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

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Strategic Innovation:
The Power of Design Thinking in Business
Stanford Strategic Decision and Risk Management Certificate Program
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 2
Carl Spetzler
CEO, Strategic Decisions Group
Program Director, Stanford SDRM
cspetzler@sdg.com
scpd-sdrm@stanford.edu
1-866-234-3380
Paul Marca
Deputy Director, Stanford
Center for Professional
Development
pmarca@stanford.edu
http://strategicdecisions.stanford.edu
Bill Burnett
Consulting Assistant Professor
of Mechanical Engineering, Design Group
Executive Director, Stanford Design
Program
wburnett@stanford.edu
Meet Todays Speakers
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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71% of business leaders rank innovation as a Top 3
priority and are more satisfied with the financial return.
8%
10%
6%
26%
23%
43% 39%
45%
23%
25%
26%
26%
2008 2009 2010
Source: Innovation 2010, BCG Senior Management Survey
Not a
Priority
Top 10
Priority
Top 3
priority
Top
priority
100%
Where does innovation rank among your
companys strategic priorities?
57%
48%
45%
43%
52%
55%
2008 2009 2010
100%
Are you satisfied with the financial return
on your investments in innovation?
No
or Dont
Know
Yes
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Poll: How satisfied is your organization with the
financial return on your investments in innovation?
Very dissatisfied 7% (13)
Somewhat dissatisfied 30% (57)
Somewhat satisfied 54% (104)
Very satisfied 9% (18)
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Strategic Innovation
1. When is Innovation Strategic?
2. Design Thinking as a Business Tool
3. A Better Model: Innovation with Value Discipline
4. Learning More
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 6
Strategic usually means affecting shareholder value.
Different needs in different times
1946 2011 DJI Average
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Formulaic growth strategies
1946 1966
1982 - 2000
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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1966 1980
2001 2011
Innovate to survive and transform without adding
permanent cost structure.
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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In business and in life you innovate to change or you
die. There are many reasons why that is true
Business life cycle transitions
Disruptive events internal or external
Business model shifts
A proactive decision to change strategic direction due to
opportunity or threat
Merger or acquisition

2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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There are three fundamentally different stages in
strategic management.
Directional
Decisions
Choose the road
Choose the road
Operations
Management
Run better and
faster than the
competition
Run better and
faster than the
competition
Leadership
Management
Change
Implementation
Make the turn
Make the turn
Directional
Decisions
Choose the road
Choose the road
Operations
Management
Run better and
faster than the
competition
Run better and
faster than the
competition
Leadership
Management
Change
Implementation
Make the turn
Make the turn
Strategic innovation focuses on directional decisions
and big change.
Strategic
Innovation
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Strategic Innovation is
Creative
Significant
Real
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 13
Strategic Innovation
1. When is Innovation Strategic?
2. Design Thinking as a Business Tool
3. A Better Model: Innovation with Value Discipline
4. Learning More
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 14
Design Thinking and Innovation
Source: Stanford d.school
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Design Thinking is both a Culture and a Big Idea.
The most successful businesses in the years to
come will balance analytical mastery and intuitive
originality in a dynamic interplay that I call DESIGN
THINKING. Design thinking is the form of thought
that enables forward movement of knowledge, and
the firms that master it will gain a nearly
inexhaustible, long-term business advantage.
Roger Martin, dean of the Rotman School of
Management in The Design of Business
TIME, June, 2009
Fast Company,
September, 2010
Harvard Business Review,
December, 2009
The Economist,
February, 2010
Business Week, April, 2010
Business Week, June, 2006
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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The focus on design thinking is being led by
universities and design firms.
the d.school at Stanford
University of Toronto
Illinois Institute of Technology
Design firms are becoming
strategy firms
IDEO,
point>Forward,
Doblin, and others
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Design Thinking Explained
Problem Finding + Problem Solving = Competitive Advantage
A new approach to problem finding
The highest leverage is found in re-framing problems
A dynamic approach to problem solving
Works well on poorly bounded problem
A new perspective on value
An empathy-based, human-centered process focused on user
needs
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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How is it different?
Engineering Thinking Solves its way forward
Business Thinking Decides its way forward
Design Thinking Builds its way forward
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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TECHNOLOGY
Engineering Analysis
Mechanical Engineering
Electronics & Mechatronics
Computer Science
Bioengineering
MANUFACTURING
Manufacturing Technology
Manufacturing Strategy & Process
BUSINESS
Business Principles
Finance
Marketing
Market Research
ORGANIZATIONAL BEHAVIOR
Team Building
Business Strategy
Entrepreneurship
HUMAN VALUES
Social Sciences
Need-Finding
Psychology, Anthropology, Sociology
Art / Industrial Design
DESIGN & INTERACTIVITY
Human-Computer interaction
Visual Thinking
Design for Sustainability
Source: Stanford d.school
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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What is Design Thinking in a strategic context?
