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How to develop and implement an Innovation Decision Making Approach to double the Business Value of the existing Innovation Portfolio? ...

How to develop and implement an Innovation Decision Making Approach to double the Business Value of the existing Innovation Portfolio?
How to define and use clear criteria for decision making process on Program and Portfolio level?
How to develop a Innovation Business Case reflecting the right decision making process?
How to manage the high sensitive value criteria successfully?

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Innovation vale management an introduction 2013 slide share Presentation Transcript

  • 1. Business Innovation Value Management How to create, develop and capture new business value? November 2013 Inpaqt Confidential and Proprietary
  • 2. Object 3 Contents Understanding the complexity §Business Innovation Framework Innovation Value Management New Busioess Models Growth Strategy §Approach – Process Visualization §Lifecycle of Innovation §Service Offerings to Accelerate Innovation Operating Model Innovation §Appendices Service Offerings • References • Inpaqt Confidential and Proprietary • About .... 2
  • 3. Our understanding of the difficulties to ensure the Value creation, development and capturing for Innovation in a complex and uncertain environment How we can double the Value of the existing Innovation Portfolio? SITUATION CHALLENGE § The key characteristics of Innovation are high level of uncertainty in technology and markets, complex decision making for innovation program leaders and the board members. § Decision makers for Innovation Programs and Portfolio urge for better decision supporting tools on program and portfolio level. § Traditional business case approach for future value calculation doesn’t support the decision makers. § Once a business case is approved in the start of the innovation program, it isn’t used in the next steps of the innovation process to take the complex decisions needed. § The majority of the Innovation Program delay in time compared to the original Business Case Inpaqt Confidential and Proprietary § Once a Innovation Program is started a need for a more dynamic Track & Trace tool regarding the performance of the program is required. The lack of Speed of Innovation the one of the most critical business case “killers”. § Due to the complexity of the decision making process and portfolio management, building internal competences is vital for sustainable success. ? KEY QUESTIONS How to develop and implement an Innovation Decision Making Approach to double the Business Value of the existing Innovation Portfolio? • How to define and use clear criteria for decision making process on Program and Portfolio level?How to develop a Innovation Business Case reflecting the right decision making process? How to manage the high sensitive value criteria successfully? • KEY SERVICES Business Innovation Value Management § Portfolio Management § Speed of Innovation & Program Management. § Innovation Business Case, Management, Tooling & Training §
  • 4. Innovation Value Management is the financial reflection of our business innovation framework (designing & testing of Value Hypothesis) in terms of Future Value: NPV, IRR and Payback Time. DESIGN THE FUTURE VALUE PROPOSITION I. Growth Strategy Identifies where to allocate organizational resources for future return on investments. Development of strategic scenarios to provide direction for the long-term growth strategy. II. New Business Models New Busioess Models TEST HOW TO MANAGE THE FUTURE VALUE IV. Innovation Value Management To maximize the outcome of your innovation efforts, proper innovation management is imperative; i.e. portfolio mgt, Speed of Innovation & Program mgt, Codevelopment & Partnership mgt, Innovation BC mgt Inpaqt Confidential and Proprietary Innovation Value Management Growth Strategy A business model describes the rationale of how an organization creates, delivers, and captures value. We help to develop effective, game-changing business models. DESIGN HOW TO CAPITALIZE ON IT Operating Model Innovation III. SOM Innovation Defines how an organization aligns its assets and capabilities to deliver the future value proposition. Detailed design of the required changes to the current organization. DESIGN HOW TO DELIVER IT
