“Sometimes the situation is only a problem because it is looked at in a certain way. Looked at in another way, the right course of action may be so obvious that the problem no longer exists.” Edward de Bono
The high cost and risks associated with innovation, especially more radical innovation often result in projects getting cancelled mid-stream or more frequently never getting started. This, in turn, negatively impacts a firm’s longer-term revenue and profit growth potential. Optimizing your innovation efforts will reduce surprises and increase each project’s probability of success. A number of approaches are presented based on the six tenets of the innovation process: strategic, technical, commercial, financial, operational and execution(al).
At the strategic level, all but the smallest early-stage companies should have [S1] a portfolio of innovation projects preferably covering the continuum of incremental (with their shorter timeframes) to radical product, service and business model innovations. A portfolio approach is a hedge against the risk of failure of any one project. This is the way venture capitalists invest, expecting that 1 or 2 of 10 investments hit big enough to cover the costs of the others. In addition, there should be [S2] a business plan for each project. A written business plan focuses the team on the approach and aids in the identification of potential issues. Finally, [S3] contingency plans should be developed for each critical component of a project’s plan: key parts, personnel, customers, licenses, alliances, government approvals etc.
At the technical level, a valuable approach is to [T1] design and execute many well thought out, small-scale experiments. Experiments, which could include the development of alternate approaches (often through internal competitions), prototyping (functional and/or physical), and testing of various materials or models, increase the number and range of ideas and accelerate learning. This is in contrast to the typical straight line idea to product approach. [T2] Enlisting internal and external expertise to review and constructively criticize the various technical aspects of each project, will provide an early warning of problems and risks. This can be achieved by assembling a scientific advisory board of experts and opinion leaders from industry and academia, or by employing specific consultants. It is also important to [T3] monitor direct and related industry trends through articles, news feeds, scientific journals, patent filings, and attending conferences, as well as through discussions with your network of experts.
At a commercial level and similar to the technical level, [C1] marketing experiments, and [C2] market and [C3] competitive intelligence activities should be undertaken. Marketing experiments, including focus groups, limited launches of α and β versions, and exploring multiple price points, likewise accelerate learning and the ultimate selection of a viable path to market. Keeping abreast of trends in the market and the activities of both direct and indirect competitors through news, conferences, research and the firsthand knowledge of your own field staff is vital to avoiding serious, unfavourable surprises. Identifying trigger events to monitor, carrying out scenario planning exercises and competitive war games are just a few means to heighten this awareness.
At a financial level, developing [F1] project budgets, cash flow models and resource utilization schedules (human and capital) as well as tracking project progress against them is invaluable. [F2] Sales forecast models built from a list of assumptions and even decision trees permit the calculation of risk-adjusted net present values. Although these calculations are rough estimates at best, they provide an indication of the potential and a basis for the periodic testing of the assumptions.
At the operational level, [O1] detailed project plans keep teams on track and ensure critical activities don’t fall through the cracks. A [O2] stage-gate process involving high level strategic reviews of each project at major milestones provides an opportunity to redesign, accelerate or even cancel projects (failing fast), overcoming the tendency of projects to get a life of their own. Establishing [O3] external collaborations and outsourcing activities (including the use of consultants!) is often overlooked. These third parties frequently can perform tasks more effectively and efficiently freeing up your team’s time to focus on their core strengths.
As far as execution is concerned, [E1] active project management is key, relying on the business, financial and project plans described above. Everyone is busy so providing reminders of and even assistance on tasks on or near the critical path keeps projects on track. Building a [E2] cohesive team as opposed to a group of individuals improves decision-making quality and will ensure they can work through even the toughest challenges. Finally, being prepared to [E3] pivot: a radical shift in a project focus can reap huge rewards as you identify a better market opportunity, convert a product to a service, or perhaps combine projects.
Innovation is critical to generating revenue and profit growth. Your innovation efforts involve complex projects that cost money, take time while employing valuable human and capital resources, and do not come with a guarantee of technical let alone market success. However, every step you take towards optimizing your efforts will reduce the surprises and increase your portfolio’s overall probability of success.