1. TEN QUESTIONS &
ANSWERS ABOUT HOW TO
MANAGE INNOVATION
I’ve written this short document to help leaders at established companies understand and
embrace a different management theory stack when they try to manage innovation. Its written
for big-company staff, in hopes they already know or suspect that what drives established
businesses (planning & execution) is at best secondary for innovation.
byJonahMcIntire
UpdatedSept. 2015

2. PublishedSept.2015, ByJonahMcIntire
This PresentationAnswers
These Ten QuestionsAbout
Managing Innovation
1. What do innovation managers do?
2. What characterizes an innovation team?
3. What is the lifecycle of innovations?
4. Where can and should innovation occur?
5. How does innovation change strategy?
6. How to balance innovation ambitions?
7. How to run an innovation?
8. When and how to exit innovations?
9. How to evaluate an innovation?
10.How to track the value of innovations?
Innovationdoesnotfailduetolackofcreativity,
butratherbecause ofalackofdiscipline.

3. PublishedSept.2015, ByJonahMcIntire
What do Innovation
Managers Do?
Managers of innovation should be doing mainly four things: (1) providing guidance
on how best to run innovations (i.e. from creative insight to viable business), (2)
pooling and cultivating resources, and (3) balancing the deployment of resources
across innovation ambitions, and (4) rendering innovation profit contribution
transparent and predictable.They are not the “idea generators” since creative
insights can and should occur everywhere.
Exploit
Discover
DefineHowtoInnovate HusbandResources Balance Ambitions
CreativeInsights
NewProfit
Contribution
Innovation Incubator

4. PublishedSept.2015, ByJonahMcIntire
What characterizes an
innovation team?
An innovation team should be a temporary grouping of staff seeking
to create a new business of interest, under conditions of extreme
uncertainty. An innovation team’s mission is not to build or grow
the product or service but rather to reduce the uncertainty.The
innovation team’s mission ends at the point that an investment in
the new service or product of X amount has a predictable return ofY.
An innovation team should be small enough to have no hierarchy,
and all members are full-time dedicated.The innovation team acts
with a high degree of autonomy: (1) once capitalized they manage
their own resources without external tampering, (2) they have
authority to act, (3) the team has a personal stake in its success

5. PublishedSept.2015, ByJonahMcIntire
What is the lifecycle of an innovation?
Concept Validate Scale
• Formulate a business model
worthy of investment
• Balance innovation ambitions, i.e.
selection of innovations to pursue
based on their merits and to
balance portfolio
• Identify “leap of faith” assumptions
and experiments to falsify them
• Minimize both time and expense to
exit the validation stage
• Validate the new business’s strategy
• If early versions were created, do
more of a good thing without
screwing it up
• Exit the innovation phase and simply
run the new business
• Collect ideas from all sources
• Polish ideas in to falsifiable
business models / hypotheses
• Define MVPs, candidate innovation
teams, and minimum capitalization
• Periodically balance capitalization
• Innovation team is formed, capitalized,
and works independently
• Service or products are created as
needed to achieve learning goals
• Innovation is evaluated bi-weekly using
the Investment Readiness Level:
resources assigned or cut as needed.
• Innovation team moves to next
innovation and a line-of-business
owner takes over
• The service or product is built and
deployed
• Position the new alongside the
existing in a way that enriches both
PhaseGoalWho&What

6. PublishedSept.2015, ByJonahMcIntire
Where can innovation occur?
Who is the
Customer?
How do we Obtain &
Retain Customers?
What is the Product
or Service?
How do we run the
Product or Service?
Who are our
partners?
How to structure
costs?
Resources?
Key Delivery
Channels?
How to structure
pricing?

