achieved product/market fit. For those of you unfamiliar with the lean startup terminology, achieving problem/solution fit means that we have been able to ascertain that the problem we are trying to solve actually exists for the customer segment that we are targeting and that it is painful enough for that segment to invest time/ effort/money in adopting it. When we reach product/ market fit, that means we believe that the solution we created for the validated problem is indeed what potential customers will buy. Usually, when young ventures reach this point, a decision has to be made regarding the point at which they should scale. Once such a decision is reached, however, too many, even today count on “launch and hope for the best,” which is not a good strategy. Ash’s brilliant approach to the topic borrows a page from Elyahu Goldratt’s brilliant work.

Goldratt, whose seminal works were published in the 80’s and 90’s (“The Goal”, “Critical chains” to name a couple), focused his attention on manufacturing processes and his theory posited that in every manufacturing process there’s always a single point

Ash’s observation was that ventures that are in the scaling stage are essentially equivalent to a manufacturing floor, only instead of converting raw materials into finished goods, what these socalled “manufacturing lines” are doing is converting a target audience into happy, repeat customers.

Think about the conversion pipeline as starting with people who reach a company’s website and see an offered product. A certain percentage of these click to learn more. A certain portion of those actually try the product for 30 days. Out of those, a certain portion pays to continue using the product and so on until we reach those who return for more products and recommend them to their friends and colleagues. The main idea in the book is that when scaling, our job is to constantly survey the pipeline for the bottleneck and focus our full attention on eliminating it before searching for the next one. For example, if only 5% of those who reach a product page are actually choosing to try it but out of those that do, 80% continue beyond 30 days and pay for it then this is where our bottleneck is. If we have $100 then we should spend $80 on checking whether this is due to marketing aimed at the wrong crowd, a badly formulated product page or some other technical issue in the signup page. Too often, you will see startups and corporate ventures spending time on more features or on customer care instead of on the bottleneck which is stifling the venture’s ability to scale.

The significance of this is that scaling ventures are on a very limited runway. Be it a startup or a venture being funded by corporations, there’s an expectation for results and this means that time is of the essence. The key here is that instead of running full speed just to show action, Ash’s clearly articulated approach teaches you where your attention should be focused. Without revealing all the details, I will mention that his perception of the conversion pipeline isn’t as simplistic as described above and so the book is highly recommended. In addition, once this approach is in place, it opens up the opportunity to actually make a much better decision on whether to scale and when.

How do we know whether to scale? The question now isn’t about whether the market will receive our product because achieving product market fit is supposed to answer that. The question now becomes whether we, as a startup, can turn this product into repeatable, profitable, scalable business. The simplicity and elegance of this approach is very refreshing. Instead of endless slides and reports, Ash guides the reader through a few straightforward questions and, similarly to the documented assumptions of the lean canvas, we now have a set of assumptions about how we expect our new business to function. For every stage of the pipeline, we assume a certain throughput and a certain conversion rate to the next stage. For example, if we assume that out of every 100 customers who reach our website, only a single customer will pay us an average sum of $50, that means that in order to make $50K in revenues, we need to generate 100,000 relevant visitors to our site. Now, there’s no right or wrong answer here. It is simply what we expect. In order to test such hypotheses, we can send a marketing email to 2,000 people, see how many reach the product page and measure the actual conversion.

The complex problem of scaling has now become an almost scientific challenge very similarly to the way lean startup handles a newly formulated idea’s underlying assumptions as a set of experiments.

Adding my years of experience running the innovation program of HP Software, I can attest to the fact that almost everything discussed in this book applies to corporations trying to scale new products and services. There’s a lot that corporate innovators can learn from the startup world and a single message that I’d like to convey is that you must never assume that the value delivery chain function of an established organization will know how to scale a new product or service. It is your responsibility, as an innovation manager or someone championing the new venture, to make sure that learnings such as the ones shared in this excellent book are applied within an established organization as well.

To summarize, this book is highly recommended for innovation managers, innovation practitioners and in particular, executives who are involved in the challenging task of scaling a new venture. Just like the Von Clausewitz doctrine, Ash Maurya’s approach advises us to constantly attack the bottleneck in the process of customer acquisition.

Eliminating the bottleneck and focusing our efforts in such a concerted way is the most effective way for achieving rapid progress and making higher quality decisions.

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which is the bottleneck. The job of a manufacturing floor manager, according to Goldratt, is essentially to constantly identify where the current bottleneck is, eliminate it and then look for the new bottleneck which inevitably will appear somewhere else in the process. This iterative and constant improvement of the process efficiency has made Goldratt’s work one of the most significant in the world of management over the last 40 years.

TO ERR IS HUMAN…

BUT WHO IS RESPONSIBLE FOR MACHINE-MADE DECISIONS?

The second decade of the 21st century will probably be marked by future historians as the dawn of the Artificial Intelligence (AI) era. While we are yet to be hunted by legions of killer robots guided by an AI resolved to correct God’s mistake of saving Noah from the flood, we no longer use machines just to substitute or enhance human physical labor, but also as a substitute for human discretion in the decisionmaking process.

With much media attention focusing on autonomous vehicles making moral decisions in choosing between passengers and bystanders’ safety, it is easy to forget that whereas autonomous vehicles or self-guided drones are still under development, other AI machines are already making decisions which affect our everyday lives.

IN MACHINES WE TRUST?

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RAN KAMIL

IS A SENIOR ATTORNEY AT SANLAW, IP & BEYOND ON THE INTERNATIONAL LITIGATION TEAM.

Whether they employ the latest AI technologies like artificial neural networks (ANNs), or a simple old-fashioned if-then flowchart algorithm, we use machines (which we call “computers”) daily to make decisions for us and replace our human discretion.

Lost on your way or just seeking to avoid traffic? A navigation software can decide on the best route for you. Too busy to sort through your e-mails? A spam filter can decide which ones to keep and which ones to discard. Trying to figure out what to watch? An app can analyze your past choices to decide which movie you may like.

