The I Word: Moving Innovation from Research and Development (R&D) to Ideation and Realisation (I&R)

The I Word: MovingInnovation from Researchand Development (R&D) toIdeation and Realisation(I&R)Alan McSweeney

Innovation Has Become a Ubiquitous andMeaningless Word• The word Innovation is being used and misused pervasively without clear definition, meaning or understanding• Every organisation claims to be pursuing and driving innovation or offering innovation development services• But are they?• Innovation is not just about ideas• Innovation is about driving the generation of good ideas and ensuring their appropriate adoption in order to generate value• Innovation is or can be a process (that can be measured)• Innovation is about generating business value – an idea without implementation has little meaning November 7, 2011 2

Innovation = Good Idea That is Defined and Validated + Appropriate Implementation and Adoption + Generation of ValueNovember 7, 2011 3

Innovation Can Be … A new idea OR An existing idea or process that is improved OR An existing idea or process implemented or applied elsewhere November 7, 2011 4

Innovation …• … Is not necessarily one big idea• It can be lots of little ideas November 7, 2011 5

Innovation Is All About Value• Sometimes …Σ { Value } >> { Value } November 7, 2011 6

Innovation Extends Creativity To ImplementationAnd Generation Of Value Sell Market tion ova Inn Implement Verify e Valu Clarify Develop yDiscern tivit It’s All About C rea The Value November 7, 2011 7

Innovation Means …• Acceptance of change – innovation implies and requires change• Innovation exposes an organisation to change• A secondary affect of successful innovation is the willingness of an organisation to change• To be good at innovation means to be good at change• Innovation means welcoming change and being able to successfully deliver change• Innovation means continuously challenging accepted conventions• If you cannot change, you cannot innovate November 7, 2011 8

Being Good At Innovation Creates a PositiveFeedback Loop (“Virtuous Circle”) Better Experience, Greater Satisfaction, Customers Greater Loyalty Greater Recognition of Contribution, Greater Satisfaction, Greater Experience, More Interesting Place to Work Employees Shareholders Greater Long- Term Value Growth, Increased Market Share, Improved Perception, Increased Revenue and Margin, Organisation Customer and Employee November 7, 2011 Loyalty 9

Being Good At Innovation Creates A PositiveFeedback Loop Being Good At Innovation Means Accepting Change Accepting Change Reinforces, Fosters And Encourages Innovation November 7, 2011 10

Strengths Of Being Good At Innovation• Organisation leadership has a personal role in fostering a culture of openness and risk tolerance toward innovation• Use external partners and “open sourcing” to expand the pool of innovation ideas• Use simple low-cost awards and recognition to encourage and reward innovation• Ensure security policies do not inhibit innovation• Set performance expectations for leadership traits that drive innovation• Use lightweight, non financial criteria for initial evaluation of ideas• Early-stage idea evaluation must rest on business judgement and not just quantitative criteria• Ensure there is a fast, lightweight process for testing innovation ideas• Focus on generating learning when making early-stage investments in innovation ideas• Sequence the project to fail fast by testing for the most valuable learning first November 7, 2011 11

Classification Of Areas To Look For Innovation Business Model How Do You Make Money?Finance Networking and How Do You Work With Other Organisations For Mutual Benefit? Alliances Core Processes How Do You Create and Add Value To Your Products And Services?Processes Enabling Processes How Are Core Processes Supported And Enabled? Product How Do You Design Your Core Products And Services? PerformanceProducts How Do You Connect Or Provide A Common Platform For Your and Product System Products And Services?Services How Do You Provide Value To Your Customers Beyond Your Core Service Products And Services? Channel How Do You Get Core Products And Services to Market?Provision Brand How Do You Communicate Your Core Products And Services? andDelivery Customer How Do Customers Feel When They Interact With Your Organisation Experience And Your Products And Services? November 7, 2011 12

Classification Of Areas To Look For Innovation• Innovation can be pervasive across all aspects of the organisation• Opportunities for innovation exist everywhere• Innovation can be a structured process that can be learned, practiced, developed and improved November 7, 2011 13

Types Of Innovation Radical Incremental Innovation By Innovation Innovation Reapplication Fundamental Change Or Incremental Application Of Fundamentally New Improvement Existing System, Categories Of Existing Of System, Process, Concept, System, Process, Process, Concept, Device In A New Concept, Device Device Domain Disruptive, Radical, Discontinuous November 7, 2011 14

