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Maddock Douglas • Helping you anticipate, navigate and overcome the challenges of innovation.

Innovation JOI • Justifi cation of Investment

Why “JOI”?We selected the acronym JOI to signal to readers and clients that this framework is both the same as traditional ROI — and different.

Before even starting an initiative, we believe that companies should predict long-term innovation ROI during a business case exercise. (We’ll cover this in our separate paper on Long-Term Predictions.)

Then again months or years later, in the back end of an initiative, ROI fi nally becomes the underpinning of weekly decision-making.

But during the often lengthy front end, ROI is simply too blunt of an instrument to be useful for decision-making. Instead, innovators need other types of measures, which we describe in this paper as milestones.

So our framework is part ROI, part milestones. Added together we call it:

Innovation JOI: Justifi cation of Investment

The MeasurementsBy Greg Banks, President and Chief Operating Offi cer

Here at Maddock Douglas in picturesque Elmhurst, Illinois, we’ve enjoyed 25 years of

front row seating for the advancements in innovation. And we’ve had more than a small

hand in creating these advancements, now having helped more than 200 companies

turn innovation into an established competency.

Over the last few years, it has become clear to us that innovators are moving rapidly into

a new era where fi nancial accountability is a price of entry. It has also become clear that

most of our clients lack a consistent approach. That’s why we developed a framework, as

well as tools and measures, to help our clients cope with the rising pressure for account-

ability. We call our framework Justifi cation of Investment (JOI).

This series of white papers will cover JOI from several angles.

In this paper: The Measurements.

In other JOI papers: Accountability at the Portfolio Level; Process and Governance; Funding

and Rewards; Business Cases and Long-Term Predictions; and Impact on Stock Price.

The major obstacle to innovation accountability: measures must vary dramatically over timeWithout an end-to-end framework like JOI, innovation is arguably the most diffi cult

function to hold accountable. Author Jeffrey Phillips, who penned the landmark 2011

“Relentless Innovation,” writes that the business community’s standard measures are

“universally confounded by innovation.” 1 We agree with one of Mr. Phillips’ implications

— that lack of standard measures drags down accountability. We disagree with his other

implication — that there’s no solution. There’s really only one major obstacle to innovation

measures, and it can be overcome. This one major obstacle: innovation measures must

vary dramatically over long periods of time. In fact, innovation measures vary more than

any other business function. Consider:

Research & Development (R&D) is a close cousin to innovation, but practitioners are

fortunate to have much more consistent measurement standards. As described by

Bradford Goldense, CEO of leading R&D consultancy GCI, the top fi ve R&D measures

“have stayed much the same for at least the last fi ve years.” 2

Finance measures are not even allowed to vary. This has been the case since the early

days of publicly owned companies, and the stringency became even greater in 2002

when Sarbanes-Oxley came into effect.

Marketing measures are similar to those of innovation in one sense: practitioners still

need to embrace established standards. But marketing is dissimilar also, since it must

generate the lion’s share of its profi ts within weeks or months. Innovation by contrast

does not typically generate any of its profi ts for several years.


At Maddock Douglas, we are not confounded by innovation measures, even though they

vary so greatly over so many years. We are one of the few consultancies to service our

clients throughout the entire life cycle of their innovation initiatives. And after working

through hundreds of these innovation cycles, Maddock Douglas practitioners know with

certainty that the nature of an initiative must change utterly as it moves from front end

to back end. Our CEO and founder Mike Maddock often explains: “during the front end,

Maddock Douglas will help you with the inspiration” that shines the light on new ideas.

“But during the back end, Maddock Douglas will help you with the perspiration” required

to execute a new product, service, channel or business model.

Why are we focusing this measurement white paper on the simplistic notion of an “individual innovation initiative”?

We dedicate this paper to clarifying the

huge changes in measures required for

different points on the life cycle. We cite

(in confi dential fashion) learning from

Maddock Douglas clients as well as from

published literature. We point to recently

launched innovation initiatives like John

Hancock’s Vitality, Master Lock’s Speed

Dial and HBO’s Now.

If you are familiar with these types of

initiative launches, you’ll recognize

several common threads:

Executives at large companies must often cope with dated products, services or channels.

These executives must initiate specifi c innovation initiatives to address unmet buyer needs.

