Innovation Management Realizing Value 0913 1
Innovation Management Realizing Value 0913 1
Innovation Management:
Realizing The Value Of
Innovation
In a world of constantly evolving customer
expectations, heightened and disruptive competition,
more restrictive regulatory requirements, and Wall
Street s unrelenting demand for earnings growth,
organizations of all types have acknowledged the
importance of innovation to their success. Realizing
the benefits of innovation, however, requires not only
talking but walking the talk. The walk is a
systematic approach to the continuous development
and implementation of value-adding ideas to
increase competitive advantage. This systematic
approach, or Innovation Management, involves the
establishment of a cross-enterprise model,
championed by senior executive leadership.
To help jumpstart the design of your institution s
unique Innovation Management approach, this article
provides a high-level view of the what, how, and
who of creating shareholder value consistently.
Table of Contents
1. What is Innovation Management?
4. Conclusion
12
Full
Launch
Results
Management
Portfolio
Management
Pilot
Investment
Proposition
Screen
Innovation
Culture
Investment
Proposition Lite
Screen
Early
Idea
Screen
Collect
Invent
Scan
The purpose of the Innovation Strategy is to provoke creativity within certain boundaries. Note, this is not to say
that ideas which fall outside these boundaries will not be entertained; but building the case to pursue such ideas
requires further justification.
Value-adding ideas are not limited to new products or services, nor are they the domain of only R&D. They can
include, for example, new and/or renewed business models, internal processes, customer interactions, branding &
marketing campaigns, operating models, supplier relationships, and partnerships.
Success measures of an innovation management program should be in keeping with the organization's innovation
strategy and any specific innovation objectives. They should be refreshed as the enterprise s overall strategy and
objectives change in response to new and evolving challenges and opportunities. Further, the success measures
should be focused on the value delivered by the Innovation Management effort, as opposed to the number of
ideas.
Ideation
Once the strategy and objectives for the organizations foray into innovation is defined and communicated across
the enterprise, the second phase is Ideation, which is broken down into three steps. The first step in Ideation is
Scanning, which is
Looking outside your organizations four walls at such things as customer needs / dis-satisfiers, competitor
moves, new technology, and regulatory changes
Peeling back the onion to understand the drivers of such things as enterprise's performance gaps, high costs,
and operating efficiencies
Scanning may be the purview of a dedicated group at the enterprise, business unit, and/or regional levels,
dependent upon the Innovation Management operating model the organization has adopted (see the explanation
of the "Innovation Management Office in the below section, Who Contributes to and Manages Innovation?).
Scanning also may be done by individual employees. At this level, however, scanning is less likely to be a deliberate
activity, rather the accumulation of insights drawn from the every day at work, home, and play.
The second step in Ideation is Invention. Invention is the act of formulating ideas that potentially add value and
create sustainable competitive advantage. Invention may occur in the following ways:
Within dedicated groups or ad hoc collections of experts (internal and/or external) focused on a particular issue
or area of opportunity
With groups of people, the invention approach could range from a very open-ended brainstorming session to
a targeted, highly-facilitated, collaborative, interactive working session
Multiple techniques are available to use in both the more open-ended and targeted forums, e.g., Six Thinking
Hats and Lateral Thinking(3)
Through informal groups and/or social networks leveraging collaboration and knowledge management
application
At the individual level
The third and final Ideation step is Collection or the gathering of ideas into a single repository. The idea repository
can range from something as simple as a Microsoft Excel spreadsheet to an idea management tool or component
of a larger collaboration and knowledge management application.
Selection
The third phase of the process is ultimately about identifying and approving a select few ideas to enter the
Implementation phase. Selection is a gated process through which an increasingly smaller number of ideas pass,
based on an increasingly tighter set of criteria applied against an increasingly more detailed idea. The minimum
number of gates is three. The first gate is a screening of the early stage ideas, or what might be more realistically
called concepts, in the repository. The concepts are qualified based on a high-level set of criteria such as the below:
Strategic fit - the degree to which the idea is consistent with the company's direction/vision and creates a
competitive advantage that is difficult to copy or surpass
Financial impact - the degree to which the idea will have a net financial benefit
Ability to execute - the degree to which resources and skills are available and the right technology is in place, i.e.,
leverages the organizations existing assets
Organizational impact - the degree to which the idea requires change in roles & responsibilities, capabilities, and
culture
Hewlett Packard ( HP ), for example, typically receives 1,000 idea submissions on a yearly basis from a variety of
sources, both internal and external (see the below section, Who Contributes to and Manages Innovation?). Through
HP s first gate, which is a set of five key questions consistent with the criteria above, approximately 200 of these
submissions are qualified and move to the next gate. Once an idea goes through the qualification process, which is
(4)
done in 30 days or less, HP s Innovation Program Office provides feedback to the idea originator.
