managing the innovation portfolio and projects sl deck v5 slideshare version

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MANAGING THE INNOVATION PORTFOLIO AND PROJECTS

Cliff WachtelProject Management Lecture Presentation

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INTRODUCTION PART 1: INITIATING NEW-STREAM INNOVATION PROJECTS

PART 2: MANAGING & EVALUATING INDIVIDUAL INNOVATION IDEAS THROUGH THE PIPELINE P.107

PART 3: THE PORTFOLIO OF INNOVATION STRATEGIES

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PART 1: INITIATING NEW-STREAM INNOVATION PROJECTS

New Product Development (henceforth “NPD”) -3 parts p.98

• Do the right project: The funneling process p. 99

• Do the project right: Methodology flowchart p. 100

• Detailed description of the methodology for simulation of the fuzzy front end stage p.101

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PART 2: MANAGING AND EVALUATING INDIVIDUAL INNOVATION IDEAS THROUGH THE PIPELINE P.107

Part 2A: Use Project Management Philosophy, Tools, And Techniques p. 108

Part 2B: 8 Tests To Identify “High Potential” Ideas For Innovation Investment p109

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Criteria and tools for selecting projects for company’s innovation portfolio.

Sometimes choose lesser projects per “8 tests” because they best fill gaps in the firm’s innovation portfolio

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PART 1: INITIATING NEW-STREAM INNOVATION PROJECTS p.98

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New Product Development (NPD) – The “Fuzzy Front End” – 3 Parts p.981.Do the right project: The funneling process (selection) p. 99

2.Do the project right: Methodology flowchart (execution - flowchart) p.100

3.Detailed description of methodology for simulation of the fuzzy front end stage (execution – steps detailed) p. 101

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Part 1, Section 1. Do the right project: The funneling process (“fuzzy front end”) p. 99

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1a. Evaluate choice sets by using computer based modeling p. 100Computer simulations of the NPD process help reduce the uncertainty or “fuzz”

For each alternative design (and implied performance levels, time and resources needed), it can model, (show us) estimates of various metrics like….

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1b. For example, shows resource information, like need vs. availability, for a given “mode” or way of doing a given step in production process

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1b. (cont’d): Has resource management information, ability to add/subtract resources, and see effects of those changes

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1c. For example, shows duration of activities, dependencies – which must happen in sequence or can occur in parallel

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1d. Simulation shows cost/benefit tradeoffs for different “modes”, or for different features

For example:•Mode choice: “re-use existing parts components”

versus “new development of components”

• Feature choice: heavier car door offers the customer a feeling of greater higher quality and safety, but at the expense of fuel economy and price.

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1e. Computer simulation/modeling improves odds of success on the fuzzy (uncertain) front end • Interactively experience effects of any given change or option.• Thus greatly reduces uncertainty by providing a formal method of

understanding the trade-offs and identifying the “best” solution • “Best”? For whom?

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Part 1, Section 2. Do the project right: Methodology flowchart p. 100

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Part 1 Section 2a. Do the project right: Methodology funnel flowchart introduction p. 100• The fuzzy front end: where we do market research, get validation of

value propositions and product-market fit.

• Well-defined projects take less time and money, operate better.

• We use a well-planned and structured process.

• The above illustration summarizes it. Let’s elaborate on each step.

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Part 1, Section 3: Detailed description of methodology for simulation of fuzzy front end stage p.101• Stage 1: Discover • Stage 2: Definition • Stage 3: Design p. 102• Stage 4: Development • Stage 5: Delivery • Example: p.103Now let’s look at each of these.

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Stage 1: Discover Develop a program plan:

1. Identify stakeholders’ needs, expectations

2. Define design alternatives that fit the above constraints

3. Allocate project budget

4. Define time-to-market

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Stage 2: DefinitionSelect the design based on “life-cycle cost/benefit and risk analysis” i.e. likely to be most profitable vs. estimated risk.

•The rest are “no go.”

•Assign core team to lead implementation of the chosen project.

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Stage 3: Design p.102 • Analyze technological and operational modes (options) that best meet

project constraints.

• Core team prepares the project basic data set. Comprised of…

• This design stage yields a more detailed project data set. still very incomplete, enough details to:

• Evaluate its estimated costs, benefits and risks

• Make an informed Go/No go decision

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Stage 4: Development: Use project data set from Design Stage to: p.102 •Build alternative project plans that fit project

constraints of the data set.

