The Fourth Industrial Revolution Inside Global Giants

Description: These two global companies revamped their approach to innovation, product development, and reoriented themselves towards a digital society. How do they work with the global innovation ecosystem? What are the new opportunities of speed, and the impediments to achieving it?

The Fourth Industrial Revolution Inside Global Giants

(Transcription by RA Fisher Ink)

Kampel: So, over the past say nine years, we’ve had a lot of sessions about digital transformation, talked a lot about how big companies need to disrupt themselves, act like startups. We continue to have that same conversation. We’ve talked all about different models from corporate venture to accelerator, incubator. But, I’m excited, coming up next, we’re going to talk with two amazing women who are leading innovation for 200-plus-year old companies. So, we’re going to introduce now Melinda Richter, who’s the global head of Johnson & Johnson Innovation, and Sue Siegel, who’s the CEO of GE Ventures and the Chief Innovation Officer at GE. So, Sue and Melinda, please join me on stage.
Thank you. Welcome. So, you know we talked about all these various models. So, corporate venture, accelerator, incubator, strategic partnerships, M&A, and I want both of you to talk a little about, at your companies, how you align all those variants and initiatives across the corporate landscape, as well as the business units. So obviously that must be, for the size of your companies, extremely challenging. Melinda, talk a little about J&J’s philosophy on how you align all those programs.
Richter: Sure. So, at J&J we’ve created this organization called Johnson & Johnson Innovation and there’s a basic premise behind it which is, we believe the best science and technology should become the best solutions for patients and consumers all over the world. And if we believe that to be true, we also have to be humble enough to say that the best science and technology is just as likely to come from outside the walls of a big company like J&J as inside. But, when it’s out there it faces many more hurdles to becoming a viable commercial entity that can get these solutions to the people who need them.
And so, our goal at Johnson & Johnson Innovation is to locally embed ourselves in innovation ecosystems around the world with the express intent to help catalyze and support that innovation to the market place. And as we do that, we bring in our business partners to help source and select those innovations. So, we look at our pharmaceutical division, our device innovation, we look at our device business unit and our consumer business unit. And we get them to help us choose which things are straight in their strategic areas of interest but also look at things that are in their white space, in their disruptive area, so they can watch and gain insights from all of those technologies. So, in that way it is a massive scale of sourcing and selecting innovation from around the world.
Kampel: Sue, as far as your role both as CEO of GE Ventures, as well as overseeing innovation more broadly, how are those two roles different? And maybe also talk a little about that’s changed over the past year or so taking on that chief innovation officer role. How has that changed how you think about innovation at GE?
Siegel: I’m not sure if change is how I think about innovation at GE. It’s just more expansive. GE has always had quite a centralized model with regards to innovation. It’s been done at our global research center, which is out of Niskayuna, New York and that’s where Thomas Edison was. And so, it’s been built around those sort of concepts overall. And typically, it was around technology and invention.
I think we all know with the pace of change being as fast as it is today and the fact that convergence of technologies is just happening at a scale that we’ve just never experienced before, the notion of purely technology and innovation cannot the case. We have to do business innovation too, business model innovation. So, the way we’ve been trying to do it is we have a multimodal platform in the business that I run, which is called GE Ventures, that has equity investing, it has business creation, which is actually an incubator, and we also have the licensing group which has come together to create a whole bunch of different ways to offer the entrepreneurial ecosystem and partner with our global research center and the business units to actually make innovation happen.
And so, innovation is business model innovation, it’s very much around partnerships. The other thing is, I think we all know this, nobody can do it by themselves anymore. It used to be we could, because you have the scale. You are in 185 countries; you are able to have all of the distribution you need because you have hundreds of thousands of salespeople; you have the development muscle and you’ve got the balance sheet. And the conditions today, that’s not the case. And I don’t think any one company is able to do that anymore. So really, it’s much more around technology, plus business models [and] partnerships and then putting the right methodologies, disciplines, processes, metrics to actually enable this to happen and bringing an infusion of talent in too from the outside. So, it’s been a combination of different things.
Kampel: Yes, you mentioned talent. So, I think one of the things we talked about was innovation as sort of a talent strategy. Because scale and growth and hiring is great but a lot of entrepreneurs who are doing amazing things and building companies don’t want to work for a big company. They don’t want to be injected into this new corporate culture. So, for you guys, it’s actually a talent strategy in how to work with new entrepreneurs.