Who is responsible when you are led to a traffic jam and late for a meeting with your boss? Who is to blame when that important message from a potential client is overlooked because it was filed in the junk folder, or for an evening wasted on a boring or distasteful movie? Who is liable for the result of a wrong decision when there is no human involved in the decision-making process?

MACHINES MAKE DECISIONS, NOT RESPONSIBILITY

A citation attributed to American scientist, Paul Ehrlich, “To err is human, but it takes a computer to really foul up things” sums things up well. The advantages of having a machine making a multitude of decisions faster and cheaper than any human can easily become a disadvantage when the machine gets it wrong. In such a case, traditional defenses applicable to human decision makers, such as the mistake being an isolated incident, a deviation from the organization’s policy, bias or malice by the said personal, exceeding his or her authority or acting on their own, etc., cannot be applied to a machine without attributing the responsibility directly to the operator thereof. Thus, the multitudinous of decisions on one hand and the direct responsibility of the operator to each of them on the other hand, increases the operator’s exposure to undesirable results such as class actions, negative media,

damage to reputation, inquiries by consumer protection authorities, increased regulation, etc.

Obviously, the operator of the decision-making machine can seek indemnification from the provider or developer of the machine. However, in most cases the operator and the developer are the same entity, or the operator itself is involved in adjusting or training the machine.

In such cases, there are measures that can be taken to minimize or mitigate the exposure: Transparency: As with any human made decision, disclosing the decision-making process and the criteria for making thereof, makes the decision less arbitrary, more predictable, and reduces the frustration of the person or people affected by it. Even in cases where full transparency is not possible for reasons such as proprietary decisionmaking technologies, a partial transparency, in the form of reasoning the decision or explaining what term or criteria were met or not met by the subject of the decision, is preferable. Transparency can demonstrate that the decision, although made by a machine, was not arbitrary, biased, discriminatory or otherwise unfair. Indeed, some AI technologies, such as ANN, pose challenges in implementing such transparency.

Option to Appeal: Offering subjects of machinemade decisions the option to appeal decisions they believe to be erroneous to a human referee, even if such an appeal involves costs and bureaucratic procedure, can serve to shift some responsibility for the error in the machine-made decision process from the operator of the machine to the subjects.

This is because by exercising their discretion in deciding whether or not to appeal and why, the subjects of the decision are no longer totally passive and thus share, at least in part, the responsibility of the final outcome of the decision. Of course, the appeal process must be reasonably available and the human referee authorized and capable of reversing or amending the decision in cases where the appeal is justified.

Alternatives: When subjects of decisions are given a choice whether the decision in their cases will be made by human or by machine, they can also be requested to assume the risks of erroneous decisions by the machine, in exchange for the benefits of receiving the decision faster, for free, etc.

In conclusion, with emerging AI technologies making machine-made decisions more and more common, relying on such decisions may increase exposure to liability for wrong decisions when they occur. Operators of machine making decisions and the ones relying on those decisions should be made aware of these potential exposures and take measures to minimize or mitigate them.

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The answer is easy; the person deciding to rely on a machine decision for his or her convenience can be made to agree to assume the risks of a wrong decision, in exchange for such convenience. The answer gets more complicated when the subjects of machine-made decisions have no choice or are unaware of the use of machines in the decisionmaking process and especially when the decisions might have a greater effect on their lives.

Need a loan? You can most likely get one online without any human involvement. A computer will calculate your credit history and asset value to evaluate your risk factor and, based on this factor, determine the amount you can get and the interest rate you would be offered. The same is true for deciding what will be the insurance premium; which applicant should be admitted to a coveted school; or even when deciding on the amount of bail money a suspect would need to post to avoid detention.

In such cases, the operator of the decision-making machine makes use of the machine to make many decisions affecting many individuals, to whom the liability for erroneous decision cannot be transferred.

The ContentID™ algorithm used by YouTube™ to identify copyright infringement has been the focus of numerous lawsuits for falsely identifying original or public domain creations as infringing. The Correctional Offender Management Profiling for Alternative Sanctions software “COMPAS” used by US Courts to assess flight risk and set bail is being criticized and challenged for being biased against certain minorities. Biometric Facial Recognition systems are slammed for being inaccurate and too vulnerable and easy to deceit. False, discriminatory, unfair, inaccurate or otherwise wrong decisions, exposing the ones who rely thereon or act upon them to claims, are not exclusive to humans and, in fact, are much more common in decision-making machines.

INNOVATION AT EL AL BUILDING AN INHERENT ABILITY TO DIGEST INNOVATION OPPORTUNITIES

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An interview with Shahar Markovitch, CDO & CIO at EL AL

SHAHAR MARKOVITCH IS THE CHIEF DIGITAL OFFICER & CHIEF INFORMATION OFFICER OF EL AL, ISRAEL’S FLAG CARRIER AIRLINE, FLYING 6 MILLION CUSTOMERS A YEAR TO DOZENS OF DESTINATIONS GLOBALLY WITH OVER $2 BILLION IN ANNUAL REVENUES. IN HIS FORMER ROLE, SHAHAR WAS THE CHIEF DIGITAL OFFICER OF BANK HAPOALIM, ISRAEL’S LARGEST BANK AND, AMONG OTHER THINGS, LEAD THE INITIATIVE THAT CREATED THE GROUNDBREAKING PAYMENT APP BIT. BEFORE JOINING BANK HAPOALIM, SHAHAR WAS A PARTNER IN THE CONSULTING COMPANY, MCKINSEY AND COMPANY, FOCUSED ON DIGITAL, TECHNOLOGY, AND INNOVATION.

I joined the company about 18 months ago with the purpose of creating a new division combining the IT division and the digital unit and leading a digital and technological transformation at the company. Our division's strategy is to help build "the smartest airline for the startup nation". A smart airline means to leverage technology to improve customer experience, internal processes, and business practices and to make the company more lean, agile, and innovative. Being part of the startup nation means connecting with the local ecosystem, including academia, hi-tech companies and startups, to generate business value and contribute to company IP.

