I found it particularly fitting that my first professional activity following my retirement from IBM was to participate in IBM's fifth Business Leadership Forum (BLF), which took place the first week in June in Saint Petersburg, Russia.
The 2007 BLF was a truly global event, including over 500 attendees from 75 different countries. The focus of the conference was innovation in a globally connected world - both to discuss how the forces of globalization all around us are setting the innovation agenda for the future, as well as how this very innovation agenda can - must - help us address the inevitable and very complex problems associated with living in a fast-changing, globally connected world.
I could not possibly do justice to the richness of the BLF in one blog, so I will focus on the comments of three of the CEOs that addressed the audience. Blogs on the BLF were also posted by John Patrick and Doug Levin.
Sam Palmisano
Sam Palmisano, IBM's Chairman and CEO, kicked off the Forum by framing the dialogue that we would have over the next two days. First is the Internet-based, open, integrated, collaborative platform that is permitting us to interconnect just about everybody and everything. "Now given that that's the fact - that this platform now exists - the opportunities that exist for companies and for society are much broader than they ever were before. The technology is much more ubiquitous," Sam said.
"But let's go to the human side of this equation. Let's think about societies where you have access to skilled workforces of 500 million or 800 million. India, China," he later added. "Millions and millions of people are going to enter into the middle class. And those people are going to be able to consume. They're going to buy houses. They're going to buy cars. They're going to buy appliances. And they're going to have demands of society much like the demands that you see throughout the developed world."
These dramatic technological and human changes are then driving new requirements and opening up new opportunities for innovation - in particular, innovation built around a collaborative model with customers, business partners and universities, as well as a company’s own employees. Not surprisingly, given the changes taking place at so many levels, the horizons for innovation have significantly expanded beyond just products and services to encompass business process, business models, policy and management systems. But the hardest of all, Sam said, is innovation in organizational culture, where leaders need to spend the majority of their time.
The key forces causing the world to converge around the subject of innovation are the realities of globalization. Sam finished his talk by giving his views on the three main principles of globalization: economics, expertise and openness. Economics is what drove globalization in the first place, namely the search for lower costs and labor arbitrage. But we are now moving beyond that. Expertise, in the form of pools of highly skilled talent around the world, is increasingly critical and is becoming a major part of the economics of globalization.
And then there is openness, including support of open standards to facilitate global integration. But it’s not just about technology. Sam said in conclusion, "It's also true for societies and for governments when you talk about open standards: free trade agreements, protection of intellectual property - so inventors can get returns - open sharing and collaboration are also very, very important as you look at these principles of global integration."
Fujio Cho
Following Sam, Toyota Chairman Fujio Cho gave a fascinating talk on the Toyota production system, how they created it starting about 50 years ago and how they have been expanding its use around the world.
He started out by describing the innovation system underlying Toyota's production system. The system is based on the constant education of both employees and parts suppliers, so they can improve in the performance of their functions; working on innovation as a team, so that people in related functions come together and share ideas; and the concept of kaizen or continuous improvement.
Cho-san explained that Toyota had no choice but to invent their production system, because after Japan's defeat in World War II the company had little money, technology or equipment, and their productivity was said to be one tenth that of the American automobile industry. Since money was so tight, they had to come up with innovative and affordable ideas in order to catch up. So they focused their early efforts on the principle of clearly separating work from waste. They analyzed each step in the work process, identified what was absolutely necessary to get the work done - and everything else was classified as waste. By eliminating such waste on the production floor, Toyota saw tremendous simplification in the work processes, and productivity started to rise dramatically.
Cho-san discussed the two key pillars of the Toyota production system: Just-in-Time and Jidoka. As its name implies, Just-in-Time embodies the approach of producing what the customer needs, when the customer needs it and in the quantities needed. This is how Toyota significantly reduced the waste and costs associated with excess inventory.
The second key pillar - Jidoka - is founded on the principle of a worker being able to stop a machine or production line when a problem occurs. This simple act helps eliminate defective goods, empowers the plant floor workers to be responsible for quality, and allows immediate identification of the problems so that you can take action on the spot, where it is simplest to find and correct whatever went wrong.
Toyota is justifiably famous for the quality of their products and the production system responsible for them. What I found so compelling in Cho-san's talk is how much their great achievements sounded like simple common sense. Accumulate lots of little ideas, one after the other to improve productivity and quality, educate the employees and suppliers, and have everyone join hands and work together to make their approach work across the company. In the end, the secret of their success is the very human approach they have taken to manage a very complex problem.
Hans-Joachim Koerber
The last talk I want to comment on was given on the second day of the BLF by Hans-Joachim Koerber, Chairman of the Management Board and CEO of the Metro Group. His talk focused on what he described as "one of the top subjects on the corporate board agenda today: the dimension of successful innovation." He then added "successful innovation means nothing less than planting the seeds of your company's future existence. I assume it is commonly agreed in this audience that only innovation is the true growth enabler for all of our business, no matter in what sector you are and operate."
Dr. Koerber illustrated the seriousness of the matter by noting that in the retail industry more than 75% of the new products that they put on the shelves of the stores fail within the first year. He asked us to think about how much wasted effort and money goes into creating these new products that will be rejected by customers because they are not perceived as new or better. He quoted a CEO colleague as saying about product innovation that "it is only new when the customer recognizes that it's new."
Dr. Koerber talked about the fierce battle for share of wallet in an environment in which customers have more choices than ever and are therefore less loyal to any one vendor. "These new market structures compel retailers to revisit the traditional growth strategies," he said, and added "One major key to win these challenges of competition is innovation. Successful innovation helps us to remain distinctive and to be better than our competitors. And again, the name of the game is to be better than your competitor. With successful innovation, we clearly give the right answers to our customers because it's our customer who asks us every day, and this is my favorite strategy question, why he should come to our place to shop and spend his money."
Dr. Koerber then discussed Metro Group's strategic approach towards innovation. Metro Group does business in countries around the world with very different cultures and market environments. "It becomes immediately clear that you must have a differentiated approach towards innovation, always looking at the local needs and expectations of our customers," he said. You must put customers in the center of whatever new idea you are introducing, and make sure that it adds sustainable and differentiated value to them.
Metro Group does this by acknowledging the strategic role that technology now plays in the enterprise. Technology for Metro is no longer a cost center or support function for the business, but an enabler of business strategy and thus a source of innovation and growth.
Working closely with their business partners, Metro starts integrating new innovations right into their operations through their Future Store initiative, which includes a real life store near Dusseldorf set up as a test lab. This initiative enables Metro and its partners to study the future of the retail industry and how best to deploy new technologies such as RFID in a real store with real customers and employees under very practical conditions, so they can determine which innovations truly work, and which look great on paper but are destined to fizzle in the real world.
What did I learn from these three talks, and the other talks and panels at the BLF in Saint Petersburg? First, how seriously senior business executives and government officials are now taking innovation. It is truly the key to surviving the tough competitive environment brought about by fast changing market conditions and the forces of globalization.
Technology is necessary, but not sufficient. More than ever, it is simply an enabler for innovation - whether you’re designing a new kind of production system, making retail stores more responsive to customers… , or seeking to become a globally integrated enterprise.
The key to success, I heard over and over in just about every talk and panel, is people. The innovation isn’t in the tools, but in how they’re used. And that means that we need to surround ourselves with the best possible people - employees, partners, researchers, customers - so that together we can tackle these very attractive but complex 21st century challenges.
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