Design Thinking requires the following to be active:
It becomes part of the firms Culture
Multidisciplinary teams Radical Collaboration
Fluency trained
Semantically aligned
It becomes a Process for problem solving
Experience-based, user-centered research
Prototyping to ask good questions
Iteration is part of the process
It requires Focus to move the needle
See: The Role of Design Thinking in Firms and Management Education
Bruce A. Heiman, San Francisco State University, USA
William R. Burnett, Stanford University, USA
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Apple under Steve Jobs is an example of a company
that profits from design, and is considered by some to
be the most innovative company in the world.
2010 Rank* 3-yr. Stock
Returns (%/yr)*
2011 Rank** 3-yr. Stock
Returns (%/yr)
1 Apple 35% Apple 36%
2 Google 10% Twitter Private
3 Microsoft 3% Facebook Private
4 IBM 12% Nissan 5%
5 Toyota Motor -20% Groupon Private
6 Amazon.com 51% Google 0%
7 LG Electronics 31% Dawning Private
8 BYD Auto 99% Netflix 199%
9 General Electric -22% Zynga Private
10 Sony -19% Epocrates -55% (Feb IPO)
The World's Most Innovative Companies
* Business Week and Boston Consulting Group survey
** The Worlds Most Innovative Companies 2011, Fast Company
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Product & Services Product & Services
Business Process Business Process
& Platforms & Platforms
Apple is a role model for design innovation at all
levels.
Business Model Business Model
Artists
Hollywood
Advertisers
Developers
Products
Platforms
Content
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Poll: How much has design thinking become a
driver of strategic innovation in your firm?
We dont know what "design thinking" refers to. 33% (60)
We are aware of and introducing design thinking. 25% (45)
We have pockets of capability. 30% (54)
It is part of our strategic competence. 13% (24)
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 24
Strategic Innovation
1. When is Innovation Strategic?
2. Design Thinking as a Business Tool
3. A Better Model: Innovation with Value Discipline
4. Learning More
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 25
In most organizations, creativity opposes evaluation.
Currently design-innovation often falls into this trap.
Value
Discipline
Value Value
Discipline Discipline
Customer
Experience
Shareholder
Value
Applied
Creativity
Applied Applied
Creativity Creativity
Wow
Factor
Excitement
Number-
Crunching
Spreadsheet
Analysis
Fuzzy
Bean Counters
Evaluation is a
sword in the hands
of the controllers.
Creativity is a
nice-to-have once
we hit our targets.
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Organizational hurdles to strategic innovation exist in
many places.
Execution
Excellence
Applied Applied
Creativity Creativity
Value
Discipline
Value Value
Discipline Discipline
Growth
Opportunities
Value
Guidance
Weak structural
support for
applied creativity
Processes are
linear, not cyclical
Implementation
failures
Learning failures
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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900 600 300 0 300 600 900
Change in NPV: High-End TV Strategy
($ millions)
Base Case value = ~ $2 Billion
Analytic tools like tornado charts can inform and
direct innovation and design.
Appeal to Market Size 0.5x Base 2x Base Estimate
Next-Gen Cost None 1.5x Initial Design
TV Cost High Low
New Broadcast Standard None Rapid Changes
Screen Size 40 50
Development Costs 2x Estimates
TV Replacement Cycle Slow Rapid
Distribution Markup Low High
Display Resolution Low High
Base Case
Product and
market
characteristics
can be defined
and valued
Product and
market
characteristics
can be defined
and valued
Understanding of the range
of impact can be valuable
to the design team
Understanding of the range
of impact can be valuable
to the design team
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 29
The Innovation Competency Model:
An Effective Value Driven Innovation Cycle
Value Guidance
Value Creation
Opportunities
Cycle builds
learnings and
buy-in
Respects & leverages
the practical nature
of business analysis
Respects &
nurtures the
open-ended
nature of
creativity
1
2
3
Value
Significance
Value Value
Significance Significance
Applied
Creativity
Applied Applied
Creativity Creativity
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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The New Yorker Collection 1986 Frank Modell from cartoonbank.com. All Rights Reserved.
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Innovation Competency Model
3
4
Applied Applied
Creativity Creativity
Value
Discipline
Value Value
Discipline Discipline
Value Creation
Opportunities
Value
Guidance
Reinforcing
Cycle
Execution
Excellence
1
2
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 32
GE under Jeff Immelt has the four elements working
together.
3
4
Applied Applied
Creativity Creativity
Value
Discipline
Value Value
Discipline Discipline
Value Creation
Opportunities
Value
Guidance
Reinforcing
Cycle
Execution
Excellence
1
2
1. Growth is driven with
imagination
breakthroughs and
dreaming sessions.