Based on my experience working with different companies, I categorize innovation into three types. The first type of innovation is incremental.

For example, we have to constantly improve and innovate EL AL's mobile app - my customers expect me to release new features as part of my ongoing practices. At a company level, this will take the form of opening new routes, like direct flights to San Francisco or Tokyo, and continue to improve our core products like WiFi on- board and improved inflight entertainment.

The second type is disruptive innovation meaning innovation that is changing or disrupting the market.

For example, the BIT app changed the payment industry in Israel as it allowed app-based payments.

In EL AL, we "unbundled" our economy product to create fare families (i.e., lite ticket, classic ticket, flex ticket) to compete more effectively with low cost carriers. We are launching a new service which is currently still in pilot mode, called Taxi-pool, which allows passengers on a flight to share a cab from the airport.

The third type is experimental innovation. Innovation that tries to anticipate future trends and position a company to survive a future threat or even leverage it to its benefit. Those trends are so far into the future that innovation in that respect aims to try to see beyond the horizon and understand its long-term implications on the business. For example, in Bank Hapoalim we experimented with blockchain technology to be ready for it when it will start impacting the banking industry. In EL AL, we experimented with VR for inflight entertainment to better understand if it’s a viable alternative to existing entertainment solutions (the answer was "yes!").

It's important to manage a portfolio of different innovation types. Today, most of our efforts are aimed at incremental innovation given the immediate customer and business value they generate. We also invest in efforts to generate disruptive innovation where it makes sense. Regarding the third type, we are currently very selective with efforts around experimental innovation, as it tends to return benefits over a much longer time horizon.

How EL AL is becoming more innovative

COCKPIT - A STARTUP-BASED INNOVATION PLATFORM

EL AL is taking a three-pronged approach to tackling innovation: 1. External innovation/open innovation - Looking for innovation based on external ideas, research and technologies.

• Startups - We run open events and hackathons with startups. In addition, we have Cockpit, which is EL AL’s startup based innovation platform.

• Hi-tech companies - Joint efforts to create customer value through cooperation with hitech companies. For example, we recently did such an event with Microsoft where we thought of ways to leverage Microsoft’s Holo-Lens technology to experiment with the impact of AR on future operations.

• Academia – We are starting to work with a few universities in Israel. For example, our Chief Data Officer is a lecturer in the Technion and is running big data and data science projects with student participation.

2. Internal innovation - Looking for innovation internally through ideas and execution that come from the company’s workforce. This involves hackathons and idea competitions. We also allow experimentation and have innovation leaders embedded in the workforce that help drive innovation.

3. Changing our internal ways of working to be able to digest innovation faster - This is about creating an environment and organization that can effectively digest the various opportunities generated by external and internal innovation efforts.

• Governance - We have a clearly articulated innovation process with checkpoints and committees composed of senior management to make such decisions.

• Infrastructure - We invest in a backend that can sustainably support the dynamics of experimentation and constant change. In particular, the ease with which we can integrate various technologies (cloud based deployments, open API, etc’).

• Increasing our technology development speed and flexibility - We invest in agile development methods.

• Making the supporting processes more flexible - We modify established work processes that traditionally might hold innovation back such as legal, regulation, purchasing and so on.

Cockpit is a daughter company of EL AL’s in partnership with Boeing and Gate Group (the world’s largest airline food caterer). Cockpit is an "innovation platform", which is a combination of a VC, accelerator, and a start-up commercialization platform. Its purpose is to connect EL AL and other global travel and transportation companies to Israeli startups, allowing the former to leverage technologies of the latter. The purpose here is not so much to generate capital gains but more to create value through the startups of the local ecosystem for global companies, with EL AL serving as a design partner/Alpha/Beta customer.

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The three types of innovation

INNOVATION

AS AN ONGOING PRACTICE AT SUPERPHARM AN INTERVIEW WITH MICHAEL MITRANI, HEAD OF INNOVATION & DIGITAL AT SUPER-PHARM

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MICHAEL MITRANI IS HEAD OF INNOVATION & DIGITAL AT SUPERPHARM, THE LEADING DRUGSTORE CHAIN IN ISRAEL, WITH 250 STORES IN THE COUNTRY AND MORE THAN 70 STORES IN POLAND. FOR MORE THAN 40 YEARS, SUPER-PHARM HAS BEEN KNOWN FOR DELIVERING THE BEST AND MOST UNIQUE RETAIL EXPERIENCE FOR ALL THINGS RELATED TO HEALTH AND BEAUTY.

Tell us about the various activities taking place today at Super-Pharm for the purpose of generating innovation ■ Super-Pharm, as a company, places an emphasis on a high quality customer experience and the constant creation of innovation. Innovation comes in many forms, from innovative products as part of the private brand, “Life,” the introduction of new categories or specialty products from international companies, the deployment of tools for internal use with the purpose of various internal process improvements and the creation of additional tools aimed at improving the customer experience.

Examples include item collecting robots deployed to pharmacies, an advanced customer app and more. We make an effort to think forward as much as we can based on what we observe worldwide in the field of retail. Sometimes we create new experiences from scratch and tools that will deepen the connection with our customers and enrich their experience.

Have you chosen any strategic targets that innovation is supposed to impact? In what ways is this pursued?

■ Every move we make is aimed at addressing a need and has success metrics attached to it according to the goal, such as increasing sales, operational efficiency, cost savings, etc’. In reality, what we focus on most often is naturally revenues, but in some cases the increase in revenues alone is not the sole purpose. For example, with the launch of the online site, we discovered that the majority of customers who purchase online prefer to pick up their purchases at the physical stores but that the pickup experience isn’t always sufficiently fast and smooth and there were cases in which the instore collection experience somewhat diminished

To what extent is the Super-Pharm management team involved in innovation activities?

■ I was appointed as part of the senior management team three years ago and innovation is one of the topics that are constantly discussed on a weekly basis. The level of involvement is very high both from management and from the physical stores because, in many cases, innovation can only be possible with the support and correct implementation in the field.

