Innovation 2002, slide 1 Innovation Why is Innovation Important? Innovation Strategy Innovation Projects

Innovation 2002, slide 1

InnovationWhy is Innovation Important?

Innovation StrategyInnovation Projects


Why is Innovation

Important?

Historic Perspective

Innovators Dilemma

“Innovation is new Ways to Create

New Value”

Part 1


What is Innovation?

• Innovation is producing something new for the company• New products, concepts, processes (ways of doing things) are all

innovations• An innovation for one company does not have to be an

innovation for another company (they might already have developed it)

• Innovations and projects related to innovations can be small or large. Some innovations, e.g a new function in a spread sheet or a way to tighten goods on a truck can normally be done without a form of approvalIn this perspective, we only focus on projects that will require time and resources in a volume that it has to be decided by some kind of management


Why is Innovation Important?

The Company

Aggressive and global competition

Increased focus on environmental and risk aspects

Rapid technological changes

Increased requirements from consumers an

customers

Reduced market limitations and new channels

Shorter products life-cycles

Consolidation and alliances

Increased pressure from owners

Page inspired by Intel Corp. Sept 2000


For an SME, this means ...

• The customers are getting more knowledgeable and value orientated - and often require "special products or service"

• Less products are sold as “standard off the selves”. More and more customers require tailor-made solutions or concepts = innovation

• Most markets get saturated. We must often provide “some-thing special” in design, service, functionality, etc to win the order

How can we invent (= innovate) those “special” products, the “unique” service, the “brilliant” way of organising our business, so we win the order?


The Process of Innovation has Changed over the last 20

years• 1950-60’s - A Technology Push

Basic Design Design and Engineering Manufacturing Marketing Sales

• 1960-70’s - A Market Pull

Market Need Development Manufacturing Sales• 1970 > - An Integrated and “Distributed” System

Modern innovation takes part in networked and chaotic cross functional / cross organisational processes, involving;

All parts of the company, Customers, Suppliers, Universities, R&D institutions, Partners, Other sources


Innovation is Complex, Chaotic and seldom “Straight Forward”1. Innovation consists of numerous actions that will influence

lots of people at different points of time. The process of innovation will normally start years before “anything happens”

2. Concrete actions, i.e. allocating resources to a project is often sparked off by a negative shock that initiates change

3. When projects are initiated, this is no linear process, but a well of different actions, carried out by different people on different levels in the organisation, with different functions and motives

This and the next page are inspired by:


4. Most projects will experience set-backs and altered conditions and budgets, etc - something that generate an experience and a different kind of project

5. It is impossible to learn “How to succeed with innovations”, but experience and good tools is closely linked to success. When a project manager has been through many projects, he/she is better to avoid obvious pit falls and see patterns of success. People outside the project will often like to see the project comply with existing budget, organisation - something that required “protection” from top management

6. Commitment from top management is essential. One of the best ways of ensuring success is to ensure that the project has experiences managers, engineers, etc and the required financial resources to complete the journey of innovation


Innovations must support the products or concept according to its life-cycle. Innovations must improve our

customers and/or our own competitive position!

Products Compete on Different Criteria's through

its Life-cycle

Time

Availability

Functionality

User friendliness

Price


• If you ask existing or potential customers if they would like to implement products or concepts based on disruptive technology, the mainstream customer is likely to reject the idea. Many customers are conservative

• In an early phase, existing technology will often be more cost-effective and stable than the disruptive technology, due to a longer learning curve. When new technology has “taken” the

market, it can be to late forconservative suppliers to enter the market

The Innovator’s DilemmaWhen to Focus on Disruptive

Technology

Reliability of Technology

Time

New

NewOld Old


The Innovator’s DilemmaStrategy

• If companies with existing technology are challenged by new and disruptive technology move up-market (introduce higher quality and service at a higher price), it will be even harder to introduce new and disruptive technology for a broader market - due to a higher level of service and cost. A company that changes its generic strategy from cost leadership to serving market niches, will seldom manage to move back into the mass market by having a low cost base

• Most companies require market information and financial projections before accepting projects - something that can threaten projects based on new and disruptive technology, since there is no customers demand or existing distribution


Innovation Strategy

Underlying Capacities for

Innovation

Management Focus

Part 2


New Ideas, Products, Concepts, etc can arise in

Different Ways• Suggestion from customers

• Inspiration from competitors, other industries, trade fairs, etc

• Ideas from employees, suppliers, the general public, etc

• Results of creative sessions, with or without external support

• From a range of other channels


• Regarded as important and within our core business - and further developed

• Regarded as interesting, but carry to high risk, to high cost, only be partly within our strategy, etc. Can we form a joint venture or a partly owned subsidiary with others?