Richter: Yes, we look at it as a talent strategy. So, in the past we used to define talent as anybody who wore the title full-time employee on their forehead and we used to serve those people. And now we define talent as anybody who is on the same mission that we’re on. You just may choose to show up because of your personality and life circumstances as a full-time employee. And listen, it takes a lot to be a full-time employee at a company like GE or J&J, but that kind of a talent needs a more safe and secure kind of a basis of a reward system.
Whereas, there’s a lot of talent out there who because of their personality or life circumstances prefers the boom or bust cycle of entrepreneurship. And that’s great too and they also want things that keep them tethered to a platform or resources so they can be more successful. So, what we try to do is match those two types of talents together. So, the full-time employee wants to be a part of innovation and the entrepreneurs want to have access to resources that a big company has. So, we match them up together. So, for every innovator that we have in our network—and listen, we have 450 companies. Just in our J Labs networks, within Johnson & Johnson Innovation, we’ve done over 300 collaborations of equity investments or other kinds of partnerships. There’s a lot of partners, innovators out there that we then match up with what we call “J pals,” mentors within J&J that help guide them and give them access to the big company resources that we’ve already invested in that we can now leverage for these innovators.
Kampel: So, one of the things we were talking about when we talked a couple of weeks ago was how big companies are measured on success of innovation. You talk a lot about the companies and the valley and growth is the metric and not about profitability. They could be hemorrhaging cash. Do you think big companies are unfairly judged around innovation as far as the ROI, the return? And how should shareholders and analysts in the street think differently about big companies as they try to innovate? They built all this legacy business, this huge staff.  They have to be judged differently, right?
Siegel: Yeah, I’m going to turn the question around just a little bit only because the metrics of innovation, I think we all know, are very different from the mature metrics that are applied to mature processes in companies. You just can’t measure purely on revenue, percent growth, percent margin, and profitability. I mean, profitability, come on, how long did it take Amazon to become the juggernaut that it became? And it didn’t have profitability for years. So, this is something that is really hard, particularly in big established, public companies that have a shareholder base that is very much around dividends and EPS.
And so, thinking about it in the way I’ve really tried to introduce innovation metrics, particularly at a big corporation that is so used to these old, mature metrics, is to figure out what you do in venture capital. Make sure it is understood, the time frames associated with that J-curve of growth and then start to apply, depending on the business model—be it as a service model, or be it a marketplace model, whatever it might be—take those metrics and start to apply them at the stage that they are actually in and to also do it in the industry that it is in. And really start to educate the folks internally on that. Now, you can’t think that it’s going to be something that’s going to come out in a very short time frame because the reality is, growth takes time, scale takes time.
And that’s the reality of what has to happen. I don’t think right now the companies that have been the asset builders are really being what I would call rewarded in the same way as the network orchestrators. Those platform companies like the Ubers, the Airbnbs, and Netflix, et cetera, that bring together, that consume and that produce in the same way in terms of metrics and growth. Very different of what you’re seeing in terms of certain investors rewarding that type of expectation. So, the mature companies have to transform and this is going to take a while. And that’s the reality of digital transformation, in particularly the more mature companies.
Kampel: So, Melinda, you talk a lot about partnerships and working with these external sort of constituencies, what’s the responsibility on the reskilling and the life-long learning of the existing employees as you’re also working externally? How do big companies have to think about, again, bringing along the existing employees and what do you see at J&J as that role?
Richter: Well, I think the existing employees in big companies are probably the biggest untapped potential talent-base in industry. Candidly, when employees go to big companies many times they get put in a little box. You need to be in that little silo and all of that ambition that you had slowly wears away and then you get down to being, “I’m going to put in my time.”
And so, what we want to do is say, “No, you’re an incredible talent and actually there’s a lot of experience and skills and knowledge in there that we need to tap into.” And that’s why we connect them to external innovation. We get them to help us do the diligence in the science, to help pick the companies that go into our incubator network, to help mentor those companies, connect them with innovation within J&J. And because of that, these employees are blossoming and that’s the value of putting these two different groups of people together. And that’s what’s creating new ideas and new opportunities within the current R&D organization. So, we have to pay as much attention to that talent base that’s inside the organization as much as outside.