IT Innovation And Business Innovation• IT innovation can drive business innovation• Innovation is important to IT because of the very high rate of change• IT innovation can fundamentally change the way an organisation operates• IT can support business innovation − Provide information and other support services − Develop new systems, platforms, applications• IT can be a catalyst to innovation• IT can also innovate within itself November 7, 2011 15

Analysis Of Volume Of Investment In InnovationAcross Innovation Areas Investment In Innovation Area Business ModelFinance Networking and Alliances Core ProcessesProcesses Enabling Processes Product PerformanceProducts and Product SystemServices Service ChannelProvision and BrandDelivery Customer Experience November 7, 2011 16

Analysis Of Volume Of Investment In Innovation• Traditional R&D areas dominate• Investment skewed in favour of products• Narrow focus, especially on pure product November 7, 2011 17

Analysis Of Return Of Investment In InnovationAcross Innovation Areas Value From Investment In Innovation Area Business ModelFinance Networking and Alliances Core ProcessesProcesses Enabling Processes Product PerformanceProducts and Product SystemServices Service ChannelProvision and BrandDelivery Customer Experience November 7, 2011 18

Analysis Of Return Of Investment In InnovationAcross Innovation Areas• Returns do not match investment• Small investment in non-traditional R&D areas• Much greater return from smaller investments outside traditional R&D areas November 7, 2011 19

Comparison Of Investment And Return AcrossInnovation Areas Business Model ReturnFinance Networking and Alliances Return Greater Than Investment Core Processes InvestmentProcesses Enabling Processes Product Performance Investment Greater Than ReturnProducts and Product SystemServices Service ChannelProvision and BrandDelivery Customer Experience November 7, 2011 20

Comparison Of Investment And Return AcrossInnovation Areas• Significant gap in returns across innovation areas• Small investments in non-traditional areas yield significant returns• Large investment in traditional R&D areas yield small returns• Some of this can be explained by sustained pattern of investment in traditional R&D and history of low investment in improvements outside these areas − Latent available improvements achieved easily − Nonetheless demonstrates innovation can be successfully applied outside traditional product-oriented areas to yield significant value• Need a wider definition of R&D to I&R - Ideation and Realisation − Identifying and implementing innovative ideas across the entire organisation November 7, 2011 21

Eliminating The Disconnect Between InnovationInvestment And Value Generated Develop Structured Approach To Innovation Decision-Making To Maximise Returns From Investment Innovation Decisions Future Approach Innovation Now Approach Identify And Develop Innovation From Non-Traditional Areas Outside Standard R&D Activities November 7, 2011 22

Where And What Are The Innovation Ideas? Incremental Innovation By Innovation Area Radical Innovation Innovation Reapplication Business ModelNetworking and Alliances Core Processes Enabling Processes Product Performance Product System Service Channel Brand Customer Experience November 7, 2011 23

Innovation Metrics – Measure Along The InnovationProcess Revenue Number of Cost of Generate Innovation Projects Innovation By Type Projects New Business Speed of Innovation Estimated Value ofPeople Projects and Change Innovation ProjectsInvolved of Speed and Change of Value Cost Reductions Innovation Innovation Innovation Process Inputs OutputsBudgetAllocated Innovation Training Provided Publications/ Number Of Ideas Generated Patents %Age Of Ideas Piloted Innovation Library %Age Of Successful Pilots Size %Age Of Pilots Commercialised %Age Of Product/Services Launched November 7, 2011 24

Innovation Model For Ideation and Realisation (I&R) Ideas Enter Innovation Process From Multiple Sources Innovative Ideas Validated and Distilled Ideas Discarded Or Implemented Successful Ideas In Other Ways November 7, 2011 Implemented 25

Innovation Model For Ideation and Realisation (I&R)• Ideas analysed, validated and distilled as they move through the process• Ideas exit the process appropriately − Not valid, not proven − Not appropriate for the organisation but can be used or applied elsewhere − Partially implemented − Fully implemented November 7, 2011 26

Define Stage Gates For Ideation and Realisation(I&R) Process Business Idea Prototype Case DetailedLaunch Implement Design November 7, 2011 27

Innovation Is About Value Obtained• Value = Return - Investment Minimise Investment Point of Best Value Maximise Return November 7, 2011 28

Achieving A Balanced Approach To Innovation• Innovation needs to be balanced against run-the-business activities• Too much innovation and associated organisation change can be disruptive and inefficient November 7, 2011 29