Many things we define as innovation come into place and function only because the staff at the stores actually make it happen. On the management side, there’s constant encouragement to try new things and in every given moment there are several pilots taking place at any one of our 250 stores.

Innovation can manifest itself as the new look of stores, marketing tools like an advanced digital sign at the store, the pharmacy area or related to the various services offered at the stores. We have the capacity and the motivation to try and experiment as much as possible.

What sort of resources does Super-Pharm currently invest in innovation?

■ The most significant resource is time. I personally invest a lot of time meeting various startups, understanding what they do and whether this can relate to our activities and goals. With the relevant solutions, we usually run pilots and this is where the nature of investment changes. For example, is an integration with our core systems necessary?

Does it require real company data? This is where the work time of quite a few people in the organization is required. There are numerous elements that affect the time and effort it requires to create such a pilot. In many cases, the effort for the pilot doesn’t greatly differ from the full implementation of the solution itself. Once in a while, we also identify opportunities to invest in companies. In just the last

two years there have been cases where we invested in companies that we believed had opportunities for growth and opportunity for us to assist in that growth. In addition, we have invested in relationships with hubs and accelerators with the goal of locating startups that do not know how to reach us or don’t realize that their product may actually contribute to our specific domain.

What do you consider as the main challenges that you are facing promoting innovation today?

■ As I mentioned, the will and support to promote innovation exists across the organization. And yet, innovation at its core is often a disruptive element. A new button at the cash register, a new tool for the beauty consultant, a new responsibility for the pharmacist – innovation often leads to changing the routine and change in any domain usually encounters resistance. Personally, I feel it’s relatively easy for me to promote innovation at a conceptual level, but I do find the applicative aspects of it much more challenging. Even so, compared to other organizations, I think that Super-Pharm is an organization that never rests and its leadership knows it must look forward both from the perspective of competition and from that of our customers. As I’ve said many times since starting my role, the daily routine kills innovation. It is very difficult to do one’s full daily job with emails, campaigns and meetings while, in parallel, thinking about the future and try to invent new things. I’m very fortunate to be able to invest most of my current time in innovation and forward thinking but it is never enough.

What would you advise a manager in the first stages of promoting innovation in an established organization?

■ I’d explain that, for most organizations, innovation is not the ends but the means to it and as such, it will never receive the full required attention. The innovation manager will never be at the focus of attention in the same way that the sales manager is. Initially, especially when it’s a new role in the organization, it won’t receive a lot of attention but that is actually an advantage. Those are precisely the conditions that allow someone to run quickly and independently and generate focused but impactful successes that may, in time, evolve into becoming a core part of the business. On the other hand, I also recommend to rapidly identify one’s partners for this effort in the organization - various members of the various units who constantly strive to change their environment and make things better. These partners will lead the actual implementation and related change that would otherwise be much harder to achieve. In most organizations, even those that are relatively small, it is much harder to motivate people of departments other than yours and therefore, nurturing cooperation all along the way can be very productive for the entire organization.

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the customer experience. As a result, in an effort that combined improving the operational process and technology, we were trying to measure how quickly the collection takes place. We measured the time lapses between the moment customers entered the store until the moment their order was actually handed to them. In order to resolve the issue, we added a button in our app which allows customers to let the store know they are on the way in advance and thus waiting times can be reduced.

The solution currently exists in several of our stores and in the future it may even get to a point where customers aren’t required to proactively inform the store of anything because the app will be able to do so automatically and predict the time of arrival.

In addition, we survey customers about various elements such as the experience of purchasing online, collecting the item, customer service, etc. All of those become KPIs (Key Performance Indicators) that we strive constantly to improve.

Jaguar Land Rover

Corporate Startup Studio

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An interview with Tom Fawcett, Head of Product & Portfolio, Studio 107 at InMotion Ventures

race. We are in the business of creating ventures that can compete at the highest levels.

I joined InMotion from the in-house Jaguar Land Rover (JLR) strategy team, where I helped to shift the focus towards mobility, connectivity and electrification. Prior to this I held senior strategy, marketing and new business roles in consumer technology and FMCG. I started out as a management consultant working with Private Equity and Venture Capital clients in the consumer, tech and media sectors.

Corporate Startup Studio is a new model for innovation development in large organizations.

How did you get to this model? What are its benefits over the regular corporate incubator model?

Can you share with us more about Inmotion’s vision and approach? What is the role of the 107 Studio in Inmotion’s structure?

InMotion is here to execute JLR’s strategy to be a leading premium mobility player, dedicated to delivering experiences people love for life. We help JLR answer two questions: what should our role be in the future and how do we engage with new and emerging customer segments. Given our parent company, we prioritise new products and services in the urban mobility and outdoor adventure space – this can be anything from an underlying data platform through to a customer facing service.

We use VC investment, seed to series B, to understand the “innovation frontier” 5-10 years out.

I work in Studio 107, our corporate startup studio.

We explore the “industry frontier” 1-3 years out. We aim to pilot and then scale up revenue generating businesses that can deliver a differentiated solution that can command a price premium because it does something special.

Studio 107 is a reference to our racing heritage. The 107% rule in Formula One means that you have to be within 107% of the fastest driver to qualify for the

Our approach allows us to test and scale ventures from the ground up and be very receptive to their needs. We do a lot of the early stage conceptual work internally, usually coming up with the idea and then bringing a product owner in to lead the business as we gain confidence in the idea.

I’d also say that we are more proactive on finding synergies with Jaguar Land Rover as well as between our portfolio businesses, whether that’s bringing data analytics expertise from Synaptiv, our connected CA data platform, into the fleet of rental vehicles in THE OUT, our on-demand rental business, or joining forces on business development. And our long term ambitions mean that we see ourselves as the launchpad for real businesses rather than being a research function.

Launching a business within an established corporation is a challenging task. Do you find that identifying product owners after the idea is ready and making them essentially into “entrepreneurs-in-residence” is an effective approach?