• Regarded as interesting, but not for us. Can the idea, the innovation, a patent, etc be sold or licensed to others?

• Regarded as without interest and be terminated - after a “stimulating” feed back to the initiator

Ideas and suggestions can be


Innovations must be Linked to Strategy and Business

Plan • No improvements/innovations over a period, means a weaker competitive position

• The “ideal innovation” strengthens our strategy, e.g.

– Differentiation: New and trend-setting product

– Cost leadership: More cost effective production process

• Can we handle the risk involved?

• Can we finance the project?

• Can the innovation be more valuable to other companies?

BROAD MARKET

COSTLEADERSHIP

DIFFEREN-ENTIATION

NISCHE

COSTLEADERSHIP

IN NICHE

DIFFEREN-ENTIATIONIN NICHE


Innovation: Focus vs Strategy

VISIONVendors

Substitutes

Alternatives

CustomersMarket

According to a established strategy, the opportunity (allocated resources) for innovation can be limited to certain core business or activities.

The purpose with this is to engage in innovation projects, where the value potential in R&D seems best (this might limit "wild ideas, disruptive technologies, "free" thinking, etc).

Establish vision, strategy and "role" for innovation activities within the organisation.

The reason for this is to identify the importance and the "reason for" innovation and R&D projects - in accordance with strategy and long-term targets.

1 2


Ideas and Suggestions must be Encouraged, Appreciated and

Supported• Innovations and projects related to innovations can be small or large. Some innovations, e.g a new function in a spread sheet or a way to tighten goods on a truck can normally be done without a form of approvalIn this perspective, we only focus on projects that will require time and resources in a volume that it has to be decided by some kind of management

• All ideas must be considered according to the strategic focus, risk, resources involved, likelihood of success, etc

• What is our strategic focus?– Low cost, unique products, good service, brand building?– Special attentions to defined products groups or markets?


Six Groups of Underlying Capacities for Innovation (1-

3)1. Vision and Strategy

The management must have a clear vision, be market orientated and be open to re-evaluate the strategy. Everybody in the organisation must share the vision

2. Knowledge Base

Understand and manage own core competence and capabilities, as well as ability to develop new competence

3. Creativity and Idea Management

Open to ideas from all sources. Taking care of suggestions and ideas. Managing for creativity (it is possible)

Page inspired by Arthur D. Little 2000


Six Groups of Underlying Capacities for Innovation (4-

6)4. Intelligence

Insight in technological and market changes, related to own performance an limitations. Real commitment to understanding the customers current and future (unarticulated) needs. Structured thinking about the future

5. Organisation and Process

Seamless integration across functions and an effective resource deployment. Commitment to develop people

6. Creativity and Idea Management

Shared but flexible culture that questions and challenges. Recognition and rewards for innovativeness

Page inspired by Arthur D. Little 2000


How to Foster an Innovative CulturePrinciples for Innovation Projects:

»Clear criteria and procedures around responsibility, project "ownership" and responsibility.

»Clear criteria and procedures around responsibility for follow-up activities.

»Clear criteria and procedures around what activities should be done by whom, including mile stones, budget, etc.

»Multi-discipline projects groups and decision making committees.

Principles for Innovation Resources:

»Allocation of resources must be based on a long-term plan.

»Resources must be allocated to a limited number of important R&D-projects = focus.

»Allocation of resources must be balanced between different segments, technologies, units, etc.

»R&D-projects should get its resources allocated from phase-to-phase according to achieved mile stones. The total R&D budget must be regarded as a portfolio.

Principles for R&D knowledge and skills

»Management of an R&D projects must be regarded/defined as a core competence.

»Portfolio management of a number of R&D projects must be regarded/defined as a core competence.

»The whole company must be involved and responded to in idea generation

»Reports, analysis, experiences, etc from innovation and R&D must be be logged and stored for later utilisation.

Principles for Innovation Management:

»The management must be "visionary" in setting frames and terms for innovation.

»The innovation strategy and target must be understood in by management at all levels and functions.

»The management must allocate sufficient resources, with long-term stability, to R&D in general and to important R&D-projects.