• Select the “best” one. Define “best.”

• This decision process often involves getting the core team and key stakeholders together to agree on details (such as…?)

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Stage 5: Delivery p.102 Project launch• This structured approach minimizes, but does not

eliminate, the complexity, uncertainties, and risk of the NPD selection process.

•Maximizes odds of success – of choosing the highest potential ROI relative to risk.

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Illustration: Defense sector example of parameters considered in front-end project management p.1035 projects considered, each evaluated in terms of following parameters (at top of each column in the following table):• Cost• Scope• Complexity• Product type • Number of disciplines needed• Duration of project• Risk or Total Risk Level (TRL)

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Sample table of projects evaluated in fuzzy front end process

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Sample table of projects evaluated in fuzzy front end process (cont’d 1)

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Sample table of projects evaluated in fuzzy front end process (cont’d)

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SUMMARY PART 1: INITIATING NEW-STREAM INNOVATION PROJECTS New Product Development (NPD) – The Fuzzy Front End p981.Do the right project: The funneling process p. 99

2.Do the project right: Methodology flowchart p.100

3.Detailed description of the methodology for simulation of the fuzzy front end stage p.101

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PART 2: MANAGING AND EVALUATING INDIVIDUAL INNOVATION IDEAS THROUGH THE PIPELINE p.107

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PART 2: MANAGING AND EVALUATING INDIVIDUAL INNOVATION IDEAS THROUGH THE PIPELINE p.107• Introduction p.p. 107

•2A: Use Project Management Philosophy, Tools, And Techniques p.108

•2B: 8 Tests To Identify “High Potential” Ideas For Innovation Investment p.109

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Part 2. Introduction p.p.107-8Best practices for taking innovation initiatives from ideation to commercialization.

•2A: Use Project Management Approach p.108

•2B: 8 Tests To Identify “High Potential” Ideas p.109

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Part 2A. Use Project Management (PM) Approach: Philosophy, Tools, & Techniques p.p. 108-9

4 key steps to applying PM to innovation:

1. Definition: Define the project 2. Division: Divide project into tasks3. Sequencing: Plan task sequence 4. Budgeting: Create budget and resource plan

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Step 1: Defining the project p. 108•Define scope and objectives.

•Identify the consumer and other relevant stakeholders.

•Clarify resources needed.

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Step 2: Divide or break down project into tasks p. 108•Each a manageable task or work package via formal “work breakdown structure.”•Each task small enough to handle for those assigned to it •Size of parties responsible for task vary with size of task, project, and organization.

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Step 3: Sequencing - plan task sequence p.p. 108 -9• Some can be done in parallel others need to be in sequence.

• Choose sequence that best meets time, cost, and quality constraints. Usually tradeoffs between speed, cost, and quality or performance.

• Need to find tradeoff that best fits firm’s needs and priorities, as defined in step 1.

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Step 4 Budgeting: Create budget and resource plan• Once tasks defined & scheduled, estimate resources needed &

include them in project budget.

• If purchases from vendors, it’s a straight (price per unit or hours) x (units or hours needed) calculation.

• If use internal resources like staff or machine time, calculate cost based on time and internal cost per hour estimates.

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Remember: Innovation requires creativity and…. DISCIPLINE

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Part 2B: Identifying “High Potential” ideas for innovation investment – innovate or die p. 109• Innovators: For example can innovate via:

• New products, new markets (Apple)• New work processes s (Dell, Walmart, Amazon,) • New insights into demand (Formula 1 for budget hotels in Europe)

• “Stagnators”

• Eastman Kodak (photography)• Sylvania (light bulbs)• Xerox (copiers and….what else?)

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Can we distinguish winners from losers early on?

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Part 2B: 8 Tests To Identify “High Potential” Ideas p109

Test 1: Valuable benefits?: Why buy it? p.110

Test 2: Marketing?: Got channel & demand?

Test 3: Scalability?: Mass produce efficiently? Quality? 112

Test 4: Leadership team: Qualified? p. 113

Test 5: Intellectual property control? Rights? p.114

Test 6: Financial return on investment: Good ROI?

Test 7: Corporate social responsibility?