Achieving A Balanced Approach To Innovation Ability of Organisation to Change• Decide on your innovation profile Cost of Support Industry Profile Budget Constraints Cost of Organisation Change Resource Constraints Risk/Reward Project Load Profile Maintenance of Total Investment Operations November 7, 2011 30

Attitude Inhibitors To Innovation And Change• Adopting innovation requires learning, training and management − “I’m not in product development. Why are you talking to me?” − “I’ve been here for 20 years and I don’t see why we should change now.” − “I am willing to support innovation 100% as long as it does not affect me.” − “This is the way it’s always been done and it’s worked well up to now.” − “I’ve got 15 minutes to talk to you. I’m very busy with important things.”• Attitudes that require change − Belief that you know best − Focus on short-term returns with no long-term focus − Innovation is not the job of senior management − Process will slow us down November 7, 2011 31

Organisation Process Models – Common Structure –High-Level• At their core, all organisations have a common structure Operational Processes With Cross Functional Linkages Vision, Strategy, Leadership, Business Management Management and Support Processes November 7, 2011 32

Organisation Process Models – Common Structure –High-Level Direct Innovation – New and Updated Products Innovation and Services - Comes Leadership From Here Comes From Here Operational Processes With Cross Functional Linkages Vision, Indirect Innovation – Strategy, New and Updated Leadership, Support Processes - Business Comes From Here Management Management and Support Processes November 7, 2011 33

Mapping Innovation Areas To Organisation Model Business Model Networking and Alliances Operational Processes With Cross Functional Core Processes Linkages Vision, Enabling Processes Strategy,Leadership, Product Performance BusinessManagement Product System Service Channel Management and Brand Support Processes Customer Experience November 7, 2011 34

Organisation Process Models – Common Structure –More Detailed Vision, Operational Processes With Cross Functional Linkages Strategy, Business Develop and Market and Deliver Manage Management Manage Sell Products Products and Customer Products and and Services Services Service Services Vision and Strategy Management and Support Processes Business Planning, Human Information Financial Facilities Merger, Resource Technology Management Management Acquisition Management Management Legal, Governance Regulatory, Knowledge, External and Environment, Improvement Relationship Compliance Health and and Change Management Safety Management Management November 7, 2011 35

Core Cross Functional Processes• Three cross-functional processes that are common to all organisations − Product/service delivery • From order/specification/design/selection to delivery/installation/implementation/provision and billing − Customer management • From customer acquisition to management to repeat business to up-sell/cross-sell − New product/service development • From research to product/service design to implementation and commercialisation• These processes cross multiple internal organisation boundaries and have multiple handoffs but they are what concern customers• Cross-functional processes deliver value − Value to the customer − Value to the company• Integrated cross-functional processes means better customer service and more satisfied and more customers• Innovation works best when it crosses organisational functions November 7, 2011 36

Every Organisation Has Three Core Cross-Functional Processes The customer sees across the structure and is not concerned with but is all too often aware of the operational elements, their complexity and lack of interoperability 1. Product/ServiceDelivery: from order to completion 2. Customer Relationship Management 3. New Product/ Service Development The organisation sees the structure vertically and in a compartmentalised view and all to frequently does not see the customer viewpoint November 7, 2011 37

Organisation Value Chains Value Chains• Value chains add value and confer competitive advantage when defined and linked• Innovation needs to be cross-functional to add real value• Cross-functional innovation team sees the complete picture and generates greatest value November 7, 2011 38

Projects And Innovation• Projects are about change and innovation − Innovations or changes to existing processes, systems, applications, structures• Organisations need to be good at two sets of skills − Running the Business (RTB) – business as usual operations − Change the Business (CTB) – changing existing operations to survive or compete• Projects are the way of introducing innovation and change into organisations• Projects tend to be multidisciplinary, involving some or all of: − Requirements gathering − Solution design − Hardware installation − Product selection − Software development or modification − Testing − Process change − Organisation change − Data conversion − Implementation − Parallel operation• Organisations need to be good at projects in order to deliver innovation and change November 7, 2011 39

Dimensions Of Being Good At Innovation AndChange Ability to• To be good at innovation Execute Projects and change, three dimensions must come together within the organisation: − A clear vision for the organisation and the set of projects needed to deliver on the vision Completeness of − A proven capability to Organisational deliver projects quickly and Vision effectively − Focus on the realisation of expected business benefits and business value associated with the implementation of Effective and Proven investments Benefits Realisation Approach November 7, 2011 40