  • 5. Entrepreneurial Innovation means coping with uncertainty in all dimensions and therefor many iterations in redesign of the four dimensions Approach – Process Visualization of Entrepreneurial Innovation New Busioess Models Operating Model Innovation Operating Model Innovation New Busio ess Mode ls Growth Strategy New Busioess Models Operating Model Innovation Innov at Manag ion Value emen t Innov at Manag ion Va lue emen t Operating Model Innovation Growth Strategy Growth Strate gy Growth Strategy Innovation Value Management Innov ati Manag on Va lue emen t Innovation Value Management Operating Model Innovation Growth Strate gy New Busioess Models Growth Strategy New Busioess Models Innovation Value Mana geme nt New Busioess Models Innovation Value Management Operat Innov ing Model ation New Busioess Models Ne w Bu Models sioess GrOp owth at er Stra teg Innov ing Model ation y Innovation Value Management te gy Ne w Bu Models sioess Oper at Innov ing Model ation Gr ow th Stra Innovation Value Management te gy l Opera ting Mode Innovation Grow th Stra l Opera ting Mode Innovation Innovation Value Management Growth Strategy New Bu Mo de sio es s ls UNCERTAINTY / RISKS / PATTERNS / INSIGHTS CLARITY / FOCUS THE FUTURE VALUE PROPOSITION HOW TO CAPITALIZE ON IT HOW TO DELIVER IT Source: Adapted from Damien Newman – Central Inc, Inpaqt Confidential and Proprietary HOW TO MANAGE THE FUTURE VALUE
  • 6. Managerial innovation means that less dimensions requires redesign along the way and the process of innovation becomes more manageable and standardized at the end of the process Approach – Process Visualization of Manag erial Innovation New Busioess Models Growth Strategy Innovation Value Management UNCERTAINTY / RISKS / PATTERNS / INSIGHTS Operating Model Innovation New Busioess Models Growth Strategy Operating Model Innovation Growth Strategy Operating Model Innovation Innovation Value Management Operating Model Innovation Innovation Value Management Operating Model Innovation Innovation Value Management Innovation Value Management Innovation Value Management Growth Strategy Growth Strategy New Busioess Models New Busioess Models Growth Strategy Operating Model Innovation New Busioess Models New Busioess Models New Busioess Models Growth Strategy Innovation Value Management Operating Model Innovation New Busioess Models Innovation Value Management Growth Strategy CLARITY / FOCUS THE FUTURE VALUE PROPOSITION HOW TO CAPITALIZE ON IT HOW TO DELIVER IT Source: Adapted from Damien Newman – Central Inc, Inpaqt Confidential and Proprietary HOW TO MANAGE THE FUTURE VALUE Operating Model Innovation
  • 7. Managing the complexity and uncertainty means understanding the lifecycle of Innovation and knowing which risks and uncertainties are sensitive for Future Value Life Cycle of Innovation Reality is often different Ideal Life Cycle of Innovation IDEAL SCENARIO Accumulated Cashflow ket Mar nties rtai Unce MARKET INTRODUCTION § In an ideal scenario, an idea quickly transforms into a new product, without excessively high investments. New products are successfully introduced into the market, which, in turn, reach break-even fast. § Key financial ratio’s to measure success of Innovation are NPV, IIR and Payback Time § Key drivers for NPV are Time to Market (TTM), Investments, Income growth and Risk/Interest § The innovation cycle faces technical risks and market uncertainties Time nica Tech s Risk l BREAK EVEN § Main causes for loosing Value: taking too much time to perfect products instead of good enough, not having a launching customer, lack of IP protection, lacking solid market insights, not involving (e.g.) customers, suppliers or other third parties, due to matters taking longer, higher investments are required which push back the break-even point. Also the growth curve is likely to slope down due to missing market momentum. § Key Insight you need is: Which risks, uncertainties are most sensitive to impact the Future Value § Source: Adapted from Damien Newman – Central Inc. Inpaqt Confidential and Proprietary