Test 8: Fit with organizational strategy? p. 115

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Test 1: Valuable benefits test: why buy THIS?

THE main test of commercial viability.

How is it superior to competing or substitute solutions? What is added value vs. the competition?

Value proposition compelling & clear enough to be profitable?

What problem solved, or delight provided, better, cheaper, or more conveniently, than the competition?

Test: can you articulate the value proposition clearly and succinctly?

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Example 1: Clear, short value proposition template

For the target customerWho specific needs, requirements, demands, buying criteriaWe provide solution name/descriptionThat gives specific business benefits/value to clientsUnlike the competitionWho provide solution, features, functions, benefitsOur company more/better approach, solution, functions, benefitsThat offers a better customer experience

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Exercise: Write a clear, short value proposition using this template

Can you fit your value proposition into this template?“For ______________ who _______________,we provide ________________________________that ________________________________. Unlike other [your industry, for example, IT services] firms, who ________________________, our company ______________________________that _______________________________.”

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Test 2: Marketing: channel & demand? p. 111

1. Channels: Can we establish effective supply chain & distribution channels?

2. Enough demand at profitable price point?

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Test 3: Scalability? Mass produce efficiently? Quality? p.112

Once we move to mass production and distribution:

•Unit costs stay within budget?

•Maintain quality, reliability, customer support?

•Will it function ‘in the field’ under all anticipated conditions?

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Test 4: Leadership team: qualified? p. 113

1. Individual members have the skills, personality traits, experience to do their jobs?

2. Does the team as a whole: a) Have the full set of complementary skills & experience to

lead whole project?

b) Function together as cohesive unit under stress typical to new product development & launch?

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Got the right team to succeed?

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Test 5: Intellectual property (IP): Control? Rights? p.114

Have control or rights to all relevant IP via one or more of the following:1. For IP we created: protect & control rights + access via :

a) Blocking strategies to prevent others from legally.

b) “Run fast”: simply plan on innovating faster and staying ahead of competition. (cont’d next slide)

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Test 5: Intellectual property (IP) p.114 (cont’d)1. For IP we created: protect & control rights + access via

(cont’d):

c) Clear, documented efforts to hide the IP as a “trade secret.”

d) Form joint ventures (JVs) with other entities to share IP.

2. For IP we don’t control, license or purchase relevant IP rights for relevant jurisdictions (where will sell it)

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Test 5: IP(cont’d) – consequences of failure can be DIRE!

Long, expensive legal battles, like Apple vs Samsung. Each has billion dollar annual IP budget.

An IP dispute can kill a small company by draining needed resources (time, money) or scaring off potential investors.

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No regrets! – secure your IP

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Test 6: Financial return on investment

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Test 6: Good ROI?Minimum ROI required?: For-profit enterprises usually require a minimum return on investment (ROI) for a given level of risk.

Consider Risk Premium: The higher the risk, the higher the expected ROI to justify the investment.

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Beware of excessive focus on high rates of return

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Test 7: Social responsibility: environmental, social & community outcomes OK? p. 115

1. Environmental: impact is neutral or positive.

2. Social & community: If material threat of vocal resistance from groups hurt by the project, consider steps to minimize/eliminate threat.

3. Related issues: legal compliance, reputation, “5 P’s” people planet, public probity, and profit outcomes.

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Test 8: Fit with organizational strategy – Introduction p. 115

“In-house” commercialization of valuable IP isn’t always the best option.

Reasons to sell, license, or share technology (via JV) include:

1. Lack internal resources/capabilities: Lack funds, channels, expertise.

2. Lack strategic fit: if invention is unrelated to the core business, in-house commercialization risks diluting or losing focus on existing mainstream business lines.

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Test 8: Fit with organizational strategy - Bank Example (1) p. 115

A large bank produced a certain software innovation that service and had potential well beyond that bank’s applications and industry. Two basic options:1. retain the IP and:

a.Keep exclusive use as a trade secret, to create a competitive advantageb.commercialize it internally, sell as a product/service, as a separate profit

center

2. Sell or license it to a third party for development and distribution

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Test 8: Fit with organizational strategy - Bank Example (2): Cost/benefit vs. strategic considerations p. 115Cost/benefit per 8 tests: A first consideration - how can we best create revenue and profit from it? How ensure it passes these 8 tests?

