IntroductionFrost & Sullivan recently invitedselect companies to participate in anew and unique thought leadershipforum — the Virtual Think Tank. Theexecutives contributing opinionsand insights worked in a variety ofname-brand companies:

n Gerald PowellGlobal Leader - Create Product SuccessDow AgroSciences

n Lewis ManringVice President, Technology DuPont

n David Matheson President & CEO SmartOrg, Inc.

n Todd AbrahamSenior Vice PresidentResearch & DevelopmentMondelez International

n Tommy GoodwinSenior ManagerStrategy & Public AffairsAARP

Research shows that 65 percent of senior executives admittedthey were only “somewhat,” “a little,” or “not at all” confidentabout the decisions they make to stimulate innovation. In spite ofbest efforts to get more innovative projects, these companiesoften fall short and favor incremental advances with morecertainty of increasing returns on investments, but less certaintyof breakthrough ROI. How, then, can they get more innovation intheir portfolios?

This interactive, virtual session provided a platform for identifyinginsights central to the role of executives working on innovation andnew product development. Because of the platform nature ofinnovation tools, insights are relevant for the spectrum of marketsand industries that are engaged in innovation activities. Among the themes discussed were the following:

n Do we really need more innovation in our portfolios?

n What process structures or habits developed whileproducing incremental advances get in the way ofinnovation?

n How do you provide rigorous thinking about strategicand economic issues for innovation, in situations ofhigh uncertainty or ambiguity, without crushinginnovation?

January 2013VIRTUAL THINK TANK

By Leo O’Connor, Vice President and Growth Strategy Consultant, Technical Insights, Frost & Sullivan

HOW TO GET MORE INNOVATION IN YOUR PORTFOLIO

Innovation projects require a learning perspective anda high level of support, and in many cases they are alsofraught with uncertainty and ambiguity. Forces withincompanies such as short-term pressure, projectmanagement, and the need for predictability make itdifficult for innovation to thrive.

To explore these challenges and uncover ways toovercome them, Frost & Sullivan invited executives toparticipate in a Virtual Think Tank session. On a dailybasis, these executives manage innovation portfoliosand engage in strategic planning activities with the goalof driving new product development and businessgrowth.

Ample Opportunity Exists

The Virtual Think Tank participants discussed anddebated myths and circumstances surroundinginitiatives to drive more innovation into the portfolio.

While executives bemoan the challenges associatedwith getting more innovation into their portfolios, it’sclear that there are ample opportunities to achieveinnovative products.

This is true from the perspective of emergingtechnology trends and the convergence of

technologies, market applications, and industries.As shown in Figure 1, a broad range of technologiesare emerging with potential in multiple industries. Forthe technologies areas selected among the top 50technologies for the future — part of Frost & Sullivan’sTechnical Insights TechVision project — each areaconnects with market applications in an average of fourindustries. Technologies are also being driven andpulled into market applications by megatrends —“health and wellness,” “megacities and regions,” and“innovating to zero” are among them.

Confined by the Comfort Zone

Innovation takes companies out of their comfortzones, and it requires that they move forward fromsatisfying current customer needs to evaluating andsatisfying unmet needs and, sometimes, needs that arenot as yet obvious. The metrics and approaches thatcompanies tend to use are great for implementingincremental, safe zone projects, but these same metricsand approaches can get in the way of successfulinnovation that leads to products launched in medium-and long-term horizons.

Given the hypothesis that there is not enough

Figure 1. Emerging technologies and industries converge.

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innovation, and that certain metricsand processes get in the way ofinnovation, panel participants wereinvited to discuss whetherexecutives needed more innovationin their portfolios.

“The notion that there's a growthzone that requires us to do thingsdifferently from what we've beendoing, and that might require us tobe innovative around our customer,technology, market, and strategicperspectives supports the notionthat we need more innovation,” saidTodd Abraham. “The safe zone isn’ttypically big enough for us to growat the level of expansion that ourmarketplace expects, that the stockmarket expects, that our customersexpect, and that our employeesexpect,” he said.

Gerald Powell offered an examplefrom the food and fiber industrywhere innovation, through thecenturies, has raised standards ofliving and quality of life. “Most of thecompanies in this space realize thatwe need to double food productionbetween now and the middle of thiscentury,” he said. “The only waywe're going to continue to meetdemand is to have a high amount ofinnovation in our industry.”