Once begun, executives must typically persevere for several years before the initiative

can be judged as successful.* *Maddock Douglas considers an innovation initiative “successful” at the time when it:

(1) breaks even in profi t generation versus cumulative investments, and if at that time

(2) it still has enough momentum to generate ongoing profi ts.

In reality, of course, experienced innovators do not manage initiatives on a stand-alone

basis. Instead, innovators at companies like John Hancock, Master Lock and HBO — in

fact, most of Maddock Douglas’ clients — manage innovation with the much more

comprehensive portfolio perspective. Individual initiatives enter and exit portfolios at all

different times. Some initiatives are evolutionary (with more certainty but less potential)

and some are revolutionary (with less certainty but more potential). And to add even

further complexity, since most innovation initiatives fail3, innovators must rely upon the

profi ts of the successful few to generate positive ROI for the whole portfolio.

For this JOI Measurements paper, we purposefully exclude all the complicating dimensions

of a portfolio. Instead, by focusing exclusively on individual initiatives, we can complete our

task of illuminating the two types of JOI measures (front and back). And then, like a mason

starts with bricks, readers can build upward from accountability for a single initiative, to the

same type of accountability across their entire portfolio.

What’s an “innovation initiative”?Here are three recent and successful examples:

Speed Dial Wellness-based life insurance

Access-agnostic subscription

service

During the front end,

“we’ll help you with inspiration.”

During the back end,

“we’ll help you with perspiration.”


Front end

Milestones

Buyers

Obstacles

Concepts

Company

Team

Investment dollars $ $ $ $ $

First of two types of JOI measures:Milestones in the front end…

Bansi Nagji and Geoff Tuff, of strategy consulting fi rm Monitor Deloitte, state in their 2012

HBR article: “it’s impossible to calculate ROI for something the world does not yet know it

needs.” 4 We do not agree with Messrs. Nagji and Tuff that front-end ROI calculations are

“impossible.” We do agree, however, that ROI alone is far too blunt of an instrument for

the front end. This is why Maddock Douglas’ JOI framework relies completely upon the

measurement of milestones (not ROI) in the front end.

We know from decades of experience, and an abundance of corroborating literature, that

the front end is disproportionately important to innovation success. And we also know

that the front end is vast. Stephen K. Markham summarized this poignantly in his 2013

meta-analysis, when he essentially summarized several hundred research studies as both

abundant and ambiguous.5 To measure front-end progress, without ROI and with so much

ambiguity, we have concluded that we need a handful of measurable milestones. So we

compressed our experience and knowledge into the fi ve on the next page:

MilestonesMilestones help innovators measure progress during the front end, when ROI is too blunt of an instrument to help with decision-making.


Five mandatory front-end milestones

See Appendix for a look at the Measurement Methods for these Milestones.

Readiness to pass through gate

to back end

Insufficient

Sufficient

Advantageous

Confirm future size, type, interest of buyers

Ensure company is prepared for change

Prepare to address external obstacles

Confirm team is ready

Select and refine high-impact concepts

We have learned, as described further in our separate paper on Process and Governance,

that the sequence for accomplishing these fi ve front-end milestones is not very important.

We have also learned (from hard knocks) that companies should not bother to seek out

an advantage (green light level) in all fi ve of these milestones. In fact, we only suggest to

clients one fundamental JOI policy in the front end — before moving to the back end — that

all fi ve milestones must be accomplished at least suffi ciently (yellow light level). If any of

the fi ve are insuffi cient, then the likelihood of back-end ROI drops precipitously.

We provide more detail in the appendix, regarding the specifi c questions and measurement

methods, to determine suffi ciency on each of these fi ve milestones. As one example, to

earn a yellow or green light in the milestone for “buyers interested,” our clients must,

among other things, be able to quantify “which customers will account for the lion’s share

of future sales.” As another example, to earn a yellow or green light for “team readiness,”

our clients must allow team members to anonymously rate their own readiness and

compare their scores to established norms.

JOI front-endmeasures

The fi ve mandatory milestones

All fi ve must be suffi ciently accomplished before an initiative passes through to the back end.


When are we ready for the back end?We’ve been involved with many clients who were facing the critical question: “Are we ready

for the back end?” We have developed a simple milestone scorecard to help them answer

this question. The samples below represent three of the most common situations as well as

our standard advice for each one.