  • 8. Successfully managing the Future Value requires to build up the right capabilities our having access to services offering the requested functionalities S ervice Offering s to accelerate Innovation Value Manag em ent Full Outsourced Services Full Self Capable Innovation Portfolio “Value Doubler” Portfolio Management Innovation Portfolio - Building the capability Portfolio Future Value Assessment Innovation Program Management Acceleration Speed of Innovation & Progr. Mgt. Speed of Innovation - Building the capability Speed of Innovation - Consulting Outcome PORTFOLIO FUTURE VALUE CERTAINTY INCREASE PROGRAM FUTURE VALUE CERTAINTY INCREASE One Innovation Program NPV Acceleration Innovation Business Case Facilitating user community Certification Innovation BC Training 101 IMS License & tool readiness Current Portfolio Inpaqt Confidential and Proprietary FUTURE VALUE MANAGEMENT CAPABILITY
  • 9. Service Offering Details Inpaqt Confidential and Proprietary
  • 10. Innovation Business Case Training 101 How build and manage business case in Innovation Dynamics? Business Case Training 101 Objectives § Understand the Lifecycle of Innovation Method § Day 1: getting started with the base line BC: § Understand and execute building a base line business case using the tool ©IMS ü Client Case Introduction § Develop different business case scenario’s for your own project ü New case creation walkthrough base on prepared case information § Simulate for each scenario improvement on NPV, IRR and Payback Time ü Get used working with the tool ©IMS ü BC introduction - base line ü Speed of Innovation – Introduction ü Q&A Output § Actual Business Case for your own Innovation Project § Different business case scenario’s § NPV-Reports for each executed simulation § Capability to use ©IMS at initial level § § Day 2: advanced BC understanding: ü Collective Case Introduction ü Sensitivity Analysis – introduction ü Execute sensitivity analysis - Group work ü Acceleration of the BC – Report out ü Portfolio Management – Introduction ü Q&A ü Day 3: advanced Portfolio Management (OPTIONAL) Inpaqt Confidential and Proprietary
  • 11. In order to analyze different business case scenario’s the Sensitivity Analysis based on Monte Carlo Simulation method can be applied in complex and uncertain environment Innovation Business Case – Method: Sensitivity Analysis based on Monte Carlo Simulation What is it § The Innovation Business Case Method is based upon Discounted Cash Flow (DCF) models, which help managers ask the right questions when judging projects and make better-founded decisions in complex and high uncertainty environment. We feel that a manager’s toolbox is not complete without this model and should be used throughout the life cycle of a product. § Free cash flow will fluctuate in the course of the project due to technical risks and market uncertainties. There are a number of possible scenarios, each with its own specific net present value and likelihood of occurring. How to apply it § In de Innovation Lifecycle many options can create value, but they usually also cost money. Decision diagrams are a good way to estimate the value of an option. When they are set against the costs of obtaining flexibility, gathering information and implementing the decision, one can see whether or not the option will in fact create value. § We feel that the ability to think in terms of options is an important skill and an essential element of innovative entrepreneurship. Several real options are embedded in R&D-projects § All these scenarios ought to be worked out and set against the likelihood that they may occur. This will be done using a Monte Carlo simulation. The various outcomes are presented as a distribution of NPV • Several real options are embedded in R&D-projects research and development Phase 5 Phase 4 Phase 3 Phase 2 Phase 1 § • Cash Outflows Embedded real options: •option to abandon •option to speed up •option to slow down •option to temporarily stop launch commercialisation Launch Launch Decision Decision Success of launch: •dog •average •star Cash Inflows Embedded real options: Embedded real options: •option to abandon •option to defer launch •option to expand •option to contract 8/24/2003 23 Inpaqt Confidential and Proprietary