7. PublishedSept.2015, ByJonahMcIntire
Where can innovation occur? The most certain way to fail at innovation is to assume that the only place an
innovation can occur is in the product…
Resource-led Innovations Customer-led Innovations Product-led Innovations Finance-led Innovations
Example
What new business could be
created using our experienced
staff or core assets?
Example
We want to expand in to Chinese
consumers, what do they need in
particular?
Example
Our product runs 5x faster than
competitors. What business
concepts would capitalize on this?
Example
If we changed pricing to charge
per results, how would the rest of
the business model best leverage
this?

8. PublishedSept.2015, ByJonahMcIntire
How to balance innovation
ambition?
Leaders of multi-line businesses needs to
balance their ambition to innovate, in terms of
where they innovate, how deep these
innovations are targeted, and in what timeline.
The figures below show suggested investment
split.
NewMarketNewCustomer
Existing
Customer Existing Improved New
What Is Sold
WhoBuys
Transforms or
creates markets
that don’t exist yet
“New to Us” lines of
business, but delivers
on the current brand
promise
Efficiently sell
existing stuff to
existing customers
70%
Core
Improve the
efficiency of the
current business
model
20%
10%
Adjacent
New but near
products or
clients. No
fundamental
shift in brand. Transformational
Sell new stuff to
markets never
served before and
those that may not
even yet exist.

9. PublishedSept.2015, ByJonahMcIntire
How to balance innovation
ambition?
Transformational 10%
Investment
Adjacent 20%
Core 70%
10%
6 to 12 Months
Time to Go or No-
Go Decision to Scale
20%
3 to 6 Months
70%
< 3 Months
Where to Innovate
Resource-led
25%
Customer-led
25%
Product-led
25%
Finance-led
25%

10. PublishedSept.2015, ByJonahMcIntire
Lower Cost
Higher Value
Customer’s Choice is
Restricted
3. Why Do
We Win
4. Why The Win is
Sustainable
Better Resources or Capabilities
(proprietary, higher efficiency, etc.)
We Achieved Customer Lock-In
Our Solution is Deeper
Our Solution is Broader
We Define the Market Differently, i.e.
Previously Unserved Customers
A business strategy can be defined via four questions, i.e. our strategic choices.These
questions are shown below. An innovative should impact at least one of these questions.
Interestingly, competitor’s innovations should impact your strategy. While innovating a
business, keep its business strategy clearly defined and watch for how the innovation
empowers or contradicts the strategy.
How Does the Innovation
Change Our Strategy?
2. Where Do
We Play?
1. What Are
Our Goals?
Does the Innovation Empower or Hinder this Strategy?

11. PublishedSept.2015, ByJonahMcIntire
How to Run an Innovation:
Instrument 1 of 4
An innovation is run via four key instruments.The first instrument, shown below,
overlays the business model canvas as a series of business strategy questions, shown in
logical order of how they should be resolved and according to the established
aspirations— positioning – capabilities framework.
#2- Which
Market to
Pursue? (Where
to Play)
#1- What are our Goals? (What We Want to Win)
#3- What and How We Sell?
(How to Win)
#4- What
Resources &
Activities Are
In-House?
(What We Do
Better)
#5- What
Resources &
Activities Are
Outsourced?
(What Others Do
Better)
Aspirations
PositioningCapabilities

12. PublishedSept.2015, ByJonahMcIntire
How to Run an Innovation:
Instrument 2 of 4
The second instrument is shown below in the form of a business model canvas. It
documents what the innovation’s desired end state will be. Complete this on a single
page and then compare it to the strategy from instrument #1 to ensure alignment of
strategy to business model.Then identify high-risk assumptions which must be validated
Partners Key Activities to Create
Product or Service Solution Propositions
Customer
Obtainment &
Retention
Customer Segments
Critical Resources Delivery Channels
Cost Structure Pricing

