Innovation Capability

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Figure 4.14 Company Y Integrated Product Development Process

(IBM, 2013)

4.2.2.2 Innovation Capability

Other than traditional management for new innovative opportunities in emerging markets, Company Y realized they must capitalize more effectively on them. The CEO challenged the strategy group to identify and address organizational inhibitors to more rapid execution on new long-term business ventures. The strategy group conducted a root-cause analysis of past Company Y initiatives and identified key challenges, all tied to execution-related issues rather idea generation.

Company Y thus developed an organisational structure to support emerging business opportunities (EBOs) and designated a senior executive as a “growth guardian” with visibility into business unit finances and authority to enforce compliance with EBO resource commitments. It is to protect long-term growth bets from the short-term predations of individual business.

Company Y casted a wide net for identifying potential opportunities. EBO ideas are sourced from R&D, BU, external sources, business leaders, and employees. The Strategy group screened EBO ideas and narrowed the list to a manageable set of commercializable opportunities.

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Establishing criteria for EBO selection helped ensure that resources were applied to the most promising ideas with the potential to materially impact the organisation. EBOs must have the potential to generate USD 1 billion in revenue within three to five years, either by serving new markets or building new enterprise capabilities.

Figure 4.15 EBO Formation Process in Company Y

(IBM, 2003)

Once teaming of an EBO by selecting talents crossing different BUs or functional departments, EBO is still housed in the BU with which it shares the great affinity, additional BUs typically contribute funds or talent to any initiative as needed. However, Company Y’s CPM system counteracts the tendency of business leaders at many organisations to focus on short-term targets by the expense of important growth initiatives. Therefore, Company Y makes an explicit decision not to measure EBOs on profitability, though they are expected to be profitable businesses in the future. Instead, EBOs are subject to milestone-based measurements that evaluate success based on goals more appropriate for an early-term venture (e.g. creating customer pilots and prototypes).

The Corporate Strategy team’s capacity to protect Company Y’s long-term bets is strengthened by a unique partnership with corporate finance and access to the BU’s EBO-related financial information and the authority to take corrective action should a BU fail to deliver on its funding commitments. If, in an attempt to meet short-term targets, the BU

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allocates designated EBO funds elsewhere, the Strategy team can override the BU’s funding decision and ensure the funds are used for their originally intended purpose (IBM, Growth Platform Guardian, 2003).

EBO was not exempt from financial measurement and reporting. Once an EBO was up and running, Finance measured and reported its revenues and direct expenses. This reporting required considerable innovation and refinement because Company Y’s systems had historically lacked the ability to track new, one-off activities. The resulting reports provided the basis for monthly financial reviews conducted with each EBO’s finance and operations executives, Corporate Strategy, and Finance. Meetings were often brief, but they served an important purpose, especially when expenses were compared to progress against milestones. If an EBO’s expenses were below budget and its milestones were not met, it could adversely affect the next round of funding that had been promised. That was a flaw in the system. The meeting was the only way for the system to identify the variance. (Garvin & Levesque, Emerging Business Opportunities at IBM (A), 2005).

For instance, in early 2000, Pervasive Computing became one of Company Y’s first corporate EBOs. By that time, the team had made some progress with strategy and offering but still had not been able to coordinate effectively the many technology and development projects that were being run independently by the company’s diverse groups.

In the early stage of Pervasive project, the leader set performance objectives with the team leaders and essentially ran the project as a standard operating business. The primary focus was financial performance. However, they failed to determine how to manage and track an emerging business until later. They realised that many emerging business opportunities were not mature enough to have sufficient concrete data. Company Y’s business style was much like a chess game. They planned each move and believed that if they had more data, they could make better decisions. It makes the planning and the performance monitoring and tracking more difficult than standard operating business.

With growing understanding of how to manage an EBO, the leadership of Company Y installed a milestone tracking system for Pervasive that shifted the focus away from purely financial measures to business indicators. For example, some success criteria increasingly took the form of design-ins. When Company Y signed a contract with a device manufacturer that had chosen Company Y’s technology over its competitors based on Company Y’s superior

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product design, the EBO recognise it as credits as part of performance. In another example, the EBO also tracked the number of times they were covered in key press, or mentioned in Tier 1 IT communications, etc. as a way to measure its success unlike the traditional financial matrices often used to measure the EBO’s performance (Garvin & Levesque, 2005).

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Software business is seen as a high return industry compared with the other manufacturing and physical production industry. It is the nature of knowledge economy. However, with evolution of IT technology and rapid changes in the business environment, high returns is no longer a given for software companies. In the previous studies, both identified cases in software industry confronting challenges and expected to take action to monitor and improve organisational performance effectively and efficiently. Budget Planning and actual performance monitoring is the key to enable CPM successfully in an organisation.

5.1 Critical Successful Factors to Implement CPM

5.1.1 Top Management Supports

Strong and consistent support from executive management is the key factor to make any CPM successful in an organisation. The CPM was highly anticipated by executives in the beginning, since the implementation of it can address several key issues Company X confronted, especially a lack of visibility of cost and expense. The P&L reports provided by every function and BU was not in a timely manner. Precise overview of business operation and execution could only be provided to management when finance department consolidates to close the accounting books at every fiscal period, i.e. monthly, quarterly, or yearly. The information was relatively lagged and created less value to executives to make decisions in a dynamic environment.

Executives possessed an urgent need for CPM.

Company Y executives possessed the same belief that a complete budget planning is the foundation to making the CPM an effective performance management process and automatic business application that can provide executive management the insight to business operation.

Complete performance management is the foundation of effective execution of strategic direction outlined by executives. It also can be the key driver to creating growth for the organisation by identifying potential opportunities.

5.1.2 Linkage to strategy planning

Clear and firm corporate strategies outlined by executives should be the cornerstones of a business operation, and the foundation to developing effective budget planning process and