Systematic Innovation Management vs. Ad-Hoc Practises ... · PDF fileprocesses but also of increasing the innovation culture and its ... „Die Fähigkeit zur Innovation entscheidet

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Systematic Innovation Management vs. Ad-Hoc Practises: Experiences and Lessons Learned by Ernst Bartsch and Susanne Laumann Dr. Ernst Bartsch Innovation Manager Dr. Susanne Laumann Head of Innovation Team Siemens AG Medical Solutions Health Services Dept. HS IM MI I – Health Services Image Management Hartmannstr. 16 91052 Erlangen Germany

Abstract:

Many companies are facing the same challenge today in order to ensure long term business success: What is the right innovation strategy, which innovation fields are important for our business and which are the capabilities that we need in order to implement the innovation strategy successfully? A specific method was utilized by Siemens Medical Solutions to identify innovation fields that have significant importance to its business and the necessary capabilities were evaluated based on a defined reference model for innovation relevant processes (innovation capabilities). We cannot command or order innovation. However, we can create an environment that fosters innovation. This approach already exists in companies, often facilitated, by a planned innovation management process. This paper illustrates the organizational evolution to systematic innovation management. It is also the story of establishing not only up innovation processes but also of increasing the innovation culture and its visibility. The business purpose and motivation is clearly to compete at the healthcare market with trendsetting products, solutions, and services.

Ernst Bartsch and Susanne Laumann

We will describe successful business practices to identify the right innovations, ensure short innovation cycles, and enter the market with the right innovations at the right time. Key success factors to become a trendsetter are identified. Also the advantages of systematic innovation management from a top management perspective will be described. A trendsetter exploits pacing and key technologies, possesses market and technology power and has market leading customers. Collectively, there are various kinds of innovation, i.e. strategy innovation, organizational innovation, process innovation, technology innovation, marketing innovation, product innovation and business innovation. The different kinds of innovation that exist within our organization will be described. It is not overlooked that successful innovation management also offers encouragement for personnel e.g. in creativity workshops, for lateral thinking etc. leading to an innovation friendly culture overall.

The importance of being an innovative organisation „Die Fähigkeit zur Innovation entscheidet über unser Schicksal.“ (Bundespräsident (Deutschland) Roman Herzog in seiner Rede „Aufbruch ins

21. Jahrhundert“ am 26.04.1997) „The capability to innovate decides our destiny.“ (cited from the speech of Federal President (Germany) Roman Herzog

„Departure in the 21th century“, April 26th

, 1997)

The words of Roman Herzog show the importance, which innovations have received in politics. Also for companies and enterprises at the micro-economic level, it is vital to be innovative in order to stay on top, competitive, effective and efficient. The success of an enterprise is strongly determined by its innovativeness, which is particularly true according to our opinion for the Pharma, High-tech, IT and also the healthcare sector. Additionally, studies have shown that innovative enterprises were rewarded an innovation premium at stock markets, which is reflected in their share value [1][2]. Also the company's rate of return is usually higher for innovative enterprises.

Systematic Innovationmanagement vs. Ad-Hoc Practises: Experiences and

Lessons Learned

The following table compares companies classified as innovative with companies classified as non-innovative with respect to its efficiency [4]:

EBIT at year 5 of each innovation during 10 years of business

EBIT (average of the last 5 years) as a percentage of revenue

innovative climate; visionary leadership

7.1% 9.0%

non-innovative climate; non-visionary leadership

4.3% 6.4%

Table 1: Efficiency of innovative vs. non-innovative organizations

The study shown in Table 1 is based on the statements of 256 CEOs from 116 business units from German enterprises. The advantage of following a trendsetter strategy is apparent. Furthermore, a clear technology leadership rewards a company with high EBIT margins. The past two years we implemented and established a modern innovation process and we were – still are – driving for en even more innovative culture in the organization. Some valuable experiences are worth to share with the community. They will touch the following areas of innovation management:

• innovation strategy

• systematic innovation management process o innovation portfolio management o metrics for innovation process

• organizational implications

Innovation Strategy

The innovation strategy serves as a glimpse into the future. It highlights important trends relevant for our organisation. Trends are clustered into market, technology and competitive trends into a trend radar and organised afterwards into innovation fields. The future holds opportunities, but also mine fields. The trick is to identify the opportunities and to avoid the mine fields. The purpose of the innovation strategy is to provide guidance and support in exactly achieving this goal and thus to optimize the future strategy of our organization by deriving future scenarios and suggesting according measures.