13. PublishedSept.2015, ByJonahMcIntire
How to Run an Innovation:
Instrument 3 of 4
The third instrument, shown below, is the “two week learning loop”. It formalizes
the purpose of the innovation team at any given time. The innovation team does
not build a product or service, instead they build something only so they can
measure and falsify a given assumption. Each iteration of the loop has a resource
outlay, decided up-front, to achieve a learning milestone.
Identify Assumptions
Measure to Falsify
Build to Measure
2 Week
Learning Loop
 Vanity metrics are the Achilles's Heel of
the learning loop… these are metrics that
will look good but not actually reduce
uncertainty.
 Always strive to build the minimum
product or service needed to test. At
times this is not building at all
Callouts

14. PublishedSept.2015, ByJonahMcIntire
How to Run an Innovation:
Instrument 4 of 4
The Investment Readiness Level (IRL) instrument below provides three specific
benefits: (1) it ties together the business model canvas and the learning loop; (2) it
is Prescriptive – i.e. “what-you-need-to-do-next” guidance to moving to exit; (3) it
enables better mentoring: the IRL provides a vocabulary to discuss innovation
readiness. Each level represents a must—have hypothesis that has been verified.
4: Validate Client-Facing (Right Side) of Business Model
3: Market Sizing / Competitor Analysis
2: Problem / Opportunity Validated
1: Compelling Business Model Canvas
6: Validate Scaling Factors
5: Validate Delivery (Left Side) of Business Model
An idea…
… corresponding to real pain …
…that could be big…
…where our offer is compelling…
…and profitably delivered…
…that can grow easily

15. PublishedSept.2015, ByJonahMcIntire
When and How to Exit
Innovations
Innovations always end. A good assumption is that 70% should end within 3
months, 90% within 6 months, and 100% within 12 months. Innovations end when
uncertainty of the business is low enough that a go / no-go decision can be made
about building & scaling it.
Innovations must be exited quickly for both intrinsic and extrinsic reasons.
Extrinsically, the innovation process is a resource drain that has lower net
expected return if prolonged. All evidence is that small incremental innovations
deliver better total returns than protracted ones. Intrinsically, innovation is about a
learning cycle applied to the uncertainty of a new business model.The longer that
takes to finish, the more the original market assumptions will have changed.
Innovations can be exited as followed:
1. They no longer merit exploration (because of something that was learned).This is
a net loss on invested capital.
2. They demonstrate viable businesses but not as attractive as alternate uses of
resources.Therefore, they are on hold or spun-off.This is either a net loss on
invested capital, or a one-off return that may yield ROIC profit.
3. They demonstrate viable businesses that are also attractive uses of scarce
resources.Therefore, they (should) get funded and become parts of the core
business.This should yield a profit on invested capital.
70% likelihood
30% likelihood
10% likelihood

16. PublishedSept.2015, ByJonahMcIntire
How to Evaluate an
Innovation?
Forget average return % and downside
risk: focus on maximum upside potential
20x
1x
Most people without start-up, angel, or venture capital experience
mistakenly evaluate innovations by a blended average return rate.
For example, they assume that an innovative business that has a
small chance of losing money and should produce a profit of 10%
across a broad range of what-if scenarios would be attractive.
Experience with funding innovations (and especially start-ups) has
demonstrated that its better to focus on maximum upside potential.
This is because (1) the downside potential has a strict and obvious
limit because we cannot lose more than 100% of the investment, (2)
it has proven more effective to assume that no one can know how
good or bad a new business will perform… its better to not even
waste the time to evaluate “average” outcomes. Spend precious time
and resources evaluating maximum potential upside and ignore the
cloudy partial-success scenarios in the middle.
Taking a note from angels and venture funds, a good innovation
presents a 20x to 30x upside potential for any $1 invested.

17. PublishedSept.2015, ByJonahMcIntire
How to Evaluate Scalability?
In addition to maximum upside
potential, also assess the ease or
cost of scaling up. To assess scale-
up ease and cost, ask what
resource the innovation needs, but
doesn’t have today, in order to
double in size. This is a left-side-of-
the-canvas question, referring to
internal and external resources.
Most innovative businesses will
have one or two bottlenecked
resources that act as their scaling
factor, effectively limiting the ease
and expense of growing. The
scaling factors tend to fall in to
discreet categories, as shown on
the left. More attractive categories
are at the bottom, and less
attractive at the top.