Dimensions Of Successful Innovation• Innovation Capability – tools, techniques, methodologies for identifying and assessing innovation• Innovation Process and Project Management – being able to manage portfolio of innovation projects• Implementation of Innovation – being able to adopt innovation• Value Management – understanding and articulating business value of innovation• Innovation Within IT – being able to drive innovation within IT• Innovation Measurement – being able to measure innovation activities, skills and successes November 7, 2011 41

Innovation Value Management• Value management means being able to articulate the business value of innovation and communicate in the language of business• Connect innovation activities to business value• Use standardised measurements and metrics• Create effective, appropriate and accurate business cases based on accurate understanding of costs and value November 7, 2011 42

Innovation Business Case Impact Low HighLimited Simple Business Case Extent of AdoptionPervasive Complex Business Case November 7, 2011 43

Challenges Of Developing Good Cost Estimates• Requires detailed, stable, agreed requirements• Agreed assumptions• Access to detailed documentation and historical data for comparison• Trained and experienced analysts• Risk and uncertainty analysis• Identification of a range of confidence levels• Adequate contingency and management reserves November 7, 2011 44

Reasons For Good And Bad Cost Estimates Ineffe and U ctive Risk Effect ncer i ve Unce Risk and Unfa Analy tainty r ta Techn miliar s is Ident ificat Analy inty First- ology or s is Rang ion of a Time Use Probl em Confi e of De Acces s Getting dence Level Docu tailed s to D m ata Unre s and H entation Unre Proje asonable Adeq ua istor Train Unre alistic or ct Bas Conti ngen te Data ical e Exper d and liable Data Unre elin e Mana cy an ien geme d Detai led, S Analy ced Assumalistic Reser nt sts No o ption ves Agree table, Comp r Limited s Overo Requ d ariso ptimi ireme Agr Avail n Data sm n ts Assum eed able New ption Pr ocess s e s Untra Proje Inexp ined and ct Ins er ie t abilit y Comp Analy nced le sts or Te x Project chnol Unre ogy alistic Savin Project gs• Lost of reasons for and causes of inaccurate cost estimates November 7, 2011 45

Sources Of Risk and Uncertainty In Estimating Costs• Lack of understanding of the project requirements• Shortcomings of human language and differing interpretations of meaning of project• Behaviour of parties involved in the cost estimation process• Haste• Deception• Poor cost estimating and pricing practices November 7, 2011 46

Specific Risks• Sizing and Technology • Capability − Overly optimistic developers − Mixed skills of team − Poor assumptions on the use of reused − Optimistic assumption on code development tools − Vague or incomplete requirements − Optimistic assumption on productivity − Not planning for additional effort − Geographically dispersed team making associated with packages – communication and coordination more integration, testing difficult• Complexity • Management − Tools − Management’s dictating an unrealistic − Applications: software purpose and schedule reliability − Incorporating a new method, − Hardware limitations language, tool or process for the first − Number of modules affecting time integration effort − Not handling creeping requirements and change proactively − Inadequate quality control, causing delays in fixing unexpected defects − Unanticipated risks associated with package software upgrades and lack of support November 7, 2011 47

Market And Organisation Capability Analysis• Organisations need to understand what the opportunity from an innovation is and what is needed to exploit it fully• Analyses − Growth-Share Matrix Analysis − Marketing Strategy and Diversification Analysis − SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis − PEST (Political, Economic, Social, and Technological) Analysis• Quick analyses that will define what is possible and achievable November 7, 2011 48

Growth-Share Matrix Analysis Market Growth Stars Question High Marks c c Value of Product/ Service Relative Market High c Low Share Cash Cows Low Dogs November 7, 2011 49

Growth-Share Matrix Analysis• Cash Cows – business units/products and service offerings with high market share in a slow-growing industry• Dogs – business units/products and service offerings with low market share in a mature, slow-growing industry• Question Marks – business units/products and service offerings growing rapidly, consume cash but with low market shares and not generating much cash − Have the potential to gain market share and become a star and eventually a cash cow when the market growth slows• Stars – business units/products and service offerings with a high market share in a fast-growing industry − Stars become cash cows November 7, 2011 50

Growth-Share Matrix Analysis For Innovation• Where does innovation ideas fit into the Growth-Share Matrix Analysis• Where does the potential lie?• What has to be done to actualise the potential? November 7, 2011 51

Marketing Strategy And Diversification Analysis Present New Existing Market Penetration Product and Service Markets Development New Markets Market Development Diversification November 7, 2011 52