David Matheson said he felt that acertain element of the desire forinnovation was inauthentic. “Peoplewill say, for example, my New Year’sresolution is to lose a certainamount of weight and get moreexercise, and they really don't dowhat it takes to achieve it,” he said.“And so, while it's really essential toget more innovation, I wonderwhether people really want it andare willing to go the distance tomake it happen. At some level itdoes mean doing somethinguncomfortable, and people don't likethat. Do organizations really mean itin the sense that they are willing to

take action? If the CEO says weneed more innovation, that's a nicesentiment. But do they mean it in thesense that they’re lighting the fire that'sgoing to drive that forward or not?And from what I've seen, that's prettyuneven across companies.”

Enterprises appear to want the greatervalue that innovation creates, butstaying with an innovation programlong enough to see it bear fruit can bea challenge that overwhelms even themost efficient of organizations.

“When you think about what you'rereally asking for around thecommitment to innovation, you'retalking about protecting budget andresources, having greater thresholdsfor risk taking, and having realorganizational patience,” said TommyGoodwin.

When people in enterprises thinkabout wanting to be innovative,they frequently think about it in thepresent. Successful innovationprojects need to be sustained overa number of quarters andpotentially for years, and it can bedifficult to envision the difficultiesassociated with staying the course,especially in times of highuncertainty within multipleenvironments — including political,economic, social, technological, andlegal settings. Implementingstrategy is a combination of howmuch you spend and what youspend it on, said Gerald Powell. “Tosay that you want growth and thennot allocate the resources to fullyfund it, that's a great paradox anda challenge,” he said. Innovating around how you innovatecan be critically important. “Allocationof resources is a critical issue. How youleverage those resources, how you usethose resources, and how you decidewhere to focus those resources areelements of the innovation processthat allow you to be more effective

“It’s all about making choices and then actuallycommitting and executing on those choices.”

– Gerald PowellGlobal Leader - Create Product SuccessDow AgroSciences

“The biggest problem I see in organizations is theinability to make choices. By not making choices,we place so many bets that none of them canreally advance. So if you have three great choices,and you're going to kill them by trying to goforward with all of them — that’s part of theproblem. It's not trivial to decide which projectshould go forward.”

– Lewis ManringVice President, TechnologyDuPont

“I think the notion that every innovation has to besuccessful is going to limit how innovative thosethings can be. You can't hit 100% on these thingsor else you are not pushing the boundariesenough. If that's your metric, you're going to drivethe organization toward very safe short-terminnovations.”

– Todd AbrahamSenior Vice President, Research & DevelopmentMondelez International

“It can be a challenge getting people tounderstand that when a great, innovative projectis being brought to its natural conclusion, but thatgreat project doesn't go to market, is not a badthing”

– Tommy GoodwinSenior Manager, Strategy & Public AffairAARP

“It seems to me that innovation, in a way, is thesearch for the reasonable upside, and that'sbasically a learning process…it seems thatputting learning at the center of a process aroundambiguity and uncertainty is really at the heart ofthe matter.”

– David MathesonPresident & CEOSmartOrg, Inc.

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than your competitors,” said Todd Abraham.

Lewis Manring agreed: “I would stand confident thatwe have plenty of innovation opportunities, butthat's different than being effective at innovating.”

Another difficult path to maneuver for inventors andinnovation executives is the choice between selectinginnovation projects that appear to be most in-linewith the company’s strategic objectives and corecompetencies, and passionately pursuing thoseprojects in a committed way that takes them to theirend points, and on the other hand, being careful tonot select a path that is too narrow and safe thatlimits innovation potential.

David Matheson worked at Xerox PARC, whichfamously invented computer printing, computernetworking, and the computer workstation. Heinterviewed a colleague, George Pake, who wasthe head of that department at Xerox PARC atthe time.

Pake had a choice — fund printing, networking, orthe personal computer? He funded printing, whichwas most strategically aligned with Xerox’sbusinesses. “That was a real choice, but was it onewhere somebody made a choice that was againstinnovation?” asked David Matheson.