» The management must define clear priorities in regards to R&D-projects - and communicate this.


Focus and Management Attentionwill vary during Various Stags

IDEAS CONCEPT STUDY FEASIBILITY STUDY R&D / SCALING LAUNCH

Aim

Important characteristics

Management focus

Decisions to be made

Tools

Get manyqualified ideas

Customer need? Can we make

and sell it? New product/ concept

Successful market intro Idea

generation

Openrespondingculture

Fit idea withstrategy?

Focus groups Technical study Market study

Market needVolumes

Profitability

Possible to deliver

Projectmanagement

Design Cost and time

Market mix

Can we make it?

Customer test results

Cost ofproduction

Test batch

Work outconcept

Open andresponsive culture

Decision making - - - - ->


Innovative Companies are often Recognised by

• They come up with new ideas and are open to others ideas • They are generally positive towards change• They have a specialised core competence• They have their customers confidence• The have an open and “let’s try it” culture• “Modern” ways of organising and motivating teams

and people

Discussion: How do new ideas come up in our company? Have any good ideas been forwarded by customers?


Innovation Projects

Stages in a Project

Portfolio (Several Projects)

Part 3


Potential R&D projects can be Classified

Criteria Ye.g. Revenue potential in MEUR

Criteria Xe.g. Score a Strategic value

0

50

50

100

A

B C D

The R&D project´s "score" decides how much management attention and other resources it can be allocated.

All ideas that can lead up to an innovation project should be classified according to: Strategic importance (X), Financial potential (Y) and Required resources (Z).

The "score" on the Required resources (Z) indicates what resources that has been allocated to the R&D project.

According to the "score" in Strategic importance (X), Financial potential (Y), the R&D projects can be classified.

Innovation Project 107

Size = Required resources


Management must Focus on

1. How the company’s overall work on innovation develops

2. If the company’s total innovation work contributes to reach established goals and strategies

3. How the company’s overall ability to innovate develops


The “Right” Projects must be Financed

Criteria Ye.g. Revenue potential in MEUR

Criteria Xe.g. Score strategic value

0

50

50

100

A

B C D








Innovation Project 63Innovation Project 12B


Innovation Project 19A

The main reason for portfolio management within R&D is to maximise the value of the all suggested innovation- / R&D projects.

An other aspect is to get the "right balance" of projects; large/small, strategic, non-strategic, etc.

If the company has several ideas or project suggestions, the whole "portfolio" should be evaluated in the same matrix.

The classification provides information in regards to focus and resource allocation.


Projects can not only be Classified According to Potential

and Strategic Value• Some projects of little strategic importance, might be completed with low risk and within a short time frame. Such projects (low hanging fruit) can serve as symbols of “innovations is not that difficult”.

• Smaller organisation, with great dependence of certain individuals, might have to prioritise projects according to their availability (other projects, child births, etc).

• Time to market can sometimes be crucial to a company’s existence in the long term and an innovation project can therefore be given priority - not matter cost, risk, other assignments, learning effect, etc


Companies will have Projects in Different Stages in the

Innovation Process• Projects will be terminated in different stages from idea to market

• A good balance between the “chaotic” innovation process and strict project management and decision points is almost impossible (having this in mind helps a bit)

• Innovation is not about planning and project management, but this is helps

IDEAS

CONCEPT

FEASIBILITY

R&D

SCALING

LAUNCH


How Register Upcoming Ideas

SEGMENTS

UNITS

PROSJECTS

ACTIVITIES

VISION

BUSINESS UNITS

Step 2:

Ideas to R&D projects will be registered and decided upon by an "R&D committee" (can be 1-2 dedicated managers).

Step 1:

Suggestion for an R&D project put forward by an employee, customer, vendor, etc.

Step 3:

All ideas within given frames and budgets will pass the first mile stone in the innovation process.


Ideas can be Generated in a Focus Group

• A group of 10-12 people, with own employees, customers, and others interested in our products can, with a moderator, discuss new products, improvements, design, marketing, image, etc

Development

Co-operation / Partners

Knowledge

Status in our company?

Can we do it?

Idea

Internal / External

Modification / New generation or concept?

