Innovation Governance Council Governance and Resource Allocation Purpose

Innovation Governance Council Governance and Resource Allocation • Purpose of Governance Council – – Define the Strategic Intent for Innovation Ventures Portfolio Shaping Allocate Extraordinary Resource Guidance to the teams • Membership – Highest Levels of Executive Management – Should not delegate • Frequency – Quarterly Active & Engaged Sponsorship © 2013 Kennametal Inc. l All rights reserved. l Proprietary and Confidential l 0

Culture For Innovation - Traits Three Corporate Traits…. . For Success • Willing to cannibalize successful products • • • Corporations nurture and sustain their most successful products Innovations are either • Threat to current success • Costly, distant in payoff, highly uncertain Focus on future • • • Firms focus on current mass markets Todays mass markets will be gone tomorrow Must focus on future mass markets (Example who introduced camera & film but had most digital patents) • Embracing risk • • • Innovations have a high failure rate Success requires embracing the failure Incumbents tend to be risk averse, unaccepting of failure Willing to cannibalize, future focus, Embrace risk. © 2013 Kennametal Inc. l All rights reserved. l Proprietary and Confidential l 1

Culture For Innovation - Practices Three Corporate Practices…. . For Success • Incentives for enterprise • • Incentives for seniority, age, retirement stimulate loyalty but kill innovation In many firms failure is seen as shameful Incentives for innovation must be asymmetric • Strong rewards for success • Weak penalties for failure Internal competition • • • Employees love job security Innovators love adventure Bring the market within : Competition in • • Idea fairs, funding contests, prototype races, competing divisions Employees generate, peers judges, managers facilitate Crowdsourcing targeted ideation and prioritization Empowering Innovation Champions • • • Every employee can be an innovator Innovations often emerge deep in large organizations Top innovators seek new adventures / challenges Empowering champions, Incentives for enterprise, Internal markets. © 2013 Kennametal Inc. l All rights reserved. l Proprietary and Confidential l 2