We find that our product owners are passionate and committed when they fully buy into the opportunity and it’s clear that they are the decision makers and can actually shape the business. It comes down to how we find the product owners and how we empower them.

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How did you join the Inmotion Team? What was your path and background?

Can you elaborate more about the innovation process you have at 107 Studio?

We have a multi-disciplinary team with experience from inside and outside the automotive and mobility sectors. It’s important to have different perspectives but we pride ourselves in taking a design led approach, using the double diamond model to get to the right customer experience. We have a core team of experts in customer insight, strategy, service design, product, UX/UI, data science, finance and operations all contributing. But most importantly we need the product owners to really take the lead.

Finding and supporting these leaders is one of our most important jobs.

What decision making criteria do you apply when deciding whether to integrate developments into the car firm or look for strategic partners and external investments?

Our ventures are solving new problems that often require a broad mix of skills and infrastructure.

We need to think hard about whether can we solve everything ourselves. Generally, that’s not possible and so we need to partner. For example, we are about to launch the initial trial phase for Havn, an allelectric chauffeur business in London. It’s far better to partner to bring in capabilities in EV charging, supply-demand management and hospitality. And external investment means that we all have skin in the game and so the solutions are much more pragmatic than in a typical corporate project.

It is known that the most challenging part is to take a startup to scale. How do you help your ventures scale?

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We help our ventures scale in three ways: first, we work hard to use Jaguar Land Rover’s scale, products, capabilities and relationships to provide growth opportunities. Second, we have a talented team that can step in and help at any stage. And thirdly we help the business access capital, where we can.

How does the investment process work at Inmotion Ventures? What are the parameters for the investment decision in 107 Studio projects?

Each venture has to meet a clear customer pain point and command a price premium for doing this.

We also look for synergy with the rest of the portfolio or with Jaguar Land Rover. As we progress, we have three key criteria that we put analytics behind. First, is this an investable business? Have we created something that would attract interest from third parties? Second, is it operationally excellent? Are customers more than happy and willing to pay a price premium for the service? And third, is it showing signs that it will be profitable in the midlong term?

How do you manage your partnership with Jaguar, your parent company? Do you have direct involvement of the executives in the development process? Are they able to influence your decisions and if so, then in what way?

We are 100% owned by Jaguar Land Rover but we are able to operate independently, giving us the freedom to work creatively to grow our businesses.

That said, we are fully in line with Jaguar Land Rover’s strategy and we have three Jaguar Land Rover board members on our board. They’re involved in setting our strategy, inputting to and signing off on key decisions and unlocking opportunities around Jaguar Land Rover. While we make sure that everything lines up with Jaguar Land Rover’s plans, we do avoid having to have a corporate sponsor for every venture – we don’t want our startups totally dependent on the corporate, though we do want them to benefit from it.

What would you say are the biggest challenges that 107 Studio faces today?

Awareness and understanding. Corporate start up studios are relatively new and the world of mobility is changing every month. We need to make sure it’s clear that our ventures are serious businesses aiming to get to £100m+ turnover and to make a transformational impact on Jaguar Land Rover. We also need the recognition that not every egg will be a bird, but that our failures can be as informative as our successes!

For all our community members - innovation managers - please suggest under what circumstances they need to turn to the corporate startup's studio approach and how they can convince their executives that this is the best model to adopt.

Can you share your top innovation management tip with our community?

A studio approach is right if you operate in a rapidly changing industry like ours, but you are frustrated when you look out at all the innovation and still see many unmet customer needs and you have confidence that you can keep developing a pipeline of concepts. It’s especially good if you think that your corporate’s business and brands can help you launch ventures that have their own special angle.

My top innovation tip is it’s all about the people.

Success comes from getting your studio team and the product owners to click and to all be bought into the same vision and the same roadmap.

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About InMotion InMotion Ventures is Jaguar Land Rover’s venture capital fund. We invest in early-stage technology companies that change the face of urban mobility, support an active outdoor lifestyle and deliver unique travel experiences.

We are based in London and invest globally.

At InMotion, we are investing in the future of transport, mobility and travel. Powered by Jaguar Land Rover, we are supporting entrepreneurs and innovators who change the way we move.

InMotion’s mobility services arm, Studio 107, works closely with our parent company Jaguar Land Rover to build new services in the urban mobility sector. The name Studio 107 is a nod to the 107% rule in motorsport. In qualifying, drivers who fail to set a lap within 107% of the fastest qualifying time are not allowed to start. Our goal is to select the ideas that play to our strengths and develop them into winning businesses.

To find out more about InMotion, please see: https://www.inmotionventures.com

AYALON INSURANCE TAKING THE INNOVATION LEAP AN INTERVIEW WITH RONI LICHTENSTEIN SHANI, DEPUTY CEO, HEAD OF HQ, INNOVATION AND HR

RONI LICHTENSTEIN SHANI IS DEPUTY CEO, HEAD OF HQ, INNOVATION AND HUMAN RESOURCES AT AYALON INSURANCE COMPANY FOUNDED IN 1976, WORKING WITH OVER 1000 AGENTS AND WITH A WORKFORCE OF OVER 1100 EMPLOYEES. WE HAD THE OPPORTUNITY TO DISCUSS THE CHANGES THAT AYALON IS GOING THROUGH WITH REGARDS TO DIGITAL TRANSFORMATION AND INNOVATION. Innovation means many things to many people. Today at Ayalon what does innovation mean and why is it considered important?

Ayalon is a traditional insurance company, the 6th largest in Israel and, as a veteran company, contains a lot of manual processes and certain legacy systems in its backend. The insurance sector is on the verge of a revolution and technology will change its entire value delivery chain over the next few years. As part of the strategic change we have implemented in Ayalon in the last three years, innovation has been positioned as one of three key central tenets.

We aim to see innovation being applied to our products, services, processes and, most importantly, culture and thus deliver higher value to our customers and distribution channels to exceed the standards of service that are expected in our industry.

What sort of action did you take in order to achieve this goal?