For each identified innovation field a SWOT analysis is performed. Based on the individual SWOT analysis an innovation strength profile for each innovation field can be derived. Based on this analysis, white spots can be identified, strengths, weaknesses, opportunities and innovation project may put forward to improve the overall innovative power of the organisation accordingly.

Ad-hoc vs. Systematic Innovation Management

Ad-hoc innovation management is typically found in small companies and start-ups. Further, at those companies, innovation management is usually the responsibility of the CEO. Partly this works, because of the size, but more likely because of the smaller number of innovations (often only one) small players and start-ups push forward. Note, with innovation, we mean the act of something new, something newly introduced, a contrary to established customes and implementing new ideas to create value. In other words, innovation is the conversion of knowledge into money. The bigger the company, the more the need grows for systematic innovation management. With systematic innovation management, innovations follow a structured flow, every employee, partner and customer is involved and not only a few high potential employees, who usually are very keen to innovate. The goal is to harvest the innovative ideas of everyone within the organisation, but also from outside. Kleinschmidt et al. [3] made analyses of the success of innovations. They categorized innovations into three classes according to low, moderate and high degree of innovation and determined the return on investment (ROI) and the success rate for each class.


Lessons Learned

Degree of inno-vation

Characteristics Reasons for high or low ROI and success

Return on in-vestment

Success rate

Low Product modifications or new market positioning

- - Low investments

- Market and technology know how

124% 68%

Moderate New products of existing product lines or new product line for the company with products that exist already in the market

- Moderate product advantage

- Underestimation of existing market and technology challenges

31% 51%

High New product lines for the company with new products for the market

- High product advantage compensates for lacking routine in market and technology

75% 78%

Table 1: Return on investment for three classes of innovation (from [3])

The findings, deduced from analyses of 203 projects in 125 international companies, show that moderate innovations yield the lowest return on investment. The rather low success rate of moderate innovations is rather surprising. So, for planning innovations we have to consider the potential ROI carefully. A very critical result from the analyses that gave the motivation for this paper is that a new product in an existing product line yields a low ROI. This indicates the innovation lock-in mentioned above, although this is not explicitly mentioned in [3]. As conclusion from these analyses we have to take special care for innovation in a product line organization and should consider measures to do this as part of a planned innovation management process. Thus, we concluded that introducing a planned innovation management process within our organisation will become a key success factor in standing our ground as a trendsetter in healthcare image management and image management workflow solutions in the foreseeable future. Main focus of the organization in the last two years in order to improve the innovation capability was the innovation process as mentioned above. The innovation process includes innovation strategy development, idea management, idea selection, prototyping, and of course realization of innovative ideas. Hence, our innovation management process has strong links to our requirement engineering process, software engineering process and other relevant processes for realizing an innovation. Further,


we have a very lean innovation management process, which is tailored to our organisation (i.e. a product line organization). Besides that many other innovation measures were implemented. Some of the activities are briefly described in the following section. One important change was the regular meeting of an innovation board which decides about the implementation of innovative ideas and which is informed about the status of ongoing innovation activities. It is important that the innovation board who filters out and who evaluates innovations is a cross-functional team. Depending on the type of the innovation, this cross-functional team for filtering out and evaluating innovations is built on-demand and it is also a virtual team. As mentioned before the new innovation process supports the innovation board in deciding about implementing the right innovation ideas at the right time. Our innovation management process implements well-know phases of innovation management as suggested by the literature [6]:

Initiation

Idea Generation

Evaluation

Selection

Implementation/

Realisation

Market

Introduction

Phase 1: InitiationChances and opportunities are recognized via market

analysis or other means

Phase 2: Idea GenerationIn this phase the problem is identified via e.g. screen of the

liturature or other means

Phase 3: EvaluationIn this phase ideas are evaluated and prioritized.

