A Framework for Growth Through Innovation

A Framework for Growth Through Innovation Christopher W. Miller, Ph.D., NPDP Second City Innovation Focus Founder, Innovation Focus, Inc. Past President, The Product Development and Management Association Ernst & Young Entrepreneur of the Year Award winner cwmiller@innovationfocus.com 717.394.2500

My Biases The purpose of business is to provide the goods and services that bring technology and resource into the service of humanity ̶ we get paid to do this in a meaningfully differentiated way That innovation is an essential survival skill if we are to successfully confront the challenges of the next 100 years Innovation is an innate human skill, and we are good at it That we only fail at innovation when we choose to ignore our better nature innovationfocus.com

What You Need to Help Innovation Become Reality Guts ◦ The myths ◦ The reality Knowledge ◦ Four things that make all the difference ◦ It is not about a magic bullet, it is about a few rules in your own way Culture ◦ Types of innovation leadership ◦ Innovation that transcends marketing and technology This presentation will reference data from the Product Development and Management Association’s Best Practices Research; 1989,1992, 1997, 2004. For a more detailed report go to PDMA.ORG. innovationfocus.com

Guts If it is launched onto the market, what percentage of new products and services succeed? innovationfocus.com

Guts: The Reality What percentage of new product projects succeed? 3,000 Raw Ideas Success curve for substantially new products, with success rates, idea Numbers of Ideas/Projects to launch, stable for the past 40 years and across countries (Research & Technology Management, MayJune, 1997) 300 Submitted Ideas 125 Small Projects/Patent Submissions 9 Early Stage Development Efforts 1.7 Launches 1 Success NPD Stages innovationfocus.com

Guts: How Are The Best Different? 3,000 Raw Ideas How much better Numbers of Ideas/Projects are the best from the rest? 300 Submitted Ideas 125 Small Projects/Patent Submissions 9 Early Stage Development Efforts 1.7 Launches 4 Early stage efforts 1.3 Launches 1 Success NPD Stages innovationfocus.com

Guts: The Myth of Innovation VS. Innovation Reality 1989 1995 2004 % Success 58% 59% 58% % Sales from NPs 32.6% 32.4% 28.5% % Profits from NPs 33.2% 30.6% 28.7% # of NPs over 5 years 37.5 38.5 74 Based on PDMA 2004 Comparative Practices Assessment Study; self report data from hundreds of companies who have established success metrics for their company and category. innovationfocus.com

Guts: The Myth of Innovation VS. Innovation Reality While the % of sales from new products are up by 20%, % of launches Profitability is down by 15% 50 50 40 40 IMPROVEMENTS IMPROVEMENTS 30 30 NEW LINES 20 20 LINE ADDITIONS 10 10 NEW to the WORLD IDEAS 0 1990 2004 New to the world ideas take more time and resources to develop but they do not seem to have a significantly higher failure rate. innovationfocus.com

Guts New to the World Need Shark Bait Due Diligence Technology innovationfocus.com

Guts: The Risk Profile Changes 3,000 Raw Ideas Type 2 error the danger is walking Numbers of Ideas/Projects away from a good idea too soon 300 Type 1 error The danger is launching 125 an idea that might fail 9 1.7 Launches 1 Success NPD Stages innovationfocus.com

Guts: Is New Risky? New Emerging Meeting Due Current Needs Diligence Using Current New Capabilities & Emerging Technologies innovationfocus.com

Guts What kind of Chocolate does this make you think of? innovationfocus.com

Guts: Once Upon a Time innovationfocus.com

Knowledge That Will Help Innovation Become Reality Guts ◦ The myths ◦ The reality Knowledge ◦ Four things that make all the difference ◦ It is not about a magic bullet, it is about a few rules in your own way Culture ◦ Types of innovation leadership ◦ Innovation that transcends marketing and technology This presentation will reference data from the Product Development and Management Association’s Best Practices Research; 1989,1992, 1997, 2004. For a more detailed report go to PDMA.ORG. innovationfocus.com

Knowledge Four things that make all the difference • Customercentric • Strategy driven • Agreed to process that can be measured, repeated and improved • Multifunctional team innovationfocus.com