Market

Customer need / Strategy

Image / Brand

Profitability

Distribution


Innovation Projects goes through Different Phases with Decision Gates

Business strategy and Innovation strategy

Concept FeasibilityDevelop-ment

ScalingIdea 1 2 3 4 5 Launch

Idea Concept Concentrations Contract Launch

Phase 0 Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Evaluation

All phases have different tools, as well as different kind of cost and risk involved

If companies define standard phases and decision points for all innovation projects, everybody involved will have the same understanding of, progress, responsibility, risk, cost, etc. It must be clear to

everybody what phase every project has reached


In an SME, the board or the general manager must decide project status

1 2 3 4 5The project prepares

Resources

Time

Risk


The Different Stages in Innovation Projects

0. Idea generation: Someone comes up with an idea, that must be evaluated according to different criteria. What are the business trends and “drivers”? What customer problem can we solve?

Example: People hate house-work, lets invent a kind of mop that is better and more easy to use than a vacuum cleaner

1. Development of concept: A small project can be established, looking into what kind of products this could be. Potential customers and representatives from the shops might be invited to focus groups to discuss different topics, areas, etc. How can we solve the problem?

0 2 3 4 51



2. Feasibility study (and go / no go): Based on our idea and other impulses we might have a rough understanding of what the product might be. We can now study if its is possible to produce micro fibres to an acceptable cost (R&D), how this can be produced (manufacturing), how this can be sold (marketing) and the expected profitability (finance). Any alternative or competitive solutions?

3. Development: The product, in this case Procter & Gamble´s “Swiffer”, is developed. Not only the micro fibre mop, but the rack, the package, etc

0 2 3 4 51



4. Scaling: Marketing campaigns are prepared and tested, discussions on price and terms are conducted with distributors (our customers) the manufacturing facility is geared toward volume production, a test-batch might be produced, etc

5. Launch: Production is increased, marketing is stepped up and the products is sold to the consumers in supermarkets, grocery shops, etc

Evaluation: Every phase is evaluated, both during and after the project

0 2 3 4 51


Some Advice on Innovation Projects

• Management dedication and “protection” are central • Regard innovation projects as a portfolio (do not

focus on one project, only a few are likely to succeed)• Do not engage the company so many innovation projects that they do

not get management attention and required resources• Rank ideas and potential projects, according to the business plan.

Drop projects with outside core competence• Think product generation and timing (not too early)• Try to estimate risk, budget and financing• Experienced project management on important projects• Do not add additional resources on delayed projects


Every part of the Organisation must Support,

Contribute and Evaluate


Risk and Income Potential is linked to how Unique the

Product or Concept is

Competition is low and customers willingness to pay for a product is higher when the product/concept is brand new. The the more know-ledge, experience and understanding we hold, the lower will our risk be

New

fo

r th

e c

om

pan

y

New for customerLow risk

Hig

h r

isk

High risk

Lo

w r

isk “Too god to

be true?”

“Suicide?”


It is Possible to Measure Innovations?

• Measuring innovations is done in order to;

– Report to management, board, owners, etc. This is an obvious parameter in a balanced scorecard

– Try to establish a correlation between the R&D budget and long term profitability

• Measuring must be straight forward and “understandable”

– Number of patent applications

– Number of breakthroughs in technology, user friendliness

– Number of articles in trade press, newspapers, etc


Its is Important to have a Balanced Innovation

Portfolio (Several Projects)

In theory, the best projects have low risk and high potential, but we will not find many of these. Potential will normally, but not always, follow risk. If we have several innovation projects, it is an advantage to have a mix of small and large, low risk - low potential, and high risk - high potential

Po

ten

tia

l re

war

d f

rom

th

e in

no

vat

ion

RiskLow risk

Hig

h r

isk

High risk

Lo

w r

isk


Using R&D Institutions

• Find the most suited institution, based on a specification

• Establish a close contact with the dedicated researchers. Promote own company

• Be clear in scope of work, budget and time table - using a written contract. Focus on how the company can participate and learn from the project

• Establish common “arenas” for co-ordination, discussion, participation, involvement and learning - both ways


Innovation is Important, but Imitation can be a Smart

Strategy• Only a rare few products or concepts are innovated from “scratch”, like 3M’s Post-It or Xerox’ fax machine

• Most products, concepts or processes are “inspired” from competitors, other industries, books, etc and are modified or improved to fit own strategy or customer needs

– Errors can be avoided, learning from failures

– Resources can be challenged towards distribution and marketing, after the technology/concept is a success

Discussion:

Can we imitate someone?

Documents

Innovation 2002, slide 1 Innovation Why is Innovation Important? Innovation Strategy Innovation Projects