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The first step we took was to launch a digital transformation effort and begin to deliver a new and improved digital experience to our customers and agents on top of our existing backend legacy systems. The main purpose was to improve our services and create new value for them. This approach allowed us to start moving quickly and was the foundation on which we could then continue to build innovation as an ongoing part of what we do. We built a digital team that is divided among various areas of the company and serves as a foundation for driving the innovation message. This team receives training in various advanced topics and is expected to be one of the main drivers of the digital transformation.

In addition, we recently started asking our employees across the company to propose their own ideas as part of an innovation hackathon. This is another key part of our approach, since we want innovation at Ayalon to be both top-down and bottom-up. Knowing that employees might be apprehensive about participating - after all, proposing an innovative idea places people in a vulnerable position - we took certain steps such as recruiting innovation ambassadors and being very accurate with the messages that were sent. It was very important for us to create a process and an experience for our employees that would be sustainable, as our intention is to turn this into a regular part of what we do. With this, we plan to achieve the cultural impact that we are looking for. To our delight, over 10% of our employees submitted ideas and after narrowing them down to ten finalists, a panel of judges composed of our senior management team, CEO and chairman, selected the top ideas which will be included in our 2020 work plans.

Another aspect that came out better than we expected was that even though we planned to select only three ideas, we ended up with seven ideas selected to be implemented in 2020. And so with our top-down approach complemented by the bottom-up activities, we are making innovation more pervasive than ever.

While management teams often regard bottom-up innovation as a benefit to employee engagement, the common belief is that the real important stuff will come from outside the company or from technologists. Having been part of such an internal ideation process, what was your impression from the quality of the final ideas?

Going through a process like this caused a shift in our mindset and was truly moving. We realized that employees from various areas of the company had really fabulous ideas that could potentially make a great impact with very little investment. Our employees are intimately familiar with the work processes and can propose solutions that do not require external technologies or fundamental changes in the core IT systems and are relatively simple to implement while still having a significant potential impact. There is something about being in the field, experiencing challenges firsthand while not being familiar with any sort of limitation that centrally-managed digital teams constrain themselves with. This creates opportunities to complement the essential work being done by the digital team with workforce generated ideas that are feasible, smart and innovative. I can also say that we meet a lot of startups and evaluate whether to implement their technologies at Ayalon and on average, ideas presented by employees are much more suitable to our needs than the ones we hear from startups. Employees know the lay of the land, so to speak, and understand the business, while some startups do have amazing potential but are still on the outside looking in when it comes to the intricacies of the insurance business. I can also say that this opinion is shared by the company’s management team, CEO and chairman who were judging the employees’ ideas. They clearly stated that besides their personal enjoyment in taking part in the process of bottomup innovation and the value they found in it, their expectation is to see some, if not all, of the ideas that were selected become real world implementations and deliver value to our customers and agents.

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We sometimes encounter management teams and CEOs that talk about innovation and demand it from their companies but do not go beyond empty rhetoric and localized attempts.

In what ways does the management team at Ayalon actually support innovation beyond its central part in the strategy statement?

Firstly, you can see from the outcomes that we currently do both top-down and bottom-up innovation at Ayalon. We achieved this through the following elements: 1. Education - It starts with preparing the hearts and minds of both management and the workforce to the innovation aspect of the company’s strategy. Managers, both senior and the extended management team, routinely go through experiences and trainings that are aimed at shifting their mindset into ones that are receptive and supportive of innovation. The workforce hears

about innovation and digital transformation as critical aspects of our work plans from the CEO whenever he speaks at internal and external events and this conveys a strong message. More than that, as part of our “Ayalon college” program, which was traditionally aimed at teaching employees insurance related skills, we have started providing content related to digital transformation.

2. Budget - Management allocates the budget that is necessary for digital transformation and innovation so that these projects can be carried out and implemented within the company work plan.

3. Time - One of the main bottlenecks of innovation is the inability of employees to allocate work time for the purpose of initiating and promoting innovation.

The management team is engaged and supportive of activities that consume employee time with the intent that this will provide a spark of bottom-up innovation. For example, we saw very clearly during our recent innovation hackathon that participating employees were given the required time to develop their ideas and that now the winning teams are going to get the time required to pursue their ideas further. The mentors in the event who were senior Ayalon employees were also given the time that was required for their participation and were a very important contribution to the event.

These are all clear indicators to the fact that the management team is backing its strategy decisions with action.

What would you say are the main challenges you're still facing in the quest to implement innovation at Ayalon?

I think that the two main challenges are: • Integrating the new solutions and technology from our partners into the insurance legacy platform This is a prerequisite for any established company’s ability to innovate, simply because any idea that requires access to that backend must get access somehow and this interface layer is essential for that to be possible.

• Embed innovation as part of the company’s culture While we did run an innovation hackathon, this was done in the format of a one-time event. Our current challenge is to take this format and turn it into a long term integral part of the Ayalon culture.

What advice would you give innovation managers in the beginning of their journey?

I believe the most important tip I can share with innovation managers new to their role is the need and opportunity to test and learn while building new solutions. Do not try to over-engineer every element involved. Simply try to take the necessary action to allow for positive outcomes to occur. The other important point is to focus on customers’ needs first and on the business model later. Focusing on solving pain points for customers will help build new and innovative solutions over time. Last but not least, keep in mind that innovation is a journey so be prepared for it and stay consistent with the long term vision.

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THE PERES CENTER FOR PEACE AND INNOVATION IN COOPERATION WITH DUCO - INNOVATION ECOSYSTEM DESIGN ARE PROUD TO PRESENT A UNIQUE TRAINING OPPORTUNITY FOR INNOVATION MANAGERS

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THE RIGHT WAY

Let s face it. Innovation is changing

FOR WORKING WITH THE ECOSYSTEM

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BY THE FUNNEL TEAM

Startups are launching both products and services - especially in tech and digital - and creating disruptions in entire industries that big corporations cannot ignore. These young companies are leading in digitalization, entrepreneurial spirit and the agility to pivot lightly. These reasons are why they are also able to replace existing business models.