  • 12. IMS Tool License & readiness current Portfolio How to start with IMS and be ready to manage the current Portfolio? IMS tool license & readiness current portfolio Objectives § License to operate with ©IMS tool § Able to install projects in IMS § Able to execute simulations on project basis § Install current portfolio of innovation projects § Execute different scenarios and simulation on portfolio Method § Quick scan current data model, tool, infrastructure and security. Possible reuse of data and infrastructure. § IMS Module planning and road mapping. Decision which modules are relevant and beneficial and in which order. § Business Case design and reporting. Supporting decision making process for go/no-go with IMS § Configuration and installation planning for each module. Ready to use and roll out scheme Output § Running IMS tool § Dynamic Business Case for Innovation Projects § NPV-Reports for each executed simulation § Portfolio analysis reports § Inpaqt Confidential and Proprietary § User training and coaching § Train-the-trainer workshops for key-users § Install knowledge digital platform § Annual support for optimizing IMS usages
  • 13. Benefits of the IMS tool IMS tool license & readiness current portfolio enables deep insight in portfolio in order to optimize portfolio What is it How to apply it Increasing innovation competencies and skills within an organization requires specific management. For this purpose, INPAQT has developed powerful tools in order to make this management possible. They are combined into a single software package: the Innovation Management Suite (IMS). Consisting of over 100 tools and models, IMS is dived into different management systems covering the following tools in a row: ·         Foresight & Visioning ·         Business Modeling ·         Risk and Uncertainty Analysis ·         Appreciations ·         E-learning . Portfolio Management . Road-mapping . Idea management &Stage Gate . Pipeline management INPAQT will provide you with an experienced team of managers and professionals to successfully implement innovation management within your organization. We will install and configure the innovation management tools and interconnect them with your other systems. During this process your employees will be continuously involved. They will receive a training to get familiar with new procedures and utility features. After implementation, solid innovation management has thus become a fact. • Inpaqt Confidential and Proprietary
  • 14. Life Cycle Innovation Management System – LIMS integrates all innovation value chain functions along the whole innovation life cycle Blueprint of Innovation management system as recommended by innovation management experts Innovation value chain These features are best practices and recommended by innovation experts such as Clayton Christenson of HBR and addressed by the Inpaqt’s Innovation Management Solution Generate Capture Evaluate Develop Ideation Databases Evaluation Project mngmt. Mind-map Idea Portfolio mngt. Business modelling PLM/BLM P2P advice Communities Business case Social media P2P enrichment Decision making Collaboration Private communities Contests/voting PPM Status alerts Innovation knowledge process Phases Features Support functions Source: Innovators DNA, HBR, 2008, Capgemini Consulting Inpaqt Confidential and Proprietary Workflow Dash boarding and reporting Back office integration and customisation tools Launch Road mapping
  • 15. Via an “innovation” portal you enter the landingspage where you can navigate to the different parts of LIMS LIMS landing (web) page depending on user role based access rights Inpaqt Confidential and Proprietary
  • 16. The dashboards landing page provides different views on the innovation activities from challenges and ideas uptill projects and products on the market. Inpaqt Confidential and Proprietary
  • 17. Each dashboard let you compare the status of the different innovation activities (in graph selections possible) Inpaqt Confidential and Proprietary
  • 18. LIMS supports multi disciplinary teams to work together on an captured idea In the Ideation phase an idea is captured and worked out into a full project/business plan by a multi-displinary team. Inpaqt Confidential and Proprietary
  • 19. Specific out of the box tools support the team with generation of applications up to defining the business model and refining the value proposition. Results of brainstorming using mindmapping functionality Alexander Osterwalder’s Business Model Canvas Inpaqt Confidential and Proprietary Value network showing up and downstream parties Overserved and underserved product/service attributes
