SOLVING FOR INNOVATION RISK - RIMS Handouts/RIMS 15/ERM004... · SOLVING FOR INNOVATION RISK ERM 004 ... “Marketing failure” ... Whirlpool’sDiscoveryLenses Project Delivery

SOLVING FOR INNOVATION RISK ERM 004

Speakers: Scot Schwarting, Director, Risk Management, Whirlpool Corporation

Larry A. Warner, President, Warner Risk Group

Learning Objectives

At the end of this session, you will: •  Understand the various types of innovation

•  Understand the breadth of innovation risk

•  Understand potential tools to address innovation

INNOVATION DEFINITIONS

•  “The act or process of introducing new ideas, devices, or methods.” (Merriam-Webster Dictionary)

•  “Something different that has impact.” (The Little Black Book of Innovation, Anthony 2012)

•  A solution for the customer that did not exist before. The solution has to have intellectual property. It also has to drive margin over what it’s replacing. (Whirlpool)

INNOVATION RISK

•  The risk that new products, services, or technologies do not meet the needs, expectations, or value requirements of the consumer – “Consumer failure”

•  The inability to produce new products, services, or technologies at the right time, at the right cost, in the right quantity, and with the proper quality – “Product and production failure”

•  The failure to anticipate changing consumer tastes and preferences - “Marketing failure”

•  The failure to innovate, frequently resulting in the failure to remain competitive – “Resting on your laurels.”

- Larry Warner, RIMS Innovation White Paper 2015

TYPES OF INNOVATION

•  Products

•  Technologies

•  Packaging

•  Processes – Manufacturing, Financial, or Operational

•  New Markets

•  Financial Instruments, including insurance

•  Acquisitions

GREAT INNOVATORS

•  Apple

•  Google

•  Amazon

•  Biopharmaceuticals

•  Whole Foods

•  Netflix

•  Whirlpool

FAILURE TO INNOVATE

•  Polaroid

•  Bell & Howell

•  Blackberry

•  Kodak

•  Weight Watchers

ERM IN INNOVATION

•  Workshops

•  Funnel

•  Standardized Review Processes

•  Toll Gate

ERM WORKSHOP

Key  Risks   Key  Risk  Treatments   Risks  Treated   Who/What/When  

Risk  1   Risk  Treatment  1   1,3   J.  S.  –  Ac6on  -­‐  6/1/13  

Risk  2   Risk  Treatment  2   1,2,5   R.  J.  –  Ac6on  –  4/30/13  

Risk  3   Risk  Treatment  3   2,4   B.  A.  –  Ac6on  –  3/31/13  

Risk  4   Risk  Treatment  4   3,4,5   B.  D.  –  Ac6on  –  Q2/13  

Risk  5   Risk  Treatment  5   5   H.  H.  –  Ac6on  –  YE  12  

OBJECTIVE   Risk  Drivers   Risk  Ra=ng  

Probability of Success

Warner Risk Group © 2015

STANDARDIZED REVIEW

•  Provide a continuous, risk assessment, and monitoring program in order to support corporate wide innovation activities in a uniform way

•  Develop a standardized methodology and set of tools to

evaluate innovation options •  Evaluate current activities and capabilities •  Develop a matrix for consistent scoring of projects

•  Adapt the program based on audits

Scale Classification Example

Ques6on   Insignificant   Minor   Moderate   High   Major  What  is  the  poten=al  benefit  to  revenues  or  expenses?  

$100,000  

$250,000  

$500,000  

$1,000,000  

$5,000,000  

In  how  many  countries  will  the  product  be  marketed?    

US  Only  

   North  America  

 North  America  

&  Europe    

 North  America,  Europe,  &  Asia    

All  

Scope Example

Ques6ons   Scope   Score  What  percentage  of  the  business’  does  this  product/process  benefit?  

All   Major  

Are  mul=ple  business  processes,  products,  divisions,  or  func=ons  benefited?  

N/A   N/A  

What  is  the  poten=al  impact  to  revenues  or  expenses?   $20M   Major  What  profits  will  be  generated?   $2.5M   Major  Will  we  be  first  to  market  with  this  type  of  product?   Yes   Major  

Overall  Score   Major  

Complexity Example

Ques=ons   Complexity   Score  Do  are  plants  already  have  the  technology  to  manufacture  this  product?  

Yes   Insignificant  

How  much  complexity  with  the  product/process  add  to  manufacturing?  

Minimal   Minor  

How  much  training  will  our  sale  force  need  to  market  the  product?  

None   Minor  

What  impact  will  this  have  on  our  plant  efficiency?   Moderate   Moderate  Will  this  process  or  product  have  an  impact  on  employee  safety?   No   Insignificant  

Overall  Score   Minor  

INNOVATION AT WHIRLPOOL

Innovation at Whirlpool

Innovation at Whirlpool

Whirlpool Methodology

WE

N

SSTRATEGICFOCUS PROJECT  EXECUTION

Deliverand  Grow

SelectDomains

DiscoveryDevelop

Opportunities

OBPApproval

Early  Experimentation

Whirlpool’s Discovery Lenses

Enterprise Risk Management Incorporate risk into Whirlpool’s strategic processes in order to

create a competitive advantage by being prepared for and properly rewarded for the risks we do take:

Design    Deploy    Embed  

Create a process of continuous learning that embeds risk management into operating decisions, optimizes strategic activities and delivers business performance

Whirlpool’s  Discovery  Lenses Project Delivery Excellence (PDE) System: •  Training provided for Project

Leaders •  Tools are linked to processes •  ERM becomes a technical

competency

Since its launch, PDE Leads have registered 186% increase in risks identified

Enterprise  Risk  Management Incorporated risk into the CAPEX review assesses the impact of a project on each major risk: •  Increases corporate governance •  Reduce material surprises •  Influence mitigation activities •  Become better prepared •  Influence risk profile •  Increase knowledge base

Innovation Case Studies

•  Horizontal compressor

•  Microwave sound sensors

•  Working with suppliers – new blowing agent

Results Include

•  Reduced Whirlpool’s total cost of risk by 38%

•  Reduced total cost of quality, warranty claims, liability claims, and product recalls

•  5% operating margin improvement in last three years

•  Early alert system to identify and correct new failure modes

OPPORTUNITIES FOR RISK MANAGERS

RECOMMENDATIONS

•  Understand the drivers of innovation in your company

•  Develop a partnership with the innovation team

•  Learn the innovation language at your company

•  Highlight the upside as well as downside of risk within innovation process

Contacts  

•  Scot  Schwar6ng,  Whirlpool  – [email protected]  

•  Larry  Warner,  Warner  Risk  Group  –  [email protected]  – 703-­‐856-­‐0864