Knowledge What are the one or two factors causing failure? N=325 1. Weak process 2. Misunderstanding the customer 3. Poor resource management 4. Insufficient funding 5. Lack of senior/middle management support 6. Offering insufficient customer value 7. Lack of clear objectives/strategy innovationfocus.com

Knowledge Be customercentric … they are talking, can you hear? Brief Personal Description: Andrew owns a excavating business. He’s been running the business for 9 years. The business used to be bigger, and he had a lot of equipment, but then he got married, had kids, and they took more priority. He didn’t want to worry about chasing after money and worry about the equipment. Now he is on most job sites with less stress. His company name is DNA, short for “do nothing all day.” He owns all his own equipment and runs it himself. He is a selfdescribed average or below average maintenance person who sees his equipment as equipment, not as a beauty contest. Favorite piece of equipment is his grill. Key Quote: “How fanatical can you get, it’s a piece of machinery.” Other Observations/Quotes: • His equipment is his livelihood but not his life. He doesn’t spend all his time cleaning everything. • He doesn’t care about the rust on the front of the plow. It’s not supposed to look Andrew; May 29, 2003 pretty. 5:30pm • In response to how much WD40 you use, “I like to over do it. Preventative maintenance is well worth the money. I’d rather spend a $1.29 for a can than Segment Descriptor – Demographics: $5000 for a new piston. I don’t’ have a rule of thumb but I use a whole can.” • Family priority in business Compelling needs: • Feels his employees/contractors don’t care to take care of • Winterizer for parts in the elements in the winter his equipment • Something to breakup dirt buildup and is easy to use • Sees his equipment as a means to an end, but not a showcase • Multipurpose product that works for everything • A product that helps work during all seasons—hot & cold innovationfocus.com

Knowledge: Expressing The Obvious… “…what if we put it in a bug spray fogger…” A Case New Holland engineer in a WD40 brainstorming exercise One of 8 new products launched out of a modest effort with an innovation team of 2.5 people innovationfocus.com

Knowledge: Be Strategy Driven Profits will come from newtotheworld ideas that significantly impact the customer Miles & Snow Strategy Types • 32% Firsttomarket (down, not significantly) • 37% Fastfollower (up from 27% in 1995) • 23% Niche strategies (down from 30%) • 8% Reactive (down, not significant) Note: Success rates do not appear to vary based on strategic approach Can you describe your strategic approach to innovation management? Based on PDMA and 2004 Comparative Practices Assessment Studies innovationfocus.com

Knowledge: Make Innovation Content a Part of Your Strategic Discussion Strategy Should Provide Direction Finding Problems Worth Solving • Hunting for Hunting Grounds • Charter where you want to go • Scout for possible problems to solve • Decide which are your problems to solve • Chart a path studded with tangible projects and products Fiskars® Lawn and Garden thought ahead: • Hunted and found 4 new business areas • Focused and funded 1 • Have launched 3 new lines in ecofriendly: • rain barrels • ecopots (made from renewable plant based materials) • weeders (pesticide free) • Stay tuned, more to come… innovationfocus.com

Knowledge: Make Innovation Content a Part of Your Strategic Discussion A Simple Innovation Audit Success Factors Rate 1 to 5, 5 is good – we do this, 1 is bad – we don’t do this. 1. Connected to strategy, solid upfront homework – to define the product and justify the project 2. Voice of the customer – a slavelike dedication to the market and customer inputs throughout the project 3. Product advantage – differentiated, unique benefits, superior value for the customer 4. Sharp, stable and early product definition – before development begins 5. A well planned, adequately resourced and proficiently executed launch 6. Tough go/kill decision points or gates – funnels not tunnels 7. Accountable, dedicated, supported crossfunctional teams with strong leaders 8. An international orientation – international teams, multicountry market research & global or “glocal” products Success Blockers Rate 1 to 5, 5 is good – this does not describe us , 1 is bad – this is us. 1. Ignorance: our people simply don’t know what should be done in a wellexecuted project 2. Lack of skills: we don’t know how to do the key tasks and we underestimate what’s involved in these tasks 3. Faulty or missapplied NP process: missing key elements, bureaucratic, overapplied 4. Too confident: we already know the answers 5. A lack of discipline: no leadership 6. Big hurry: we are in a rush so we cut corners 7. Gridlock: too many projects and not enough resources to get the job done right innovationfocus.com