Milestone scorecard sample one: Theoretically ideal

We do not typically recommend the pursuit of this ideal for a front-end scorecard. Seeking

perfection can be overly limiting in the fuzzy front end.

Milestone

Confirm buyers

Ensure company is prepared

Address external obstacles


Select concepts

Readiness

the

ore

tica

lly id

eal Theoretically, fi ve green scores

in the front end would be ideal. Maddock Douglas has learned in practice, however, that this ideal is best left as only a theory. We have seen very few client situations where it made sense to ensure all fi ve milestones were green before passing an initiative through to the back end.

Milestone scorecard sample two: Ready for back end

We recommend that a scorecard like this one is mandatory. We also recommend moving

the initiative immediately to the back end once it’s attained.

Milestone

suff

icie

nt

Confirm buyers




Select concepts

Readiness

In the real world of innovation, almost always, clients are ready for the back end, when they have a mix of green and yellow scores like this very suffi cient scorecard. Innovation in the front end is not an exact science; passing to the back end simply requires no red lights.

Milestone scorecard sample three: Not ready for back end

This is an unacceptable JOI front-end scorecard. Team readiness must be improved.

Milestone

Confirm buyers




5 Select concepts

Readiness

un

acce

pta

ble

Now let’s contrast the scorecards above with this third example, which we call unacceptable. This client had major advantages in four of the milestones but a gaping shortcoming and a red light in their team readiness. We recommended to fi rst get the team suffi ciently ready, before passing the initiative through to the back end.

These scorecards do not operate like report cards, where four A’s and one C nets a

high grade (A-minus). These scorecards operate more like a submarine: No matter how

seaworthy otherwise, the ship cannot leave port with even a single leak.



$ $ $ $ $

Profit dollars

time until breakeven

Back end

ROI Momentum

momentum at break-even

momentum at breakeven

Second of two types of measures: ROI Momentum in the back end

As we move from the front end to the back end, the nature of innovation changes

absolutely … from inspiration to perspiration … from iterative to sequential. In the back end,

executives need to bring breakeven ROI expectations to the table on a weekly basis. They

also need to apply relentless timeline pressure to avoid having the initiative stalled by

internal resistance. Lastly, and especially in larger organizations, executives need to start

taking specifi c steps toward a handoff to an awaiting core team. In short, initiative owners

in the back end must leave behind the realm of endless possibilities, and enter the realm

of executional relentlessness.

Work style cheat sheet — front end to back end

✓ Progress: from iterative — to — sequential

✓ Time pressure: from patient — to — impatient

✓ Ownership: from protective — to — handoff

✓ Measures: from milestones — to — ROI momentum

✓ Work style: from inspiration — to — perspiration

As we read earlier, this front to back transition can cause even seasoned innovators

to throw up their hands and proclaim that measures are “impossible.” But at Maddock

Douglas, we are not so much struck by the diffi culty of the measurement obstacle,

as by the elegance of the solution. More specifi cally, the executive team at this critical

transition point can simply change the measures themselves to telegraph to team

owners that their work style must now change.

ROI MomentumROI momentum telegraphs clearly to the organization that the innovation work style will change completely now that the initiative is in the back end.


Our fundamental JOI advice in the front end: accomplish all fi ve milestones before

passing an initiative to the back end. Our equivalent advice for the back end: the same

day an initiative passes through the gate, explicitly change gears so that initiative

owners turn their complete attention to a measure we call ROI Momentum. Our formula

for ROI Momentum:

x y When x = y ROI Momentum

Investment:Add up all investments to date, which must be loaded against the new back-end initiative; and translate into today’s dollars.

Profits:Once the new product is in market, calculate incremental product-level or gross margin profit contributions.

ROI Breakeven:When the total for y catches up to the total for x, the initiative is at ROI breakeven.

Momentum:At the point of breakeven, calculate the direction of the profit trend (up, flat, down), and the steepness of the trend.

Track and project as this number grows larger as back-end investments accumulate.

Keep a running projection for this number as in-market profits accumulate.

For example, total investments and profit, increase to $10M at month eight.

For example, if profit has been doubling for each of the past several weeks, this would be a positive, very steep trend.