Ideas that pass the test of the first gate are fleshed out into what this writer calls Investment Proposition Lites,
which outline the following:
The Investment Proposition Lites ( IVP Lites ) are screened against a more detailed set of sub-criteria within the four
major categories listed above. The IVP Lites that make it through the second gate are evolved into Investment
Propositions, which is an elaboration or detailing of the elements of the IVP Lite. Additional details include, for
example, the below:
IVPs are put through a third gate which is an even more detailed or tighter set of sub-criteria of the four major
categories. The number of ideas that pass through the third gate is relatively small. According to Gartner,
(5)
experience shows that typically 2% to 10% of ideas submitted have real promise. Should more than 10% of the
submitted ideas make it through the final gate, an organization would be wise to revisit their selection criteria, as
well as the rigor with which the IVP Lites and IVPs are developed.
Implementation
Not all selected ideas necessarily go through the Implementation phase at once or at all. The timing of a selected
idea s move into the Implementation phase is based on its relative priority which is assigned by the Innovation
Portfolio Manager (see section below for details on Value Realization).
Based on the type of idea, the Implementation phase could be a big bang or two or more sub-phases. For
example, new / renewed products, services, and customer interactions may go first through a small pilot; followed
by a larger pilot, should the smaller pilot prove promising; and then finally a full rollout, should the larger pilot meet
the expectations set in the Investment Proposition. Even new / renewed business processes, operating models, and
strategic partnerships can be implemented through a series of phases that increasingly test the worthiness of the
idea to reach its full potential.
Value Realization
The final phase of the Innovation Management process is where the proverbial rubber meets the road. Value
Realization ultimately is about the optimization of the organizations investment in innovation; and is made up of
two major functions - Results Management and Portfolio Management.
Results Management ultimately is focused on ensuring the Ideas being implemented capture the value expected
within the estimated timeframe, and involves
Measuring, tracking, and communicating to the Portfolio Manager and key stakeholders the progress and
results of the idea against the timeline of estimated benefits and costs outlined in the IVP
Identifying and sizing of the support needed to shore up meaningful sub-performance and uncovered risks
Working with the Portfolio Manager and key stakeholders to determine whether or not the sub-performing
ideas should continue with the additional support needed and/or as currently scoped
Innovation Portfolio Management is not unlike what a mutual fund manager does, which is to maximize return on
investment. To do this, the Innovation Portfolio Manager ( IPM ) first sets the innovation investment strategy. That
is, based on the Innovation Strategy, the Manager prioritizes the ideas / IVPs that passed through the third gate.
Second, the IPM chooses when to invest. This is to say, based on the performance of the ideas being implemented
and/or the potential of new competing IVPs, the IPM may cut off or reduce funding of some ideas to make way for
investment in better ideas. The IPM also could increase the funding of a particular idea, should that idea, based on
its performance, have the potential to exceed expectations with additional investment. Third, the IPM
communicates the results of the Innovation Portfolio to its investors, i.e., the CXOs and possibly the Board of
Directors, depending on the materiality of the organizations investment in innovation.
Culture
At the center of the Innovation Management value ring is culture. Without all employees acknowledgment of the
importance of innovation to the health of the organization and ultimately their livelihoods, all the best Innovation
Management processes and tools in the world will not produce the necessary volume of good ideas nor ensure the
realization of the value sought.
From a leadership perspective, a commitment to innovation reveals itself in the acceptance of the following:
From an employee perspective, a strong orientation towards innovation is measured by the volume of ideas, as well
as the ratio of quality ideas. Note a quality idea does not have to be an idea that passes all three Selection gates or
screens.
As with any major organizational change, whether it is due to, for example, the re-engineering of a business
process or shift in business strategy, employing a comprehensive approach to managing the organizational change
is needed to ensure the institutionalization of an innovation culture. A successful organizational change
management effort begins with determining where the culture needs to be, assessing where the culture is today,
defining the plan to close the gaps, and diligently executing the plan. Depending on the gaps, elements of the plan
could include leadership and stakeholder alignment; change program branding and communication;
8
organizational re-design; redefined and/or new roles and responsibilities; training and education; feedback
mechanisms; and incentives, rewards, and recognition.