Kampel: So, again, both of you have multiple business units. We talked about pharma, consumer, and device. You obviously have everything from energy all the way across—is it a top-down, centralized innovation model? Are you empowering the business units and bringing up what’s working within the business units? Again, how are you thinking about innovation at the top side as well as how you’re bringing it up within the various business units?
Siegel: It’s a real tension, to say the least, I think in any company because I personally don’t believe there’s any department of innovation in any company. And innovation has to happen. It’s a growth mindset that has to happen across the company. When I actually think about what I’m trying to do now and knowing that innovation happens at the business unit level, it happens at the corporate level; it doesn’t just happen in business units but happens in functions too because innovation is also happening in our sales and marketing groups. It’s also happening with our order taking groups, and our customer service groups.
So, as we think about that, what I’ve tried to do is really try to figure out how to make sure that we actually provide the right kind of tool sets so that anybody and everybody can innovate. So that’s number one. So, we’ve been pulling together an innovation toolkit that has everything from business model innovation, to partnership playbook, to innovation metrics, and the understanding of what those innovation metrics are for the various business models.
And then the other thing we’ve invested in, and this goes to the talent and the retraining, we’ve trained folks in lean startup methodologies in a very comprehensive way. It’s called Fast Works internally at GE. To start to get them to understand what the entrepreneurial type of approach actually is overall. And that’s something that we’ve had to do for reskilling.
The other thing that I would say is, again, because it has to be growth mindset across the corporation, thinking about in the past GE would only train on the operating model, so really, the rigor of operations, Six Sigma, lean, agile. Now, you really have to think about how do you train them to be much more risk taking, much more, if you’d like, willing to take the milestone-based funding approach versus the annual budget and the quarterly review, actually meeting those milestones or being shut down early and celebrating failure. So, a lot of that is part of what we’re trying to enable at the corporate level across the business units because it has to happen at the individual level and within the business units and functions.
Richter: And if I can just add to that, it has to start at the top. So, we have to say, “From the top this is the way we want to operate and we’re going to let that happen actually within the organization.” And that takes champions within the organization that understand what it’s like to be an entrepreneur. And especially understand what the needs of the patients are and the consumers that want to stay healthy.
And so, for that you need folks like our chief science officer, Dr. Paul Stoffels, who started out his career as an infectious disease doc on the front lines of Africa with AIDS, who then figured out, “I don’t want to just fix people as they come in.  I want to try to prevent them from getting sick in the first place.”
And then he became an entrepreneur and his company was bought by J&J and then he became chief science officer. So, he understands what the patients need and he understands it’s innovators in combination with big companies because that’s how you create scale and meet the needs of the people all over the world. If you put those together then you have something that’s really remarkable, but you have to modify each way. As a big company, we have to come back a little bit off of all of our processes and our stage gates and the way we typically make decisions. And entrepreneurs also have to figure out how do we plug in to a big company that can not only help us be successful all over the world but impact lives.
Kampel: So, Sue, Melinda brings up top-down, and obviously GE has very publicly gone through management changes.
Siegel: No, really?
[LAUGHTER]
Kampel: From obviously, Jeff Immelt, who people really looked at as a leader who believed in innovation, all this, to transitioning to John Flannery, to now, Larry—how have you seen the change? And have you gotten the sense sort of from Larry now—are things going to change? Does he really believe in the path that’s set forth?
Siegel: Wow. Yes, sort of, don’t know. So, under Jeff Immelt, no doubt, he really set out to transform and think about what future looked like. And as you can see, that’s really been his passion. He’s now helping at NEA as a venture partner there because he really enjoys the venture ecosystem. And he tried to bring that to GE in a big, big way. I think John Flannery wanted to continue that but he wanted to do it in a much more, if I would say, decentralized fashion. Where it used to be centralized under Jeff Immelt, it’s become now much more, business units are the center of gravity and that’s really, quite publicly been stated. And so, how do you enable the business units to go there.  I think Larry, who has come from the Danaher business systems, is really, I think, going to continue down that path, big commitment to innovation. He’s six weeks on the job. Ask me in a year.
[LAUGHTER]
Kampel: So, we’ll have you back in a year and we can talk about that. Well, thank you both for joining us today and let’s give them a round of applause.
[APPLAUSE]