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Innovation 2002, slide 1
InnovationWhy is Innovation Important?
Innovation StrategyInnovation Projects
Innovation 2002, slide 2
Why is Innovation
Important?
Historic Perspective
Innovators Dilemma
“Innovation is new Ways to Create
New Value”
Part 1
Innovation 2002, slide 3
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
Innovation 2002, slide 4
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
Innovation 2002, slide 5
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?
Innovation 2002, slide 6
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 2002, slide 7
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:
Innovation 2002, slide 8
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
Innovation 2002, slide 9
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
Innovation 2002, slide 10
• 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 tech- nology 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
Innovation 2002, slide 11
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 2002, slide 12
Innovation Strategy
Underlying Capacities for
Innovation
Management Focus
Part 2
Innovation 2002, slide 13
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
Innovation 2002, slide 14
• 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
Innovation 2002, slide 15
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 2002, slide 16
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
Innovation 2002, slide 17
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?
Innovation 2002, slide 18
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
Innovation 2002, slide 19
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
Innovation 2002, slide 20
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.
Innovation 2002, slide 21
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 - - - - ->
Innovation 2002, slide 22
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 2002, slide 23
Innovation Projects
Stages in a Project
Portfolio (Several Projects)
Part 3
Innovation 2002, slide 24
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
Innovation 2002, slide 25
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
Innovation 2002, slide 26
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 38
Innovation Project 6
Innovation Project 92
Innovation Project 38
Innovation Project 89
Innovation Project 72
Innovation Project 45
Innovation Project 63Innovation Project 12B
Innovation Project 8
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.
Innovation 2002, slide 27
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
Innovation 2002, slide 28
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
Innovation 2002, slide 29
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.
Innovation 2002, slide 30
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 2002, slide 31
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
Innovation 2002, slide 32
In an SME, the board or the general manager must decide project status
1 2 3 4 5The project prepares
Resources
Time
Risk
Innovation 2002, slide 33
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
Innovation 2002, slide 34
The Different Stages in Innovation Projects
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
Innovation 2002, slide 35
The Different Stages in Innovation Projects
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
Innovation 2002, slide 36
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
Innovation 2002, slide 37
Every part of the Organisation must Support,
Contribute and Evaluate
Innovation 2002, slide 38
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?”
Innovation 2002, slide 39
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
Innovation 2002, slide 40
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
Innovation 2002, slide 41
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 2002, slide 42
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?
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