Phase 4: SelectionAmong a pool of innovation topics the most appealing ones

are selected by top management

Phase 5: Implementation/RealisationThe choosen innovation topics are realised throughprojects and standard processes

Phase 6: Market IntroductionAssuming the innovation is a product- or technology

innovation, then there is a market introduction phase aswell

Innovation

Idea

Number of new ideas

Criteria to evaluate ideas

=> Number of ideas, whichare worthwile to follow-up

Efficiency

Effectivity

Figure 1: Phases of the innovation management process according to [6]


Lessons Learned

As we experienced however, the devil is in the detail, i.e. how to implement the 6-phases of the innovation management process tailored to our organisation. Right in the beginning of the innovation management process, a key success factor is to have a clear and precise method to identify incremental (i.e. continuous, adaptive, sustaining, etc.) and non-incremental (i.e. distruptive, fundamental, complete new concept, discontinuous, break though, etc.) innovations. For this purpose we use the Ansoff Matrix, i.e. incremental innovations are existing internally and externally, where non-incremental innovations are illustrated by the other 3 quadrants within the Ansoff Matrix (see following ):

Incremental

Innovation

Product, Technology,

Process, etc.

Innovation

Market Innovation

Existing New

Exis

tin

g

Mark

et

Radical Innovation

Ne

w

Used Products, Methodology, Technology, etc.

Figure 2: Ansoff matrix utilized for innovation management

With each quadrant a certain risk is associated, where the radical innovation being the most risky amongst the four in Figure 2. The


incremental innovation type is the responsibility of our requirement engineering process, where the other 3 types are handeled within the innovation management process. In the economic sense a radical innovation renders incumbent's existing products noncompetitive, while incremental innovations allow existing products to stay competitive. According to this classification most innovations are incremental [7]. The Henderson-Clark model differentiates between incremental, architectural, modular and radical innovation. The underlying idea is, that products are made up of components connected together. Hence, component knowledge and architectural knowledge (i.e. how to link the components together) is crucial. We experienced that the Henderson-Clark model as illustrated in the following table (Table 2) and [7] is also a helpful tool to assess the risk inherent within the particular innovation:

Architectural knowledge

Enhanced Destroyed

Enhanced Incremental Architectural Component knowledge

Destroyed Modular Radical

Table 2: Henderson-Clark model [7]

As a consequence of the implementation of the innovation process a significant number of innovation projects were started. Compared to before, this time the innovations are visible at a glance in one portfolio. They are ranked and clustered regarding some key-parameters like their strategic fit, market attractiveness, customer benefits etc. Innovations now are monitored systematically regarding their progress and maturity. All this helped to create a much bigger awareness for innovation on management and on organization level. A further effect is being noticed: the management is showing a higher willingness to take risks and makes decisions for innovation projects not only on the basis of quantitative information but also on profound qualitative analysis of innovative ideas. In this case it is seen as very important that customer acceptance and technical feasibility are proven. One further success factor for being innovative is seen in integrating customers and external as well as internal partners in the innovation process. This topic was already well performed in the past but was even


Lessons Learned

improved by having e.g. weekly meetings with at least two lead customers. Customer focus is taken extremely serious and the customer is an integral part in our innovation management process. Internal and external publicity were enhanced. As one example, an innovation homepage was introduced to inform about innovation topics. Being innovative without cooperating with universities or other companies is extremely difficult. Med HS IM is driving actively cooperation with universities and started several new co-operations and intensified existing ones.

Innovation Portfolio Management

Many different definitions for types of innovation exist within literature, internet or within companies. One example for the definition is shown in the figure below which divides innovations in:

• Strategy innovation

• Organizational innovation

• Process innovation

• Technology innovation

• Marketing innovation

• Product innovation

• Business innovation


Figure 3: Innovation types, from [5]

When one speaks about innovation, one typically thinks of technological innovation, especially revolutionary innovations. However, we (SIEMENS MED HS IM) experienced that it is essential not only to push technology innovations, but rather to ensure a healthy mix of all kinds of innovations within the innovation portfolio. Within the innovation portfolio we further try to find negative cross-correlations of the risk of the individual innovations. This is a common strategy in financial analysis to reduce the risk of portfolios. Similarly, the synergies and dependencies of the individual innovations in the innovation portfolio have to be managed accordingly. We also experienced that it is important to differentiate between technology management and innovation management. Technology management is a classical R&D domain, whereas innovation management uses technologies and the technology strategy for developing innovations. Innovation management, technology management, workflow analysis at the customer site, requirement engineering, as well as intellectual property management have to be tightly integrated.