The seven possible ROI momentum grades:

Positive & Very steep A

Positive & Steep B

Positive & Shallow C

Flat D

Negative & Shallow E

Negative & Steep F

Negative & Very Steep G

Best

Worst

To help make ROI Momentum easy to use, we calculate the steepness of the momentum

(up or down) and use it to provide each initiative with one of seven grades (A through G)

as described in the chart on the right. On the fi rst day an initiative passes through to the

back end, we help clients provide projections to the entire organization on the pace that

needs to occur to earn a high ROI breakeven grade, like an “A” or a “B.” And we update the

projection each week using the formula above. We have found this approach to be very

clarifying and motivating.

Our EVP of Client Engagement, Gino Chirio, says it best: “When we switch from milestones

to ROI Momentum, everyone gets it immediately that the game has changed.”

ROI Momentum


ROI Momentum: The ends of the spectrumOn the positive extreme, we’ve been part of back-end initiatives, which employees propel

to the marketplace as if their companies’ longevity depended upon it. The example directly

below, which earned a grade of “A,” graphically displays this type of steep momentum.

When we calculated ROI in this situation, even though it just paid back its investments, with

“positive and steep trends,” it still sounded like a turbocharger from a new growth engine.

Cumulative investments: $10M

Cumulative profits:$10M

ROI:$0 (breakeven)

Momentum slope at time of breakeven: Roughly + 80 degrees

Momentum grade:(A) Positive, Very Steep (best case)


$ $ $ $ $ $ $ $Profit dollars

Breakeven early

Back endstarts

ROI Momentum Grade (A)

Very

Steep

Pos

itive

Mom

entu

m

On the other less-positive side, we’ve seen employees resist a new back-end initiative and

bog it down as if their livelihood was threatened by it. This next graphic, which earned

a grade of “E,” graphically displays this type of negative momentum at the point of

breakeven. When we calculated ROI in this situation, with the momentum “negative and

shallow,” it sounded like the sputtering of a lawnmower on its last summer.

Investment dollars $ $ $ $ $ $ $ $

$ $ $ $ $ $ $Profit dollars

Momentum Negative Shallow

Cumulative investments: $11M

Cumulative profits:$11M

ROI: $0 (breakeven)

Momentum slope at time of breakeven: Roughly –23 degrees

Momentum grade: (E) Negative, Shallow (not preferred)

ROI Momentum Grade (E)

Breakeven late


These two extremes — of a turbocharged “A” versus a sputtering “E” at breakeven — help

us underscore two important points: 1) the achievement of breakeven is not enough on

its own; and 2) the best way to motivate the organization during the back end is through

a combination of speed, ROI and relentlessness. Here are some paraphrased quotes from

real-life innovators in Fortune 1000 companies, which add some color to these two points:

“After a few projects it became apparent that we needed to change gears when our

innovation teams got to the back end. We had by then racked up a lot of costs and it

was time to start focusing on returns.”

“We realized that while patience is a good quality while ideating, it is a bad quality

when executing.”

“Getting an innovation ready to go to market is a lot like getting your kids ready to

be adults. You can only protect them for so long. At some point they have to stand

on their own two feet.”

With the Justifi cation of Investment Framework, innovation can be held accountable end-to-endAt Maddock Douglas, we are happy to see the innovation discipline move fully into an era

of increased fi nancial accountability. We believe this will help the discipline continue its

long-time ascent. But before practitioners can tackle the inherent obstacles to innovation

accountability, they must fi rst acknowledge the extreme change that will inevitably

take place at the middle of every initiative. The front and back end need very different

measurements. With this acknowledgment, it becomes much easier for practitioners to

master innovation accountability.

$ $ $ $ $Profit dollars

time until breakeven

Back end

ROI Momentum

momentum at break-even

momentum at breakeven

Front end

Milestones

Buyers

ObstaclesConcepts

CompanyTeam

$ $ $ $ $Investment dollars $ $ $ $ $ $ $ $ $ $

The complete innovation initiative life cycleMeasurable and accountable throughout


We’ll also cover JOI from several other anglesJOI requires more explanation than we can provide in this one white paper. That’s why

we’re publishing an entire series to explain the major tenets. In this paper, we covered

The Measurements. In other papers, we’ll cover topics like these:

Innovation JOI: Accountability at the Portfolio Level. When innovators are ready

to tackle accountability at the portfolio level, they must still manage each initiative

through two very polarized halves of the life cycle. In this separate paper, we’ll explain

how to open the measurement aperture wider, to the scope of the entire portfolio,

and in fact the entire innovation function.