Todd Abraham said Pake did not, in his opinion,make a choice against innovation. “I think heprioritized which innovations were most importantto the long-term success of the company. That's notsaying you're against innovation. I mean, I'm againstinnovating in car tires. We don't make car tires. Idon't think that means we don't want to innovate. Ithink it means we want to be focused on thebusinesses that are most in line with where wewant to be in the long term.”

“I was actually going to say something similar thatwould drive me to have incredible respect for thisperson,” said Lewis Manring. “The biggest problem

I see in organizations is the inability to makechoices. By not making choices, we place so manybets that none of them can really advance. So if youhave three great choices, and you're going to killthem by trying to go forward with all of them —that’s part of the problem. It's not trivial to decidewhich project should go forward. After doing thisfor 30 years, I have probably made more mistakesin my career by trying to do too many things than Ihave done by trying to do too few.”

“It’s all about making choices and then actuallycommitting and executing on those choices,” saidGerald Powell.

Incremental and Innovative ProjectsRequire Contrasting Metrics

The panel was asked to explore the processes,structures, and habits generated within the comfortzone in developing incremental projects that get inthe way of more long-term or medium-term andmore innovative projects.

“One thing I have seen is the use of evaluation andfinancial metrics before they are appropriate,” saidDavid Matheson. “People try to do net presentvalue calculations and impose it on them in such away that it’s not helpful for innovation. It raises thebar of evidence for an innovative idea before thatidea can really handle it.”

“I do think that the organization cannot put innovativeprograms side-by-side with incremental programs,because you can't compare them,” said LewisManring. “That doesn't mean you don't want to thinkabout the financial implications of the programs. Ofcourse you do, or else you can't choose between thedifferent innovative programs.” With that said, if youjust do short-term finances, you are always going todo the incremental work, he added.

“These numbers all have a high degree ofuncertainty around them, and we crank out anNPV number like we know the inputs to thetwelfth decimal point,” said Todd Abraham. “Youneed to use much more judgment (and drive lessfor mathematical precision) with innovationprojects. Even the most difficult innovation projecthas quantifiable objectives and milestones alongthe way. The milestone may be a “go, no-go”decision, but it's a milestone. I don’t think we’reat the point where we only reward people forsuccessful innovation. We look at both whatthey're doing and how they're doing it, and gettingto the right stopping point at times is just as

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important as pushing something ahead.

“I would even go so far as to say that I am familiarwith several circumstances where a person workedon something, and they guided us to the difficultdecision to discontinue it, and the learning they hadfrom that really helped them significantly in thenext project they took on. I think the notion thatevery innovation has to be successful is going tolimit how innovative those things can be. You can'thit 100% on these things or else you are notpushing the boundaries enough. If that's yourmetric, you're going to drive the organizationtoward very safe short-term innovations. And so ifthere's not some process for dealing with failedattempts, hopefully inexpensively and hopefullyquickly, but still dealing with failed attempts, you'renot going to push the boundaries enough.”

The Importance of an Innovation Culture

Tommy Goodwin works in an organization withattributes that are different from others. “It can be achallenge getting people to understand that when agreat, innovative project is being brought to its naturalconclusion, but that great project doesn't go tomarket, is not a bad thing”, he said.

Todd Abraham had an interesting anecdote related tothe tolerance for failure in organizations: “A youngengineer comes back to his boss after screwing up hisfirst planned trial and says, ‘I bet you're going to fireme, I just cost us a hundred thousand dollars.’ And themanager says, ‘Fire you? I just invested a hundredthousand dollars in your education.’ ”

Creating an environment where employees feelsafe being creative and not concerned that theircreative ideas will be squashed is heavily influencedby an organization’s culture. “We all create culturewithin our own organizations, but what kind ofculture are we creating?” asked Todd Abraham.“How do you manifest that culture in your actionsand activities? And if you have a culture that saysyou can only advance by succeeding — that failureis not an option — you know you're not creatingthe right culture. And if you create the culture thatallows failure as such, you have to find theopportunities to tell those stories. You have to findopportunities to reward those people in theappropriate way. You certainly don’t want peopleto think they should fail so that they can berewarded, but you want to highlight those areaswhere significant learning happens in the processof failing. In a small way, it can lead to a differentopportunity. If you know what you can't do, it alsohelps you define what you can do.”