1. Growth is driven with
imagination
breakthroughs and
dreaming sessions.
2. The strategic value
discipline has been
deeply embedded in GE
for some time.
2. The strategic value
discipline has been
deeply embedded in GE
for some time.
3. It is a cycle in which
everyone has to
participate.
3. It is a cycle in which
everyone has to
participate.
4. Execution discipline is intense,
with adequate funding and the
best people being assigned to
deliver on the innovation
initiatives.
4. Execution discipline is intense,
with adequate funding and the
best people being assigned to
deliver on the innovation
initiatives.
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 33
Sources: July 2005 interview of Jeff Immelt by Fast Company. June 2006 interview in HBR
When I got the job, I knew I wanted the company to be more
innovative, more global, and more focused on the customers.
But it does take a year or two or three to really put ideas into
initiatives and get the team aligned.
The big difference is that the business leaders have no choices
here. Nobody is allowed not to play. Nobody can say, I'm going
to sit this one out. That's the way you drive change.
When I got the job, I knew I wanted the company to be more
innovative, more global, and more focused on the customers.
But it does take a year or two or three to really put ideas into
initiatives and get the team aligned.
The big difference is that the business leaders have no choices
here. Nobody is allowed not to play. Nobody can say, I'm going
to sit this one out. That's the way you drive change.
It takes time and real commitment from the top.
When we have an idea factory like IDEO talk to us about
innovation, its my job to translate what they say into GE. That
means putting it in terms of process and metrics.
When we have an idea factory like IDEO talk to us about
innovation, its my job to translate what they say into GE. That
means putting it in terms of process and metrics.
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 34
Poll: What is the benefit of establishing a creativity-
value cycle in your organization?
50-100% increase in shareholder value 38% (79)
20-50% increase in shareholder value 33% (69)
10-20% increase in shareholder value 14% (28)
Little or no increase in shareholder value 3% (6)
More than 100% increase in shareholder value 12% (24)
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 35
Strategic Innovation
1. When is Innovation Strategic?
2. Design Thinking as a Business Tool
3. A Better Model: Innovation with Value Discipline
4. Learning More
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
Page 36
In the 2.5-day course, we cover the three main
components of strategic innovation.
Strategic Innovation
Day 3
Identify Organizational
Requirements
Day 1
Learn Design Tools
and Process
Creative
Day 2
Apply Design Thinking to
Business Issues
Significant
Real
INSTRUCTORS: Bill Burnett, Executive Director, Stanford Design Program
Carl Spetzler, CEO, Strategic Decisions Group
Cynthia Benjamin, Director Innovation, IMS Health
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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Stanford Center for Professional Development
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to meet your education and schedule requirements
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Graduate Areas of Study
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Strategic Decision & Risk Management
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Professional/Executive Programs
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Directed by Professor Ron Howard, Management Science and Engineering
Developed in partnership between SCPD and Strategic Decisions Group
Available online, at Stanford, and at work
Meets the career-long education needs of professionals, managers, and executives
Unique University/Industry Collaboration
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Strategic Decision and Risk Management
Decision
Analysis
Decision
Quality
Collaborative
Decision-
Making and
Negotiation
Modeling
for Strategic
Insight
Value-
Driven
Enterprise
Risk Management
Strategic
Innovation
& Design
Thinking
Biases in
Decision-
Making
Managing Risk
in Healthcare
Organizations
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Making
Advanced
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Converting
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Action
Earning the Certificate
Complete 2 required courses and 4 electives.
Additional Electives:
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2011 Schedule
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D E C E M B E R I N H O U S T O N *
Decision Quality
Leading Strategic
Decision-Making
S E P T E M B E R A T S T A N F O R D
Decision Analysis
Decision Quality
Strategic Innovation
& Design Thinking
Collaborative Decision-
Making & Negotiation
Converting Strategy
into Action
*Houston program offered in collaboration with the Center for Lifelong Engineering Education,
University of Texas at Austin.
Pricing for on-campus
courses (per course):
Regular price: $2,600
Early registration price:
$2,340 (December
early registration ends
October 17)
For more information:
Patty Harris, Customer
Relationship Manager
+1.866.234.3380
+1.650.475.4490
scpd-sdrm@stanford.edu
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2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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scpd-sdrm@stanford.edu
1-866-234-3380
http://strategicdecisions.stanford.edu
To contact one of todays speakers:
Carl Spetzler
cspetzler@sdg.com
Paul Marca
pmarca@stanford.edu
Bill Burnett
wburnett@stanford.edu
2011 by Stanford Strategic Decision and Risk Management. All rights reserved.
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