Selection
Results
Management
Portfolio
Management
Region N
Region 1
Employees
Business
Unit 1
Business
Unit N
IT
Other,
e.g., Finance
& HR
External
Customers
Academic &
Research
Institutions
Partners &
Suppliers
Industry
Bodies
Venture
Capitalists &
Startups
General
Public
Innovation Council
The top of the Innovation Management food chain is the Innovation Council which is composed of the enterprise s
CXOs and business unit heads. The responsibilities of the Innovation Council, with the support of the Innovation
Management Office, are as follows:
Define and refresh the Innovation Strategy, objectives, and success measures
Fund the people, process, and technology of Innovation Management, as well as the innovation portfolio
Approve IVPS, their prioritization, and recommendations of meaningful adjustments to the in-flight IVP portfolio
Communicate to the enterprise at large the Innovation Strategy, objectives, and success measures
Demonstrate consistently its commitment to Innovation Management by walking the talk
Meet with the Innovation Management Office (see below section for definition) to review progress and provide
guidance, as needed
Celebrate and reward both success and failure - with respect to the latter, recognize that getting a hit, let alone a
home run, requires many times at bat
Establish and nurture a culture of innovation across the organization
9
Scan
Activities
Invent
Optional (could be
performed by Chief
Strategy Officer,
if exists)
Contribute ideas
Mandatory
Mandatory
Collect
Selection
Mandatory or
Optional
Implementation
The IMO s involvement during the Implementation phase is related to its Value Realization
responsibilities outlined below
Value
Results
Realization Management
Establish contracts with Idea Sponsors for results per the timeline, as outlined
in IVPs
Ensure accountability of the Idea Sponsors
Measure and report actual vs. committed task completion and results
Communicate results to the Innovation Council and other key stakeholders
Recommend re-scoping or discontinuation of idea implementations that do
not meet results targets and/or are no longer relevant
Portfolio
Management
Mandatory
Based on the Innovation Strategy and objectives, prioritize the selected IVPs
and recommend to the Innovation Council those that should move into the
Implementation phase
Fund those IVPs approved with monies available in the innovation investment
pool
Credit hard benefits generated by IVPs during and after implementation; and
debit funds required for in-flight IVPs and new IVPs
Create and refresh, as needed, the Early Idea, IVP Lite, and IVP screening
criteria, with approval from the Innovation Council
Based on the actual results of in-flight IVPs and the expected results of new
IVPs ready for implementation, make in-flight IVP portfolio change
recommendations (e.g., maintain, grow, kill, or evolve) to Innovation Council
for approval
10
Note that the IMO and Investment Council can be positioned at multiple levels. Based on the size of the business
units and regions, as well as the enterprise s organizational structure and operating model, an IMO and Investment
Council may exist within each of the relevant business units or regions. If an institution chooses this federated
model, having an enterprise-level IMO and Investment Council is also recommended to optimize investments
across the organization. In the federated model, the enterprise-level IMO would perform the cross-business unit /
region IVP selection and prioritization, as well as manage the organizations overall innovation portfolio. The
enterprise-level Innovation Council would be the final approver of the IMO-selected IVPs, their prioritization, and
any innovation portfolio changes.
Ideators And Implementers
In today s dynamic, global, connected economy, organizations would do well to tap both internal and external
sources for ideas and implementation support. By expanding and diversifying their sources, the richness of the idea
pool increases; and the breadth and depth of available capabilities and assets expands.
From an internal perspective, the idea sources may include employees at large, business units, IT, and all other
areas, such as Finance and HR. From an external perspective, idea sources and implementation collaborators may
include, for example, customers, academic/research institutions, existing partners and suppliers, venture capitalists,
and the general public. According to Gartner, most organizations indicate they want to start their innovation
journey with only internal sources. Doing so allows the organization to focus first on the institutionalization of its
(6)
own innovation culture; and second on getting out the kinks of their Innovation Management processes. That
said, laying the foundation of an enterprise s Innovation Network may be done in parallel by layering co-ideation
and implementation onto existing third-party relationships, such as partners, suppliers, and industry bodies.
Mentioned earlier in the responsibilities of the IMO were the concepts of Idea Champions and Idea Sponsors. In
the words of Phillip McKinney, head of the Innovation Program Office for HP s Personal Systems Group, an Idea
Champion is the person that will stand on my desk with their hair on fire, and be as annoying as they need to be to
fight corporate inertia, to move fast, and to create and deliver the project. (7) Idea Champions can be the idea
originator or someone tapped by the Innovation Council and/or the IMO to take a selected early idea through the
remaining gates of the Selection process. An Idea Sponsor is the person that owns the implementation of the
prioritized IVP. S/he comes from the area within the enterprise that will be home to the idea, bringing the right
experience and internal relationships to implement the idea as efficiently and effectively as possible. The idea
sponsor may or may not be the same person as the Idea Champion.
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Conclusion
At the end of the day, Innovation Management is about moving beyond simply talking about innovation and the
notion that all an organization needs is a bunch of smart employees to create sustainable competitive advantage.
Continuously and optimally capturing value from innovation requires
In the words of Steve Jobs, "Innovation has nothing to do with how many R&D dollars you have. When Apple came
up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you
(8)
have, how you're led, and how much you get it." "It comes from saying no to 1,000 things to make sure we don't
(9)
get on the wrong track or try to do too much."
References
[1] Business Week, Building an Idea Factory, October 11, 2004: Quote from Paul Saffo, former research director at the Institute for the Future
[2] Michael Porter, The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, and Dominate Your Market
[3] Edward DeBono Thinking Solutions
[4] Forrester Research, Case Study: How HP Drives World-class Product Innovation, September 21, 2009
[5] Gartner, Five Pitfalls of Ideation and Best Practices for Avoiding Them, March 18, 2009
[6] Gartner, Innovation and Idea Management: Make These Decisions First, January 26, 2009
[7] Stanford Graduate School of Business, Innovation at HP: The Role of the Innovation Program Office, June 19, 2008
[8] Fortune, November 9
[9] Business Week Online, October 12, 2004
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