| Most companies in the innovation game can proudly | | | | resources they require to move forward. Even a goal |
| point to their winners--those new products/services | | | | to decrease average project duration by 10 percent |
| that launched successfully and exceeded | | | | will result in quicker go/no-go decisions and better |
| expectations for revenue/profit/market share. | | | | overall resource utilization. |
| However, those same companies often express | | | | What is the best way to initiate projects |
| frustration or dissatisfaction with their overall return | | | | Historically, companies tended to take an inside-out |
| on innovation investment. | | | | approach to innovation (i.e., "let the inventors invent"). |
| "We see three common issues that create | | | | The result was that the vast majority of projects |
| dissatisfaction," says Carl Cullotta, Vice President and | | | | had little direct relation to a market need. As the |
| Principal of Frank Lynn & Associates Inc., "metrics, | | | | "market driven" buzzword took hold, many |
| project initiation and the innovation process." | | | | companies moved to the other extreme. Every |
| Smart Business asked Cullotta to share some lessons | | | | development project had to have justification from |
| learned from the firm's experience. | | | | the marketplace. This approach lost the |
| Why do even the leading innovators express | | | | "quantum-leap" advances; too many projects resulted |
| frustration with the process? | | | | in small incremental improvements in features |
| Inappropriate metrics result in misplaced expectations. | | | | benefits. |
| Even the most successful innovators should expect | | | | The most appropriate approach is a combination of |
| fewer "hits" than "misses." Misguided project initiation | | | | the above extremes. We use a benchmark of 75/25: |
| clogs the development pipeline with so many | | | | 75 percent of the projects initiated should be market |
| low-probability projects that the winners can't be | | | | driven, targeted from the outset to deliver a specific |
| funded properly. And poor process management | | | | benefit to a specific market segment. The remaining |
| sustains the ultimate losing bets in the pipeline for too | | | | 25 percent are less constrained. The inventors are |
| long. | | | | allowed to invent and look for those quantum-leap |
| You mentioned metrics. What are the most | | | | advances. |
| appropriate metrics for the development process? | | | | What improvements to the innovation process itself |
| Most companies measure innovation based on the | | | | would you suggest? |
| outputs. For example, a common benchmark | | | | A world-class innovation process requires disciplined |
| demands that 20 percent of company revenues are | | | | management by using the stagegate process. |
| generated from products/services launched in the | | | | Development projects are managed through a series |
| last three to five years. This does not measure the | | | | of stages. Each stage culminates in a review and go |
| effectiveness of the innovation process. (Even the | | | | no-go decision. Only those projects that pass through |
| poorest process can meet this revenue goal if | | | | this gate are funded to the next stage. |
| enough resources are thrown at it.) | | | | While the concept of a stage-gate process is easy to |
| The most effective metrics provide actionable | | | | envision, what separates the successful innovators |
| insights to the process of innovation. | | | | from the rest is the set of inputs used at each |
| Revenue return/dollars invested. This measure | | | | stage. Assessment of both technical and market |
| provides an indicator as to how well you are | | | | feasibility are intertwined. At each review, a |
| allocating resources. Actions derived from this metric | | | | progressively tougher set of criteria assure the |
| could include a change in the project staffing model | | | | product/service can be scaled up to support |
| or changes to the timing of the hard costs (patent | | | | commercialization, and the market opportunity is |
| application, field tests, etc.) to help lower overall | | | | there to profitably launch and commercialize the |
| project costs without affecting positive outcomes. | | | | innovation. |
| Average number of projects/innovation employee. | | | | What does it mean for the company trying to |
| Often, so many development projects are started | | | | improve its return on the innovation dollar? |
| that the staff cannot devote sufficient resources to | | | | If we look at the big picture, we find that the most |
| any to effectively move them forward. "Addition by | | | | successful innovators understand the importance of |
| subtraction" can result by limiting, or even capping, | | | | managing the process. These companies understand |
| the number of development projects allowed in the | | | | the importance of process-oriented metrics. They are |
| pipeline at any time. | | | | driven to initiate projects primarily from the "outside |
| Average project duration. Companies that struggle | | | | in." And they are disciplined in managing the low |
| with innovation have trouble saying no. The pipeline is | | | | probability opportunities out of the pipeline as soon as |
| clogged with too many projects, and the best-bet | | | | possible. |
| opportunities cannot receive the critical mass of | | | | |