Knowledge Companies who have an agreedto process succeed more often. Phases Included in NPD Process Best Average Worst 1. Idea creation 38% 19% 12% 2. Early stage idea screening 54% 31% 15% 3. Early stage market assessment 55% 36% 35% 4. Early stage technical assessment 64% 44% 23% 5. Preliminary operational review 29% 21% 12% 6. Market research 38% 17% 8% 7. Concept testing 32% 27% 15% 8. Value analysis 38% 17% 4% 9. Financial review 57% 26% 23% 10. Design & development 70% 59% 24% 11. Product testing (prebeta) 77% 56% 29% 12. Customer testing 70% 52% 24% 13. Test market/sales experiments 42% 27% 10% 14. Trial production 52% 44% 20% 15. Prelaunch business analysis 52% 28% 16% 16. Production/operational startup 68% 57% 35% 17. Market launch 66% 36% 24% 18. Post launch review process 45% 22% 8% Product Development Institute, 2003 innovationfocus.com

Knowledge s Multifunctional/ ie ar crossfunctional nd team creativity is ou t B enhanced by ec oj Pr constraints. • Team • Charter innovationfocus.com

Knowledge th About every 8 team will test, and perhaps escape from, the limits you have set. Savor The Rebellion Professor Gina O’Connor Radical Innovation. innovationfocus.com

What You Need to Help Innovation Become Reality Guts ◦ The myths ◦ The reality Knowledge ◦ Four things that make all the difference ◦ It is not about a magic bullet, it is about a few rules in your own way Culture ◦ Types of innovation leadership ◦ Innovation that transcends marketing and technology This presentation will reference data from the Product Development and Management Association’s Best Practices Research; 1989,1992, 1997, 2004. For a more detailed report go to PDMA.ORG. innovationfocus.com

Culture: Setting The Stage for Everyday Innovation Innovation is closely held by a few experts Result: Companies desire creative approaches but stifle it in daily practices. Creative skills lapse. Creativity happens in a vacuum, using tired formulaic methods. Everyone studies customer segments. Few, invite customers to cocreate with them. Result: Data trumps insight. Dry analysis fails to compel action. Killer ideas are rare. Idea killers: Dime a dozen Result: Good ideas die. Everyone’s afraid to slaughter sacred cows to make room for change. Openness in addressing legitimate concerns is stifled. Dissent is not diffused. Cynicism takes over. Rinse and repeat! innovationfocus.com

Culture Leadership: Innovation requires practice and a desire to be good at it. Soy BioDiesel Several years ago, Crystal Flash Energy President Tom Fehsenfeld announced the company’s vision to achieve 30 percent of its profits from alternative energy sources. In the summer of 2003 this vision began to materialize when Crystal Flash Energy launched its first soy biodiesel product, Soy BioDiesel XC. Today, Crystal Flash Energy continues its leadership in alternative energy and is proud to call itself West Michigan’s largest biodiesel distributor. Tom Fehsenfeld, Crystal Flash offers President, Crystal Flash Energy several premium “Is this worth Crystal Flash Soy BioDiesel products are available at biodiesel choices. Including Soy the rest of your the pump or delivered directly to your fleet vehicles and equipment. Soy BioDiesel is offered in the BioDiesel Plus and Soy BioDiesel XC. working life?” following blends: • B5 (5 percent Soy BioDiesel) • B20 (20 percent Soy BioDiesel) In the past several years, Crystal Flash customers • B100 (neat or 100 percent Soy BioDiesel) have shown an increasingly strong affinity for Soy To determine which blend is most appropriate for BioDiesel products. your vehicles or equipment… innovationfocus.com

Knowledge: Categories of Innovation Leadership Customer benefits •Tangible •Intangible Packaging We can do •Visual anything, •Utility but we Technology can’t do •Internal Power everything. •Open Innovation Business Model Harley •Mode of Commerce •Systems •Creativity Every product must meet minimal category standards in all of these and excel in one or two. innovationfocus.com