Overall business strategy concerns: However, there are multiple strategic issues that are likely to be at least as important.

Strategic questions include….

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Test 8: Fit with organizational strategy – Bank Example (3) List of strategic considerations (p. 116)

1. Impact on long-term competitive advantage in existing banking markets?

2. Dilution risk & how manage it? Commercialize in house vs. sell/lease/JV?

3. How will existing customers react to our decision?

4. How will it impact our reputation?

5. What are the strategic risks and returns?

6. If 3rd party commercializes it, can we control distribution to deny access to our direct

competitors?

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Test 8: Fit with organizational strategy - Bank Example (4) Their decision (p. 117)

Avoided dilution risk: spun off the software to a 3rd party IT business capable of marketing it, under its own brand and license.

Accepted risk of losing potential long term new revenue stream and competitive advantage. Denying access to competitors impossible.

The bank negotiated a three-year lead time before buyer could sell the software to competitors.

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Test 8: Fit with organizational strategy - Nokia case (p. 117)Strategic principles, such as retaining focus, don’t always apply.

Nokia developed new mobile phone technology while main business was timber / forestry.

Mobile phones & timber not good strategic fit. But Nokia’s shareholders gained a decade of great wealth creation.

Only in retrospect is it clear Nokia decided correctly. Mobile phone opportunity was vast, & Nokia’s internal capabilities proved capable. Thus the opportunity justified the dilution risk.

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Using these 8 tests p. 117These 8 tests are filters for selecting projects with best cost/benefit relative to risk of underperformance or failure.

Apply them throughout the NPD process, not just at the earlier stages of the fuzzy front end. Indeed, as project advances, have more information and evidence, so can apply the tests more accurately.

They apply to organizations of all sizes: albeit in different ways. For example, test complexity typically grows with size of the company.

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PART 3: THE PORTFOLIO OF INNOVATION STRATEGIES Introduction - 1 p.p. 119-20 Evaluate projects not only by their individual merits per the 8 tests, but also by how well they fit with the firm’s portfolio of ongoing innovation projects.

If the IP portfolio is weak in filling certain company needs, then projects that DO meet those needs become more desirable, and might be chosen over others with higher overall scores in the “8 tests.”

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PART 3: THE PORTFOLIO OF INNOVATION STRATEGIES Introduction - 2 p. 120Just like a football team needs 11 players with different skills at different positions, so too the IP portfolio needs projects that fill different company needs.

Thus at times, a team might choose a lesser player over a better one, if that player best fills a certain skill gap on the field.

Similarly, an organization’s “Go/No go” decision might depend more on what gaps it needs to fill than on which project ranks highest in overall individual merit per the “8 tests.”

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Example: The need for steady earnings

Organizations have many goals, like long-term survival & competitiveness, and meeting various compliance and performance measures.

For example, companies prefer steady earnings, ideally steadily rising earnings. Why?

Investors hate risk. They interpret steady performance to imply lower risk. They’ll pay more for shares in these lower risk businesses, and pay their managers better.

Thus (all else being equal) firms prefer steady over volatile earnings and other measures of financial performance.

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Example (cont’d): How the need for steady earnings influences “Go/No Go”

decisionsOne way firms try to keep earnings steady is by timing new products and services launches, and their implied earnings streams.

Thus a lower ROI project might be approved over higher yielders if it is the one most likely to produce a given earnings stream when needed.

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Example 1: A typical new product NPV probability distribution

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Example 1: Re-evaluating a project’s estimated NPV throughout the NPD process

Throughout the NPD process, we repeatedly apply the 8 tests to re-evaluate project viability and its probable net present value (NPV).

During the development phase of each project, its NPV probability distribution would shift based on new information. For example:

• solving a technical problem might increase estimated NPV, thus shifting the NPV probability distribution to the right

• doing some market research would likely move the distribution to the left or right, depending on whether the research indicated a higher or lower chance of success

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Example 1: Re-evaluating a project’s estimated NPV throughout the NPD process (cont’d)

So for each new innovation initiative we can formulate a dynamic approach to probabilistic value creation on a project-by-project basis.

The next illustration adds timing estimates of that revenue stream, and for an entire portfolio of innovations.

Thus it illustrates how firms would be identify projects most likely to produce a given earnings stream when needed to keep revenues steady, and ideally, steadily rising.