Despite these facts, large organizations should not see them as a threat, but rather as a potential partner. Nowadays, it’s not just about pure efficiency, but innovation. It’s one of the most important key drivers of longterm success - testing new technologies and services solutions with fewer costs and risks.

The collaboration between companies and startups enhances mutual strengths. On the one hand, young companies can rejuvenate corporate culture by implementing their source of fresh talent and ideas, and on the other hand, large corporations can transfer their market knowledge, experience, network, brand power and more.

A great example of a large, innovating brand is Telefónica, which works with startups to create an innovative brand that attracts users, business partners and future employees.

The alliance of Telefónica with public and private institutions - focused on innovation and entrepreneurship - has been working since 2013. Open Future is the network that makes this transformation possible, bringing innovation and entrepreneurship to the business ecosystem, giving visibility to startups and internationalizing technological solutions. One of the many successful projects Wayra, Telefonica's global technological innovation hub, has developed is The Smart Rural Territory project. This is a pioneering project in Europe that brings IoT technologies to rural areas. Its deployment is based on three pillars: first, the installation of sensors that collect different data from street lights, waste containers, electrical panels for water control, etc. Second, a software platform -the Thinking Cities’ platform- that analyzes all that data. Finally, the application of big data allows the ability to offer local authorities precise information on the operation of those services.

1. MOLINASECA: AN IOT LABORATORY In the town of Molinaseca, they’ve implemented two types of solutions; one of intelligent waste management and another of intelligent lighting. In the case of waste management, sensors have been installed in several containers, and only when they are full is the garbage truck sent to be emptied. If a container is not full, the truck does not move, saving on travel expenses and CO2 emissions. Additionally, they’ve installed sensors to detect pedestrians so that the light environment automatically rises, and then goes down again. These two solutions allow a reduction in public expenses, achieving the efficiency wanted.

2. SMART RURAL TOURISM This region has a rich artistic-cultural and landscape heritage that attracts tourists from all over the world. Therefore, it is essential to design strategies that boost tourism and build loyalty, and that's where LUCA - Telefónica's big data unit - comes into play. They’ve implemented big data technologies with the aim of optimizing the available resources and obtaining knowledge of all the data generated in these environments, allowing municipalities to adapt according to the real needs of the population.

3. SMART HERITAGE Information and communications technologies are also being used for the control of artistic heritage such as the pioneering project in the Villa Romana de la Olmeda (Palencia). They took advantage of IoT technology through a series of sensors that were placed throughout the area, allowing them to obtain real-time data not only of the environmental parameters that affect the conservation of these buildings but also the parameters related to solar radiation, light intensity, air quality, amount of CO2 etc. The 67 deployed devices send information to Telefonica’s intelligent platform, allowing them to act in real time in order to achieve the best conservation of the deposit.

Despite documented successful collaborations between corporations and startups, there are inherent challenges that arise from both sides and make it harder for such successes to be more common: • Lack of time (few companies encourage their employees to spend part of their work time on ideas outside the normal course of duties) • Insufficient incentives (employees in corporations are measured and compensated on their main work and lack the motivation to embark on such risky endeavors) • Underfunding (without financing, the idea is only a vision) • Territoriality (it is important and difficult to avoid power plays and work beyond traditional boundaries)

consider your objectives for engaging 1. Carefully with startups. Programmes that deliver significant benefits to your company and startups are based on real needs, not corporate social responsibility.

the programme(s) that best deliver on these 2. Select objectives. The framework helps you explore which programme types tend to be most suitable to achieve different objectives.

board–level sponsorship. Support from the 3. Secure top is pivotal for getting programmes off the ground

• Lack of sponsorship (it is hard to find strong, senior sponsors in the organization that oversee the process)

and provide employees with the confidence to take risks when trying out new collaborations with startups.

• Lack of workforce skill (getting employees to embrace innovative thinking)

key performance indicators. Include 4. Develop long–term metrics to measure progress of the pro-

• Lack of credibility (inventory of trust and gratitude that can be cashed in when the new project is in demand)

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Having analyzed many Open Innovation case studies’ lead by large organizations such as Telefonica, Unilever, Microsoft or Accenture, here are some of their tips in order to achieve successful implementation into their own corporations of various startup technologies by joining forces with those startups:

grammes. Programme–related KPIs for employees will ensure effective implementation of the programme inside your company.

• Resource acquisition (Such projects require unplanned resources and corporation processes are slow and conservative)

data and feedback continuously to iterate 5. Capture the model. Test what works in an initial pilot, then

A key to the ability to develop sustainable corporate innovation successfully is through the actions of the senior managers, such as establishing a clear definition of the specified challenges that everyone involved with innovative projects should address; confidently pursuing innovative projects; creating self-confidence within the workforce to act on innovative opportunities without seeking managerial permission; clearing out any obstacles that arise, or monitoring and controlling the developing innovation. In short, currently the era of innovation prevails, and as stated in this article, it is not about the implementation of a product or service that results in a solution for a specific problem, but the fulfillment of that culture of innovation as a motto for your company policy and expertise, so as to never run startup programmes as a Corporate Social Responsibility (CSR) activity but link them to the core business, or else the outcomes are not implemented in the company itself but remain alien to it.

startup programmes to people with an en6. Hand trepreneurial mindset. Managers of startup pro-

scale up and continue to improve programmes.

grammes have to understand the world of startups and treat them as partners, not agencies or employees.

an internal champion with decision and 7. Allocate budget power. Startup relationships need a senior champion to save time for startups and the corporate. A quick ‘no’ is better than a protracted ‘maybe’.

a publicly visible, single access point for 8. Create startups. This access point is ideally a team who

knows the organisation well to direct startups towards relevant programmes or units.

internationally to attract the best startups 9. Scout and technology. Those might not be located in the same city or country as your headquarter offices.

Consider partnerships with organisations that can scout on your behalf, or a network of local partners.

Make it easier for startups to work with you. This in10. cludes shortening payment terms for startups, facil-

itating processes to register as a qualified supplier or adopting flexible approaches to IPs that startups cannot give fully away.