Knowledge: Looking Forward Innovation Pressure Points The full lifecycle of the product opportunity innovationfocus.com

Knowledge: Innovation Pressure Points A need exists somewhere that can be identified The full lifecycle of the product opportunity A technology exists somewhere in the world that can meet the need innovationfocus.com

Knowledge: Innovation Pressure Points A need exists somewhere that An idea emerges can be identified that is accepted by the organization The full lifecycle of the product opportunity A technology exists somewhere in the world that can meet the need innovationfocus.com

Knowledge: Innovation Pressure Points IDEA A need exists somewhere that can be identified Commercialization ++ $$$$$ Development $$$ The full lifecycle of the A technology exists product opportunity somewhere in the world that can meet the need innovationfocus.com

Knowledge: Innovation Pressure Points IDEA 1. Get further front; half your product’s potential useful life is here innovationfocus.com

Knowledge: Innovation Pressure Points 2. Use due diligence IDEA tools to extend your product’s lifecycle 1. Get further front; half your product’s potential useful life is here innovationfocus.com

Knowledge: Innovation Pressure Points 2. Use due diligence IDEA tools to extend your product’s lifecycle 1. Get further front; half your product’s potential useful life is here 3. Don’t over engineer your innovation/development processes innovationfocus.com

Knowledge: Innovation Pressure Points 2. Use due diligence IDEA tools to extend your product’s lifecycle 1. Get further front; half your product’s potential useful life is here 3. Don’t over engineer your innovation/development processes 4. Practice defensive NPD, you own every product you sell forever innovationfocus.com

And last … If not you…who? As innovators our goal is to be fearless in replacing what we do with a better way for our customer. innovationfocus.com

Resources PDMA ToolBook Series (1,2,3), Hunting for Hunting Grounds, Wiley, 2002; Getting Lightning to Strike: Ideation and Concept Generation, Christopher W. Miller, Wiley, 2004; The Voice of the Customer, Ethnography, Wiley, 2007 2003 PDMA International Conference Presentation (Cooper, Edgett & Kleinschmidt, AQPC Benchmarking Research) PDMA.ORG, The Product Development and Management Association • Please note: you can have your company data run as a comparison to the PDMA 2004 comparative practice data or by companies in your category. Also note the new data should be out in a few months. (2004 study is available for $150) • Consider NPDP Certification (New Product Development Professional) for selected team members) innovationfocus.com

Partial Client List innovationfocus.com

cwmiller@innovationfocus.com 717.394.2500 CHRISTOPHER W. MILLER, Ph.D., NPDP Biographical Sketch Christopher W. Miller is Founder of Innovation Focus, a customer research and new product discovery firm in partnership with Second City Communications. He is a past President of the Product Development and Management Association, on two nonprofit boards and a 2003 Ernst & Young Entrepreneur of the Year Award winner. Chris’s primary focus is to inspire deep customer understanding and meaningful innovation. Early in his career he was a Director with Phillips Electronics, Nurse Call & Hospital Video Systems Group. He received his Ph.D. from Case Western Reserve University where he studied the Life Long Learning patterns of technical professionals. Chris’s User Centered Design and Focused Innovation and Hunting for Hunting Grounds approaches are documented in scores of significant articles, chapters, manuals, and workbooks. Chris has been recognized for his series of Growth Forum articles for the PDMA publication Visions. He has written for Food Engineering, Concurrent Engineering, Project Management Monthly, Food Technology Intelligence and The Journal of Product and Innovation Management. He is a coauthor of Creating the Customer Connection: Anthropological/Ethnographic Needs Discovery, Chapter 8 in The PDMA Tool Book to be published by Wiley in August of 2004. Dr. Miller developed the Focused Innovation Technique™ based on highly successful personal problemsolving styles. The Focused Innovation Technique has been credited with a diverse set of service and business solutions within organizations such as American Pharmaceutical Association, Fiskar’s, Kraft, SC Johnson, AARP, Chase Banking Services, Honda, as well as DuPont, Merck, Johnson & Johnson, Kimberly Clark, Bristol Myers, AstraZenica and many others. His approach is to coach and to show teams that they can create their own fact based successful processes. innovationfocus.com

A Framework for Growth Through Innovation

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