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Example 2: NPV probability and timing estimates for each project in an entire innovation portfolio

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Example 2: Estimating probable value AND its timing for each project in an innovation portfolioHere’s another approach to measuring and managing the portfolio of innovations: showing both estimated project value AND its timing.

Expected value of success = (a single probability of success estimate) x (estimated value created upon success)

Value = revenue, or profit estimates (or both).

This approach allows firms to identify and select projects that will contribute value when needed to keep earnings steady and/or rising.

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Example 2: Explanation & commentsOuter circle size shows project profitability, the inner circle showing probability weighted against expected profit

Horizontal axis shows timing of first revenue expectation (launch date).

Vertical axis shows the divisional split of these products or another categorization.

Illustration 2 communicates a picture of both:• Potential and likely value of each project• timing of that value – allowing selection based on value timing needs

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Summary Part 3: Portfolio of Innovation Strategies

Evaluate projects not just on their individual merits, but also on how well they fit with the firm’s overall goals. For example, a firm might select a project ahead of others that score higher on the 8 tests because it:

• Delivers a given value stream when needed to keep certain financial metrics steady or steadily rising

• Provides diversification into a certain product category or emerging technology in which the firm wants a presence

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LECTURE SUMMARYMANAGING THE INNOVATION

PORTFOLIO AND PROJECTS

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PART 1: INITIATING NEW-STREAM INNOVATION PROJECTS p.98New Product Development p.98• Do the right project: The funneling process p. 99• Do the project right: Methodology flowchart p.100• Detailed description of the methodology for simulation of the fuzzy front end

stage p.101• Stage 1: Discover • Stage 2: Definition • Stage 3: Design p.102• Stage 4: Development • Stage 5: Delivery

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PART 2: MANAGING AND EVALUATING INDIVIDUAL INNOVATION IDEAS THROUGH THE PIPELINE p.107

2A: Use Project Management Philosophy, Tools, And Techniques p. 108

4 key steps to applying project management to innovation

•Definition: Define the project •Division: Divide or break down project into steps• Sequencing: Plan sequence of tasks•Budgeting: Create budget and resource plan

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PART 2: MANAGING AND EVALUATING INDIVIDUAL INNOVATION IDEAS THROUGH THE PIPELINE p.107 (cont’d)

2B: 8 Tests To Identify “High Potential” Ideas For Innovation Investment p109• Test 1: Valuable benefits test / valuable benefits? p. 110• Test 2: Marketing test: Got channel and demand? p. 111• Test 3: Scale up/ Scalable? p. 112• Test 4: Leadership team p. 113• Test 5: Intellectual property p. 114• Test 6: Financial return on investment / ROI• Test 7: Corporate social responsibility • Test 8: Fit with organizational strategy p. 115

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Evaluate projects not just on their individual merits, but also on how well they fit with the firm’s overall goals.

Projects that might have lower overall scores on the 8 tests in Part 2 might still merit selection if they fill a gap or weakness in the innovation portfolio’s ability to meet those goals.

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QUESTIONS?

THANK YOU

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SPECIAL SUPPLEMENTARY TOPICS--INNOVATION AND ENTEREPRENEURSHIP THOUGHT LEADERSHIP

--CASE STUDIES

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Case Study: Innovation the Lego way p. 105Lego goes from near bankruptcy to financial health, robust growth.

How? By building capability for systematic innovation that produces wide range of successful new products &product lines.

“Executive Governance Group” means innovation culture from the top down, lead by senior management

Lego divided operations into 8 areas, seeks to drive innovation in all, thus fuel continued growth.

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TOTAL INNOVATION p. 106 (Nagil & Tuff, 2012)

For every project portfolio, allocate a certain proportion of projects & resources to these types of products and innovation levels:

• Core: incremental changes to existing offerings (Mercedes Benz “AMG” or VW “GTI,” sportier versions of existing models)

• Adjacent: expanding into related products, such as moving along the value chain (e.g. from Apple products to Apple stores).

• Transformational: innovating to create new products for new markets (Sony Walkman, or Tesla’s high-performance pure electric vehicle)

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POSITIONS IN MARKETS AND PORTFOLIOS: TACTICS TO POSITION INNOVATIONS p. 107 Schmidt and Rhee (2014)

• A low-end approach: if performance is weak, lower price point to draw price-conscious consumer (Formula 1 hotels, Air Asia).