Characteristics, Tools, and Processes thatDrive Innovation

Given that people working on innovation projectscan feel restrained by the habits, processes, andrequirements of incremental projects, the panelwas asked to comment on how to provide rigorousthinking about strategic and economic issues forinnovation in situations of high uncertainty andambiguity, without crushing innovation.

Instantly, Gerald Powell offered a solution. “This isan easy one to answer because we had a processabout 15 years ago where every single concept andproject took literally hundreds of inputs. Weeventually started using Access, because thechallenge got to be too big. And now the toolwe're using has really been a game changer for us.Rather than spend so much time debating ratherspecific things such as the maturation of sales —in 10 years is it going to be $11 million or $11.1million or $10.9 million — we really try to have adiscussion about it. So I think some of the toolsthat are out there — we happen to use PortfolioNavigator® — really have taken a lot of the hoursout of the tedious part of this and we can reallyspend time talking more about the productconcept, how much we can sell, and gettingcustomers involved, and we spend a whole lot lesstime trying to build the business case. We've takenliterally months of organizational time out of

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building the business case with tools that are muchbetter.

“The tools are different in two ways. One is justthe count of inputs you have to put in the tool.They are significantly fewer than what we used toenter. The other thing is that by using tools thathave different risk adjustment parameters, you canend up with an answer in which the organizationfeels a level of confidence.

“The data we have says we've gotten much, muchbetter at this, as a result of using this tool. I cansummarize it as follows. The organizationcommitted to deliver on something and what weactually delivered was in line with what we hadplanned, so we didn't end up thinking it was goingto be one thing and it turned out to be somethingdramatically different.”

David Matheson expanded on this point: “Onething I've seen at the core of this is that the toolsand process for innovation are learning (asopposed to planning) oriented. The difficult issuesin innovation include ambiguity and uncertainty.That is, a great idea is ambiguous in the sense thatit could go in many different directions, and thatpossibility of going in many different directions istroublesome for a management structure. So if I'minnovative I could say, well I've got this great newtechnology, and I can apply it in different settings.Every time I add something, I’ve lost someone.What the other side hears is, ‘I don't know whatI'm doing, and I'm losing focus.’ And the other issueis the uncertainty. It could be a big ROI, or it couldbe small. And, frequently, our profits are designedaround predictability. It seems to me thatinnovation, in a way, is the search for the reasonableupside, and that's basically a learning process. So I'mnot sure how to do all that, but it seems thatputting learning at the center of a process aroundambiguity and uncertainty is really at the heart ofthe matter.”

A robust tool allows you to try out multiple inputs,continuously adjust inputs and expectations as you

proceed, and always have a record of your work sothat you can refer back to it if needed for futurelearning. “So you may end up with 130 differentconcepts for a given geography rolling up into fouror five completed projects, but out of those 130concepts, you started with 150, and then youconstantly made adjustments without losing yourwork,” said Gerald Powell. “This process letspeople think out loud in a quantitative way.”

In addition to being able to discuss the range ofmetrics surrounding projects and pressure testingthe underlying assumptions, the panelists said thatsuccessful innovation projects can greatly benefitfrom the work of an influential project champion.

“A successful innovation project is one that’sproperly incubated by a leader, and not isolated, sothere's enough learning and exchanges to buildinternal champions as the project moves forward,”said Tommy Goodwin. “They are people that don'tnecessarily get bogged down in strictly doing NPV.Here, in my company, we get to think about thingslike member relevance and social change. Butprojects that are the true drivers of innovationneed the cocktail of everything we've talked abouttoday.”

“Innovation leaders and the people they influencecan have an intuitive understanding of value.

That can be very difficult to convey, but thatunderstanding of value allows you to say, ‘This is sovaluable, I’m just going to do it,’ ” said LewisManring. “It's very difficult to insert thatsystematically in a complex organization.”

David Matheson remembered a quote byMachiavelli. “He said something like this. ‘A changeis the most dangerous task to undertake, becausethe person trying to make the change faces ascommitted opponents all of those who benefitfrom the status quo, and as lukewarm supportersthose who might possibly benefit from the change.’And it seems to me, that is a pretty gooddescription of what happens with innovation.”

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