Innovation JOI: Business Cases and Long-term Predictions. Expert innovators

can predict the ROI potential of each initiative, even before the front end begins. Since

the analytical models must estimate profi ts years into an uncertain future, experts

have learned to prize “consistency” more highly than “accuracy” (see sidebar). In this

paper, Maddock Douglas will explain how readers and clients can leverage this type of

analytical modeling to make much better up-front business case decisions.

We’ll also publish papers on Process and Governance; Funding and Rewards; and Impact on

Stock Price. For readers and clients coping with the increased expectation for innovation

accountability, this series of white papers can make the topic very manageable.

REFERENCES

1 Phillips, J. (2014) The Problems Measuring Innovation. Innovation Excellence

2 Goldense, B., Schwartz, A, James, R. (2005). Metrics That Matter. PDMA Visions.

3 Thurston, T. (2016). Growth Science data set of over 1000 corporate innovation initiatives.

4 Nagji, B., Tuff, G. (2012) Managing Your Innovation Portfolio. Harvard Business Review.

5 Markham, S. (2013) The Impact of Front-End Innovation Activities on Product Performance

6 Finley, K. (2015) The Man Who Knows Whether Any Startup Will Live or Die. Wired.

7 Brophey, G., Baregheh, A., Hemsworth, D. (2013). Innovation Process, Decision-Making,

Perceived Risk and Metrics: A Dynamic Test.

The author also recognizes the infl uence of these two landmark studies:

Evanschitzky, H, M Eisend, RJ Calantone and Y Jiang (2012). Success factors of product

innovation: An updated meta-analysis. Journal of Product Innovation Management.

Smith, PG and DG Reinertsen (1991). Developing Products in Half the Time. New York:

Van Nostrand Reinhold.

Innovation ROI Long-term Predictions

Growth Science founder Thomas Thurston substan-tiated in Wired in 2015 that his company’s fi ve-year predictions for new products and businesses are correct between 50 percent and 66 percent of the time.6 This is several times better than the track record for intuition alone.


Appendix — Measurement methods for fi ve front-end milestonesFive milestones Specifi c questions Quantifi cation methods

Confi rm future size, type, interest of buyers

Which customers will account for the lion’s share of future sales?

What is their unmet need? — or — What substitution option is gaining traction?

Quantitative consumer or B2B research. Primary or secondary. Versus norms whenever available.

Can include several Maddock Douglas research tools (e.g., Durable Segmentation).

Self-reported data can be weighted to match the real world based upon normative forecasting database.

What is % awareness to trial (i.e., weighted purchase intent)?

What % of best prospects are extremely/very dissatisfi ed with their current solution?

What % of best prospects are open to solutions from your: (a) industry; (b) company; (c) competitors?

Ensure company is prepared for change

Has your company’s superpower* been clearly articulated?

Does it have broad and deep support?

First-level data can be derived from document reviews and working team interviews.

Final data typically requires private interviews with a full cross-section of employees including executive level.

Is the current initiative (or portfolio) suffi ciently supported? Including funding?

Will key employees and stakeholders be willing to change when they are called upon to do so?

Has an executive champion been identifi ed?

Prepare to address external obstacles

Have the primary external obstacles been identifi ed?

In general? With buyers? With channels? With regulators? With investors?

Quantifi cation methods similar to milestone number two.

In addition, innovators can draw heavily from the International Journal of Innovation May 2013 article on innovation decision-making, perceived risks, and metrics: A dynamics test. 7

Does your company have reasonable confi dence that it can overcome at least most of these obstacles?

Have disinterested experts been called upon to validate the company’s confi dence?

Confi rm team is ready

Does the initiative team include cross-functional representation?

Several organizations, including PDMA, Maddock Douglas, Accenture, McKinsey and others have published innovation team “checklists.”

PDMA calls their checklist the Innovation Maturity Model. Maddock Douglas calls our checklist the Culture of Innovation Survey.