• A high-end approach: if proven high performance, high price (Porsche Cayenne)

• A niche-features approach: if has specialized benefits highly valued by small market segment, high price if they’re affluent (memorabilia)

• Other examples: new-attributes high-end, radical innovation, etc.

• Choose one, or a portfolio of approaches that mixes positioning and price points.

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VALUE CREATION THROUGH INNOVATION p. 110 Kim & Mauborgne, 2004

For some firms, their innovations themselves are their unique value added that differentiates them from competitors. For example:

• Formula 1 hotels’ innovation: Eliminate or minimize what customers don’t value, excel in the real value drivers (bed quality, room quietness, hygiene), cut cost significantly.

• Other examples: Ikea (beautiful cheap furniture, good service & cheap delivery), Air Asia, etc.

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CASE STUDY: NEW ZEALAND NATURAL: MARKET-DRIVEN ICE-CREAM INNOVATION p. 111

Struggling ice cream chain becomes successful via innovation.

Key insight & innovation: taste preferences vary across regions , depending on culture, diet, so match flavors to local tastes.

• Chinese eat few dairy products, so they prefer less sweet flavors, like green tea flavor, which masks a strong dairy presence

• In contrast, US consumers eat more dairy products and sweets, like ‘cookies and cream’ flavor.

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WORLD’S BEST INNOVATION PRACTICES? P&G – “AGILE GIANT” p. 113 Brown & Anthony, 2011

• Focus on what consumers want: make it simpler, more convenient, cheaper.

• Strategic portfolio mindset: disciplined active measuring & managing projects, ‘by the numbers’ & strategically (contribution to overall P&G needs/priorities).

• Trial & error

• Big bets based only after successful small bets provide validation

• Invests in resources needed to succeed + education, interdisciplinary idea exchange

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RADICAL AND INCREMENTAL INNOVATION p. 117 Treacy, 2004

Innovation portfolios need to strike a balance between the proportion of radical and incremental innovations.

Incremental innovations help maintain revenues, market share, and customer satisfaction while the next disruptive innovation remains under development.

Failing to invest in higher risk radical innovations carries its own dangers: risk of missing the next technology that could threaten your core business, or of missing the next chance for outsized value creation and growth.

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MATCH THE APPROACH TO THE MARKET DEVELOPMENT p. 118 Moore, 2004

Overview:Moore categorizes innovations into 7 distinct types or stagesHe asserts that:Specific types of innovations tend to work best in at certain stages of a market’s development or maturityTherefore your innovation strategy should be to first understand what stage of development your market has reached, then focus resources on the kinds of innovation that best suit that kind of market.Now look at details:….

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MATCH THE APPROACH TO THE MARKET DEVELOPMENT (cont’d 1): 7 Types Innovation p. 118 Moore, 2004

1. Disruptive: where new markets are created, can grow fast and furiously (social media & Facebook)

2. Application innovation: existing models or technology applied to new industries (sharing business models such as Uber& Airbnb use existing technology applied to taxi and lodgings)

3. Product innovation: incremental innovation to existing products (most Apple products)

4. Process innovation: innovations in supply chain, distribution channels (Dell, Walmart).

5. Incremental refinements to existing offerings: (software upgrades)

6. Marketing innovation: (Amazon customized emailing, EBay online auctions

7. Business model innovation: (Amazon’s shaping cloud computing or Apple’s shift into online music supply and retail bricks-and-mortar Apple stores.

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MATCH THE APPROACH TO THE MARKET DEVELOPMENT (cont’d 2): Market Maturity Stages p. 118 Moore, 2004

1. Early stage: new market, rapid growth as demand spreads to general population (the bottom and rapidly rising middle of the “S” curve

2. Middle Stage: achieve mainstream penetration, upper half of steep part of “S” curve. Demand growing but so is competition.

3. Mature stage: hitting upper, flattening part of “S” curve

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MATCH THE APPROACH TO THE MARKET DEVELOPMENT (cont’d 3): p. 118 Moore, 2004

• Innovation types 1-2 most effective in early stage markets

• Types 3-4 best fit for middle stage markets

• Types 5-7 for late stage