Lessons Learned

Measuring Innovations

As stated earlier, the described innovation process focuses clearly on the business objectives of the organization and looks three to five years into the future. Therefore it is important to measure the performance of the innovation management. We implemented two important aspects of measuring the innovative power of an organisation:

a) metrics for innovations before realization b) metrics for innovations after realization

Where b) is important, it is equally important to also stress a). One level down below the innovation power of the whole organisation is the innovation power of the individual innovations. Here again, two aspects:

I. metrics for measuring the potential of the particular innovation before realization

II. metrics for measuring the effectivity of the particular innovation after realization

II. directly relates to important metrics like the EVA, competitive advantage, number of new customers and projects won with the particular innovation, and so on. However, it is important to also implement I., because if one cannot make the potential of an innovation transparent, one risks that the particular innovations are not even implemented and considered. Another danger of not having clear metrics to make the innovation potential transparent and not being able to compare innovations with those metrics is, that innovations from influential employees are pushed forward and innovations from less influential employees are not pushed forward, despite their higher potential. Example metrics for include number of new ideas generated within a certain timeframe, number of ideas generated, which are worthwhile to follow-up and being realized within a certain timeframe, number of intellectual property generated within a certain timeframe, plus efficiency and effectivity metrics. Innovation metrics are therefore a central part of our innovation management process and not only at the end, but throughout all stages right from the beginning. An interesting controlling tool for innovations is the extension of the balanced scorecard concept to innovation management, namely the innovation scorecard [1].


The efficiency metrics shall measure the duration of the innovation in the individual process steps (see Figure 1). The goal is to have a short innovation cycle. An innovation-friendly corporate culture and organization is necessary for being efficient. Once an innovation has been introduced, one sees how effective the innovation really is. Effectivity of an innovation can be measured directly by:

• Realised revenue,

• Realised EBIT,

• Realised savings

• Realised market volume and market penetration of the innovation

• Provitability Indirectly the effectivity of an innovation can be measured by:

• Reduced revenue by competitors

• Image and other promotional effects

• Market entry barriers have been raised

• Dominant position in an existing market has been maintained and secured

Another Siemens measure is the number of innovations divided by the spent R&D budget on innovations in millions of euro:

Euro Mio. in sInnovationon spent Budget D&R

sInnovation ofNumber =SiemensInno

Organisational aspects

From the organizational point of view, two important decision have been made

• Centralized innovation

• Introduction of the dedicated role Innovation Manger A centralized Innovation Team has been established and owns the innovation management process. This team is placed in the Product Management and Portfolio Management Unit, which puts it close to the operational product business, but as well in the midst of marketing and strategic business management aspects. This ensures the healthy mixture of different innovation types as well as not loosing the business perspective.


Lessons Learned

The charter for the Innovation Team is currently to drive idea generation, to evaluate and manage the ideas, and either to put the promising ideas into a lean project and business plan or to hand over incremental ideas to the respective development or business process. Innovations which cannot be handed over into the existing processes because the know-how is not established yet are set up in dedicated innovation projects in temporary small project organizations. Although having a centralized Innovation Team, still innovative thinking is certainly encouraged throughout all processes and teams. However, the Innovation Team manages the innovations systematically. It has been shown, that cross-functional teams are very successful in creating trendsetting innovations. The Innovations Team contains consequently a mixture of medical domain expertise, technical and IT expertise as well as business and methodology know how. The team members are interdisciplinary qualified. The second important change was to introduce a new role, the innovation manager. Today, this role is known to many organizations, however, does have a great variation of profiles. In our example, the role matches the team charter. It has five focuses:

• Recommend the innovation strategy in cooperation with the business strategy

• Trend scouting and idea generation

• Evaluation of ideas and innovations

• Prepare the organization to put the innovations into practice

• Accompany and drive innovation projects In our experience the decision for a centralized innovation management approach within a profit & loss organization turned out well. Other positive factors are:

• Interdisciplinary team set up

• Being tied closely to operative business while maintaining a strong link into the executive management team

• Encourage networking and internal communication

• A simple but effective incentive system

• Naming a mentor out of the executive management team for each kicked off innovation project

For the future it is surely worthwhile to think about adding or integrating


a pre-development process. Also it might be an accelerator to have smaller innovations explored immediately in little projects without waiting for the "go" of the executive management by providing a budget for "low cost innovations". In order to ensure a fast innovation cycle and in-time delivery and market introduction of innovation a basic, but effektive approach is to name innovation owners. An innovation owner is responsible for implementing the innovation and is usually a member of the steering committee. Last, but not least, a key success factor was, that we identified a core competency within SIEMENS MED HS IM and implemented it. With core competency we mean a competency unique to SIEMENS MED HS IM, which cannot be easily copied by our competitors and which is seen on the market as a unique strength of our organisation.

Summary

Key success factors and lesson learned summarized:

• Start with developing an innovation strategy, based on the business strategy and the overall company vision, goals and strategy.

• Identify core competencies within the organisation and implement a core competencies within your organisation

• Ensure fast innovation cycles

• Establish cross-functional teams for innovation management

• Introduce an innovation management process tailored to your organisation for systematic innovation management

Overall, innovations should be planned, executed at the right time and with the necessary speed. Being too late is as detrimental as being too early.

Ernst Bartsch is the Innovation Manager of SIEMENS Medical Solutions Health Services Image Management. He received his Ph.D. from the University of Cambridge Engineering Department. His research interests focus on innovation management, medical imaging informatics, innovation scorecard and workflow mining. His Ph.D. research focussed on IT, software engineering, algorithm design, communication engineering, statistical signal

processing and broadband wireless access. During his Ph.D. he studied


Lessons Learned

also Entrepreneurship at the Judge Institute of Management Studies in Cambridge. He received his MSc from the University of Hull in the area of mathematical modelling, numerical optimisation, computer aided design of integrated circuits and his Dipl.-Ing (FH) from the Fachhochschule in Regensburg focussing on micro-electronics. His work has been published in conference proceedings such as Asilomar Conference on Signals and Systems, ISPIM, WCNC, ISCOM and SPIE.

Susanne Laumann heads up the Workflow Analysis & Innovation Team of SIEMENS Medical Solutions Health Services Image Management. Main focus of the work is to drive the unit to an exemplary market- and workflow-oriented and innovative organization. Her educational background is medicine and medical computer science.

References

[1] Oliver Eckelmann, "Die Innovation Scorecard als Instrument des

Innovations- und Technologiemanagements – Möglichkeiten und

Grenzen", Final Thesis, European Business School, Schloß

Reichartshausen am Rhein, Germany, Feb. 2002

[2] Mirow and Linz, "Planung und Organisation von Innovationen aus systemtheoretischer Perspektive", April 2000 published in G.E. Häfliger, J. Meier, "Aktuelle Tendenzen im Innovationsmanagement", Physica-Verlag Heidelberg, ISBN 3790812854, April 2000

[3] Kleinschmidt, E.J., Geschka, H., Cooper, R.G.: „Erfolgsfaktor Markt

– Kundenorientierte Produktinno-vation“, Springer-Verlag, Berlin

Heidelberg New York, 1996

[4] H. Hübner (p. 106), "Integratives Innovationsmanagement", Erich

Schmidt Verlag, ISBN 3503060960, 2002

[5] http://www.1000ventures.com/busi-

ness_guide/innovation_strategy.html; as of April, 2005.

[6] H.-T. Beyer, "Kreativität und Innovation im Unternehmen",

http://www.phil.uni-

erlangen.de/economics/bwl/lehrbuch/kap1/inno/inno.PDF, last

visited: 09-March-2004


[7] A. Afuah (p. 15), "Innovation Management – Strategies,

Implementation, and Profits", Oxford University Press, ISBN

0195113462, 1998

Documents

Systematic Innovation Management vs. Ad-Hoc Practises ... · PDF fileprocesses but also of increasing the innovation culture and its ... „Die Fähigkeit zur Innovation entscheidet