18. PublishedSept.2015, ByJonahMcIntire
How to Track the Value of
the Innovation?
Innovations provide soft benefits. But their direct, quantifiable ROI should be
compelling.The three categories below show how the profit from individual
innovations are evaluated. Overall value from innovation is then judged by its
ROIC = (total profit contribution from innovations over 12 months – Innovation
total budget) / (Innovation total budget)
Adjacent innovations deliver “new
to us” lines of business either
through product & service
extensions or new but nearby
customers. The value is from new
profit contribution or market share
in situations where profit is traded
for market share.
Transformational innovations create
entire new markets, or bring the
company in to markets their current
brand does not address. The value is
from new profit contribution or
market share in situations where
profit is traded for market share.
Core innovations improve the ability
to sell existing products or services to
existing customers or customer
segments. Their value is either in
efficiency (same revenue for less cost),
or top line revenue growth.
Core Innovations Adjacent Innovations Transformational Innovations
ReportedValue = (Profit Margin Increase
X Impacted Revenue from Last 12
Months) + (Increased Revenue from Last
12 MonthsX Average Profit Margin)
ReportedValue = (Revenue from
Products, Services, or Clients Not
Existing 12 Months Ago X Average Profit
Margin)
ReportedValue = (Revenue from Markets
Not Entered or Existing 12 Months Ago X
Average Profit Margin)

19. PublishedSept.2015, ByJonahMcIntire
Innovation Challenge Best Management Approach Publication, Author, & Year
How to organize innovation teams within established companies Dedicated teams with autonomy & authority Innovators Dilemma - Clayton Christensen - 1997
What is an innovation? A new potential business with high uncertainty Lean Startup – Eric Ries - 2011
What should a team do to drive an innovation forward? Fast cycles of building something that will generate data
needed to verify assumptions, hence lowering uncertainty
Lean Startup – Eric Ries - 2011
What are the logical stages for an innovation as it matures? Verify Market, Verify Solution, Scale Startup Pyramid – Sean Ellis – 2006
4 Steps to Epiphany- Steve Blank – 2005
Nail It Then Scale It – Nathan Furr – 2011
Lean Startup – Eric Ries - 2011
Running Lean – Ash Maurya - 2012
Where can and should innovations occur? Innovate the business model, not the product Business Model Generation - Alexander
Osterwalder and Yves Pigneur – 2010
Ten Types of Innovation – Doblin - 2013
How to assess the cost and ease of growth if successful? Find the resource that must be acquired for incremental
growth
Scaling Factors– Jonah McIntire, 2015
What Expertise Lies Behind Good Innovation Management?

20. PublishedSept.2015, ByJonahMcIntire
Innovation Challenge Best Management Approach Publication, Author, & Year
How to align technical development with business value? Agile Software Development Many sources – 2001 and onward
How to assess the maturity of an innovation and when to
abandon or begin scaling it?
Verify a sequence of logical business hypotheses that must
be met before a business could be predicted to succeed
Investment Readiness Level – Steve Blank - 2013
How to balance the ambitions (and hence scope) of innovations? Innovation Ambitions Matrix HBR Article - Bansi Nagji & Geoff Tuff - 2012
How to Align Strategy with Business Models? Document the strategy first, in terms of aspirations–
positioning – capabilities, and then align to the business
model. The strategy answers:
1. What are the goals
2. What market to pursue
3. What and how to sell
4. What to keep in house
5. What to get via partners
Playing to Win: How Strategy Really Works,-- A.G.
Lafley & Roger L. Martin – 2013
Strategy and the Business Model – Mihai Ionescu
(https://www.linkedin.com/pulse/strategy-
business-model-mihai-ionescu)
What Expertise Lies Behind Good Innovation Management?