  • 20. Our focus in Business Case is on the cost and value drivers, determing the critical uncertainties and risks; support the team to create new options to mitigate the uncertainties and risks. Business case Income statement Cash curve showing break even point and payback time Business Case -> Accumulated NPV Average total accumlated NPV 1.000.000 500.000 0 -500.000 -1.000.000 29-10-2015 3-9-2019 Time Tornado diagram with most important cost- and value drivers The effect of time to market on expected Net present Value Sensitivity Analysis2 -> Impact On Static NPV (Sensitivity Analysis) (Sensitivity Analysis2) On Static NPV (Sensitivity Analysis) (Sensitivity Analysis2) Duration (in quarters) -> Duration (in quarters)|Static NPV (Sensitivity Analysis2) C2 Cost-Return AnalysisDemo -> Market1 -> [MarketShare Expectation] 1,000,000 800,000 C2 Cost-Return AnalysisDemo -> ComplementaryMarket1 -> [PricePerUnit] Static NPV Impact 600,000 C2 Cost-Return AnalysisDemo -> Market1 -> [PricePerUnit] R&D1 -> Phase1 -> [Duration (in quarters)] 400,000 200,000 0 -200,000 -400,000 -600,000 2.00 R&D1 -> Phase1 -> [Out of Pocket Costs] -10.000 Inpaqt Confidential and Proprietary 0 10.000 20.000 30.000 40.000 50.000 3.00 4.00 5.00 6.00 Duration (in quarters) 7.00 8.00 9.00 10.00
  • 21. Benefits using our tool • Our integrated innovation system LIMS covers the whole innovation value chain • Support of all innovation people involved and on all levels, from the innovation team members, innovation managers up till board level. • Easy access to actual data assures that board decisions are up to date and based upon verifiable facts and input • Inpaqt LIMS software assures that innovation activities are in line with your company strategy • with LIMS from Inpaqt you can easily increases speed of innovation , innovation productivity and flexibility • Our software is customizable and modular, adjusting it to your innovation process needs and capabilities and thus helping you to improve your innovation process and capabilities over time • Open and .Net technology to easily connect with other systems and share data • Fast implementation through Agile/scrum working methods Inpaqt Confidential and Proprietary
  • 22. Example case Inpaqt Confidential and Proprietary
  • 23. Examples of reports using Innovation Business Case approach Sensitivity analysis: Discount rateNPF Sensitivity analysis BC: Tornado diagram Cost drivers Value drivers Sensitivity Analysis30 -> Impact On Static NPV (Sensitivity Analysis) Discount_Rate_WACC -> Discount_Rate_WACC|Static NPV 12.000.000 Average Sales Price Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [PriceperUnit Expectation] 10.000.000 Expected CoGS Static NPV Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [CoGS1 Expectation] Total unit sold/year Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [TotalUnitsSoldperyear Expectation] 8.000.000 6.000.000 IRR 4.000.000 2.000.000 Discount rate (WACC) 0 Quarter Basis Funnel FEI1 v2 aanpassing def. -> [Discount_Rate_WACC] -2.000.000 -25 -200.000 -100.000 0 100.000 200.000 Used DR -5 300.000 Sensitivity analysis: Sales priceNPF 15 35 55 75 Discount_Rate_WACC Impact Sensitivity analysis: CoGSNPF PriceperUnit Expectation -> PriceperUnit Expectation|Static NPV CoGS1 Expectation -> CoGS1 Expectation|Static NPV 8.000.000 20.000.000 6.000.000 10.000.000 Break even price Static NPV Static NPV 15.000.000 5.000.000 Break even CoGS 2.000.000 0 0 -5.000.000 62.500 4.000.000 82.500 102.500 122.500 PriceperUnit Expectation Inpaqt Confidential and Proprietary 142.500 162.500 -2.000.000 32.500 42.500 52.500 62.500 CoGS1 Expectation 72.500 95 115
  • 24. Case “e-bike development Basic assumption for the case: “e-bike development” Inpaqt Confidential and Proprietary