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OPEN INNOVATION IS GREAT.

WHAT ABOUT INTERNAL READINESS?

BY ELENA DONETS, CO-FOUNDER AND COO AT DUCO.

As more and more organizations seek to reap the potential rewards that innovation offers through the means of open innovation, they encounter frustrations that are very similar to those experienced when innovating internally. The narrative goes more or less like this: “We invited startups and had a fantastic event. The media was invited and it created a real buzz and excitement in the organization. Management even approved a few pilots to follow up on. Six months later, no real impact has been achieved”. Innovation theatre is a term often attributed to internal events of creativity, ideation and workforce engagement that while do achieve a positive effect of employee engagement in the short term, leave a bitter aftertaste months later as no substantial business or operational outcome can be identified as a result.

Open innovation events and activities are much more visible as they involve elements external to the organization. Therefore, the collateral damage to an organization’s reputation due to this sort of “Open innovation theatre” is even more substantial since it is not confined to that organization’s workforce but actually spills over to the surrounding ecosystem.

We are now seeing this open innovation theatre effect in organizations that tried opening up to the ecosystem with the best of intentions but a common attribute for all of these failed attempts is a lack of internal readiness for open innovation. Our observation is that such internal readiness is what sets apart organizations that were successful in generating open innovation related outcomes from those that failed in doing so and could never go beyond open innovation theatre.

What is open innovation internal readiness?

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Let’s take a hypothetical example and imagine a startup that developed a technology which allows a device which is the size of a few millimeters and doesn’t require a power source to report its position from anywhere in the world within a 20 meter radius.

Now, this startup participates in an open innovation event of a large transport and logistics corporation, which identifies an opportunity to attach such a device to any of its millions of parcels and containers being transported worldwide and thus, have much better control and data collection over its activities. Another corporation is an agricultural wholesaler which wishes to have better control over the time it takes produce to get from field to plate.

The startup in question consists of many talented people, however, these people probably do not have any background in agriculture, transport or logistics.

Moreover, chances are very high that no one in those startups has any former familiarity with the two mentioned corporations and their internal workings.

This means that with every good intention in place, these startups are constantly in a position of being

For open innovation there are certain specific scenarios we encounter frequently that cause any such opportunity to stop dead in its tracks. Here are some of the most common:

THE DAY AFTER THE PILOT - This is a classic case of

So what should corporations do in order to develop internal readiness for open innovation?

The answer consists of three aspects:

AN ORDERLY PROCESS - When a corporate employee

identifies a startup that could become an opportunity within the context of this corporation (for example, the tiny tracking device serving to follow individual fruits and vegetables from field to plate) then this becomes an innovation project that goes through a well-defined process with clear decision gates. This cannot be left to improvisational efforts that simply believe in the good will of corporate citizens. It has to be a controlled, measurable and manageable process.

corporations focusing on the front end of the process and dedicating attention to the exposure stage, selection of most promising startups and a few weeks of attention until a pilot is created. The problem is that pilots are usually just scratching the surface of a corporation and the really hard part begins the day after the pilot. Most corporations simply aren’t ready for this effort in terms of the required skill set and a lack of motivation that its employees have to take on such challenging and risky endeavors.

A SUPPORTING INTERNAL COMMUNITY - We tend to use the term ecosystem to describe the external environment of startups, corporations, academia and the relationships between them. For open innovation to thrive in an organization, it must have an internal innovation ecosystem as well with a supporting cast consisting of innovation coaches, champions and mentors. This eliminates the need from any single central figure to be at the center of every opportunity and creates a distributed network that allows open innovation to take place at scale.

SENIOR PERSONNEL LACK OF AVAILABILITY - Corporations

INVOLVEMENT OF KEY EXECUTIVES - For open innovation to generate clear, valuable outcomes, every organization has certain key executives that must be involved in the innovation process. We must always remember that when an executive makes the decision to take a startup-related opportunity and create a first version of a product or service as part of a unit’s work plans this has to come at the expense of something else that is of a much lower risk level and whose impact is much clearer in the outset. In order to get executives to make such a decision, there are very specific ways in which they must be involved in the process. This involvement has to generate maximum effect while requiring as little of their time and attention as possible.

are filled with very busy people. The more senior the people the more busy they are. Startups on the other hand have a very limited runway for takeoff and every passing day brings them closer to the end of that runway. When a startup related opportunity requires the assistance of a senior executive and the meeting is scheduled for two months later, this is just one of the many early signs that the opportunity is going to end on a sour note.

LEGAL OVERLOAD - The legal aspects of cooperating with established corporations usually involve thick “standard” contracts or lengthy NDAs (NonDisclosure Agreements) that have been formulated over the years to cover every possible base for corporations that simply wish to protect themselves from potential litigation. Once again, this is not okay when dealing with startups that do not have the manpower nor the access to legal resources for such purposes.

PROCUREMENT SETBACKS - When a corporation decides

to pay the startup for its time investment in the pilot (a common practice), it is not uncommon to see a lengthy procurement process that exhausts what is usually a very small and young company. As stated above, startups live on borrowed time and delaying the start of activities until a standard procurement process is completed is another major mistake that corporations with good intentions make. This is simply how things are done over there. However, this practice is detrimental to open innovation efforts.

In summary, open innovation has many similarities with internal innovation simply since internalizing a startup technology into a corporation and generating products and services based on that startup, is essentially like taking an internal idea through an innovation process. The technology the idea is based on is simply based on a startup technology and the opporunity’s success depends on how well the organization handles its interactions with that startup on one hand and its internal ability to handle the opportunity on the other.

What about your organization? Are you internally ready for open innovation?

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outside and looking in as they try to deal with an established corporation with all of its inherent resistance to innovation on which we have written extensively in previous issues of the magazine.

Organizations respond to innovative opportunities similarly to how the human body does to potentially life-saving organ transplants. It’s as if a corporate immune system kicks in and destroys the opportunity as a means of protecting the organization from attempting something new and unfamiliar.

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