Marketing Strategy And Diversification Analysis• Four possible growth strategies based on existing and new markets and products and services − Market Penetration - focuses on selling existing products and services into existing markets − Market Development - sell its existing products and services into new markets − Product Development - introduces new products and services into existing markets − Diversification – develops and markets new products and services in new markets• What approaches should the organisation take?• What are the risks?• What are the requirements? November 7, 2011 53

Organisational Capabilities To Create And SustainInnovation• Set of core capabilities within an organisation to create and sustain an innovation function• Being good at innovation means being having strong, well- developed and well-functioning capabilities in these areas• Use this as a check-list for creating and managing innovation November 7, 2011 54

Organisational Capabilities To Create And SustainInnovation Innovation Vision Creation definition, communication and realisation of a vision for innovation Innovation Innovation Strategic Planning Definition of the scope and nature of Innovation in line with business strategy Vision, Innovation Funding and Definition of sources of funding for innovation and appropriate allocation of resources basedStrategy And Resource Allocation on prioritisationManagement Innovation Portfolio Management of the portfolio of innovation projects and activities Management Innovation Management and Management and leadership support for driving innovation activities throughout the Leadership organisation Acceptance and Tolerance of Definition of appropriate attitude towards taking creative risks Risk Taking Level and scope of collaboration and maintenance of good behaviour, processes and Innovation Collaboration and Openness practices that enable an environment of sharing, interaction and openness, fostering theOrganisation, open exchange of creative information People And Innovation Capability Development of innovation skills and performance management for employees including Culture Development defining career paths and implementing innovation training programs Innovation Organisation Roles Definition of innovation roles/organisational positions and penetration of innovation and Responsibilities activities as part of everyday work for all employees Innovation Recognition and Creating a scheme for recognising and rewarding people based on contribution to innovation Rewards Innovation Processes Integration of innovation processes within the lifecycle of innovation Innovation Frameworks and Innovation Identification and use of methodologies and tools for innovation ToolsProcess, Tools, Innovation Value Measurement of the impact from innovation through definition and use of innovation metrics and that align with business priorities Measurement Metrics Communication of Innovation Communication of the impact from innovation to the business and to external Value partners/organisations November 7, 2011 55

Innovation Organisational Capabilities - How Do YouMeasure Up? Innovation Vision Innovation Strategic Planning Innovation Funding and Resource Allocation Innovation Portfolio Management Innovation Management and Leadership Acceptance and Tolerance of Risk Taking Collaboration and Openness Innovation Capability Development Innovation Organisation Roles and Responsibilities Innovation Recognition and Rewards Innovation Processes Innovation Frameworks and Tools Innovation Value Measurement Communication of Innovation Value November 7, 2011 56

Mapping Organisational Capabilities To Dimensionsof Successful Innovation Innovation Implementation Innovation Process and Value Innovation Innovation and Operation Capability Project Management Within IT Measurement of Innovation ManagementInnovation VisionInnovation Strategic PlanningInnovation Funding andResource AllocationInnovation PortfolioManagementInnovation Management andLeadershipAcceptance and Tolerance ofRisk TakingCollaboration and OpennessInnovation CapabilityDevelopmentInnovation Organisation Rolesand ResponsibilitiesInnovation Recognition andRewardsInnovation ProcessesInnovation Frameworks andToolsInnovation Value MeasurementCommunication of InnovationValue November 7, 2011 57

Summary• The word Innovation is becoming devalued through meaningless use• Innovation is about moving ideas to appropriate completion and implementation• Innovation is about generating value• Innovation potential exists everywhere• Innovation is not just about the one big disruptive idea• Innovation is a process that can be implemented, measured and monitored• Innovation can be learned• Innovation means change so to innovate effectively you must be good at or get good at change November 7, 2011 58

Next Steps• Understand what you want to achieve from innovation and define an innovation vision• Establish a cross-functional innovation team and an innovation progamme• Measure where you are now to establish a baseline against which progress can be quantified• Develop the organisational capabilities that will make you good at innovation• Define a set of innovation metrics/KPIs and measure innovation activities• Understand your innovation strengths and weaknesses• Learn from lessons such the strengths of being good at innovation November 7, 2011 59

More Information Alan McSweeney alan@alanmcsweeney.com November 7, 2011 60

The I Word: Moving Innovation from Research and Development (R&D) to Ideation and Realisation (I&R)

by Alan McSweeney on Nov 07, 2011

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The I Word: Moving Innovation from Research and Development (R&D) to Ideation and Realisation (I&R) Presentation Transcript