All of these checklists allow team members to (anonymously) score themselves, their team and their company on readiness. Norms are available.

Can the team access and leverage work-enablement tools?

Does the team have the resources, skills and diversity of opinion required?

Has a business plan, which projects out through the end of the back end, been written and approved?

Select and refi ne high-impact concepts

Has the team generated an abundance of possible concepts, attempting to satisfy best prospects’ unmet needs?

For this milestone, Maddock Douglas recommends each organization create a customized measurement tool. The methods can be informal. The real key is to insist on numeric thresholds for each of the specifi c questions.

As an example, for Maddock Douglas clients:

We typically require more than 100 concepts up front

We have tools, like Anatomy of an Idea and Insight Power Score, to narrow down concepts and to measure success in prototyping

For feasibility studies, there are several established methods. Maddock Douglas often recommends those endorsed by PDMA.

Has the team used a rigorous co-creation approach to narrow down the concepts to one to three concepts ready for back end?

Have there been at least three rounds of prototyping, where customer and other stakeholder feedback has become increasingly positive?

Would the latest round of customer feedback suggest that the concept(s) would handily meet their unmet needs?

Has your company satisfactorily completed a feasibility study on executing the back end at a suffi cient scale to generate long-term profi t?

* A superpower is Maddock Douglas’ term for a deep competency that will allow an organization to succeed in a future opportunity space better than its competitors.


More about Maddock DouglasMaddock Douglas, Inc., established in 1991, is an internationally recognized innovation

consulting fi rm that helps companies design, brand and launch new products, services,

experiences and business models. Maddock Douglas’ client list includes 25 percent of the

top 100 global brands and 10 out of the Fortune 50 companies.

If you have any questions about the material in this article, or Maddock Douglas in general,

please contact us at 630.279.3939 or visit maddockdouglas.com

Greg Banks | President and Chief Operating Offi cer (author)

Greg runs client engagements and operations for Maddock Douglas. Before joining Maddock Douglas, Greg spent fi ve years at Monitor Deloitte as director in the Customer and Marketing Strategy practice. Prior to Monitor Deloitte, Greg was founder and president of Omnicom’s Javelin, a pioneer agency in the fi eld of accountable (measurable) marketing.

Throughout his career, Greg has built a reputation as a “business system builder,” helping, as an example, some of the largest marketing and sales organizations in the world generate measurable, predictable growth.

Greg holds a Master of Science degree from Northwestern University, a bachelor’s from University of Missouri, and a professional services certifi cation from Omnicon University.

[email protected]

G. Michael Maddock | Chief Executive Offi cer and Founding Partner

A serial entrepreneur, Mike has launched six successful businesses and co-chairs the Gathering of Titans Entrepreneurial Conclave at MIT. Mike is a contributor to Forbes and author of three books: Free the Idea Monkey...to focus on what matters most!, Brand New: Solving the Innovation Paradox, and Flirting With the Uninterested: Innovating in a “Sold, Not Bought” Category.

Mike is a frequent keynote speaker and has a passion for inspiring and empowering innovation leaders by helping them build the types of cultures and processes that lead to new product success.

[email protected]

Luisa Uriarte | Executive Vice President and Managing Partner

Luisa is a researcher, an innovation (Ring)leader and a writer. She is responsible for overseeing innovation projects and has more than 20 years of experience in leading research engagements of international scope, covering more than 30 countries worldwide. Formerly, Luisa served at Markitecture, Copernicus and Yankelovich Partners, during which time she was instrumental in establishing international offi ces in Brasil and United Arab Emirates. She holds a Bachelor of Science in International Affairs from Georgetown’s School of Foreign Service. She is also co-author of the book Brand New: Solving The Innovation Paradox.

[email protected]

Gino Chirio | Executive Vice President Client Engagement

Gino oversees the entirety of Maddock Douglas innovation engagements — from identifying needs and opportunities to creating, launching and sustaining new products and services. He has helped dozens of clients in a diverse mix of categories with innovation, marketing and brand strategy initiatives. He previously worked in advertising where his experience creating, launching and enhancing brands served as a solid foundation for the world of innovation. With his roots in Chicago, Gino holds a Bachelor of Science in Marketing from DePaul University.

[email protected]

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