  • 25. Results of the Analysis using IMS: NPV, payback time, IRR and P&L Case: “e-bike development” Results Expected NPV (mil) Payback time (Years) 0,50 7,8 Chance on Negative NPV (%) 51 Calculated Risk (between 1 (very low) to 25 (Very high) 36 Estimated R&D for Next Year Project Description 2.748 Not Def ined Project Number Estimated Annual Revenues *IRR (%) Choose 76,89 Income Statement Revenues COGS Gross Margin Total R&D Cost EBITDA: Depreciation/amortization EBIT Tax Net Income Inpaqt Confidential and Proprietary 2013 2014 0 0 0 0 0 0 314.785 250.415 -314.785 -250.415 0 0 -314.785 -250.415 0 0 -314.785 -250.415 2015 2016 2017 2018 2019 2020 155.278 1.277.600 2.296.749 2.433.400 2.434.185 2.129.502 49.689 408.832 734.960 778.688 778.939 681.441 105.589 868.768 1.561.789 1.654.712 1.655.246 1.448.061 100.578 2.748 0 0 0 0 5.011 866.021 1.561.789 1.654.712 1.655.246 1.448.061 0 0 0 0 0 0 5.011 866.021 1.561.789 1.654.712 1.655.246 1.448.061 0 216.505 390.447 413.678 413.811 362.015 5.011 649.516 1.171.342 1.241.034 1.241.434 1.086.046
  • 26. Sensitivity analysis results using IMS: Case: “e-bike development” Sensitivity Analysis4 -> Impact On Static NPV (Sensitivity Analysis) Business Case (P) -> E-bike market -> [PriceperUnit Expectation] Business Case (P) -> E-bike market -> [TotalUnitsSoldperyear Expectation] E-bike development -> Phase1 -> [MaterialsandServices1] E-bike development -> Phase1 -> [Duration (in quarters)] Business Case (P) -> E-bike market -> [CoGS1 Expectation] -20.000 0 20.000 Impact Inpaqt Confidential and Proprietary 40.000 60.000
  • 27. Boosting Time to Market show significant increase of Value Case: “e-bike development” Duration (in quarters) -> Duration (in quarters)|Static NPV 4.000.000 Now Static NPV 2.000.000 Break even 0 -2.000.000 Increasing speed increases NPV -4.000.000 2 7 12 17 22 Duration (in quarters) Scenarios: Outsource, more resources, concurrent engineering etc Inpaqt Confidential and Proprietary 27
  • 28. Can the number sold increased by using other distribution channels? Case: “e-bike development” TotalUnitsSoldperyear Expectation -> TotalUnitsSoldperyear Expectation|Static NPV 2.000.000 Static NPV 1.000.000 0 Now -1.000.000 Break even -2.000.000 -3.000.000 -550 -50 450 950 1.450 1.950 TotalUnitsSoldperyear Expectation Inpaqt Confidential and Proprietary 2.450
  • 29. Can the cost price be lowered by deleting overserved product attributes or by lowering costprice using lean principles? Case: “e-bike development” CoGS1 Expectation -> CoGS1 Expectation|Static NPV 1.000.000 Static NPV 500.000 0 -500.000 Overserved costly attributes that can be deleted and in this way increases the value for money Price now Break even -1.000.000 -1.500.000 -2.000.000 400 900 1.400 1.900 CoGS1 Expectation Ratio Attribute realization vs Importance Bubble size represents costs and or presence of barriers Overserved:Lower costs/Other customer group Low weight Good braking Differentiator: May deliver customer excitement Comfortable posture/sitting High Well known Brand Lighting Competing price/price range Needed storage room Sportive, modern design Cycling light Range/Action radius Robust design Low No action Underserved: Qualifier, improve/0ther customer group No Noise Low High Attribute Importance Inpaqt Confidential and Proprietary
  • 30. Can the price being rised by better market segmentation or adding functionalities that doesn’t require additional investments?) using customer insights and looking at underserverd product attributes (Outcome driven innovation Case: “e-bike development” PriceperUnit Expectation -> PriceperUnit Expectation|Static NPV 3.000.000 Static NPV 2.000.000 Underserved cheap attributes that can be improved and in this way increases the value for money 1.000.000 0 -1.000.000 Now Break even -2.000.000 -3.000.000 625 1.125 1.625 2.125 2.625 3.125 3.625 PriceperUnit Expectation Ratio Attribute realization vs Importance Bubble size represents costs and or presence of barriers Overserved:Lower costs/Other customer group Low weight Good braking Differentiator: May deliver customer excitement Comfortable posture/sitting High Well known Brand Lighting Competing price/price range Needed storage room Sportive, modern design Cycling light Range/Action radius Robust design Low No action Underserved: Qualifier, improve/0ther customer group No Noise Low High Attribute Importance Inpaqt Confidential and Proprietary
  • 31. The team and contact details Inpaqt is the core of a partnership network of top skills & experiences Felix Janszen, CEO at Inpaqt b.v. M: +31 (0)6 54242341 @: felix.janszen@inpaqt.nl Koen Klokgieters, Associate Partner M: +31 (0)6 46934577 @: koen@koenklokgieters.com Inpaqt Confidential and Proprietary