Abstract
“Innovation” is a term that is popular with governments but also businesses, education and research communities. It is meant to encapsulate in one way or another the recognition that in a global economy, with its societies increasingly dependent on knowledge and communication, progressing efficiency, effectiveness and appropriateness of our products, processes and systems at all levels and in all areas is key to sustaining competitiveness and meeting the challenges of the future. This paper looks at the framework necessary for an organisation to not only identify innovative ideas but also convert them into concrete business or organisational results. Innovation without the delivery capability is a waist of resources and we will take a look at the model in a practical way. To do so we will review in details all the phases in the opportunity management life cycle and understand the key tools and techniques used to deliver consistent results. A key focus will be on the project management processes which will have to be supported by the organisation, the technology (especially for tools) and the management philosophy.
Introduction
“To turn really interesting ideas and fledgling technologies into a company that can continue to innovate for years, it requires a lot of disciplines.” (Jobs, 2006, ¶1)
Discipline!, without it, innovation, creativity and breakthrough ideas goes nowhere. All organisations need to improve their innovation process, as it is the lifeblood of future revenue streams. The reality however is that most organisations, particularly SME's find it difficult to understand how innovation can be effectively managed. Research & Development (where it exists!) is often seen as the only department directly responsible for innovation and other areas of the business do not contribute. However, companies need a framework for understanding and managing innovation in order to achieve individual, product, service and process innovation to significantly improve overall business performance.
The recent report for the European Commission “Innovation Management and the Knowledge-Driven Economy” (Hearn, 2005) has identified Innovation Management Techniques (IMTs) defined as the range of tools, techniques and methodologies that support the process of innovation in firms and help them in a systematic way to meet new market challenges.
The report distinguishes between the traditional and more current approach to innovation: The traditional idea that innovation is based upon research (technology-push theory) and interaction between firms and other actors is replaced by the current social network theory of innovation, where knowledge plays a crucial role in fostering innovation.
This present paper deals less with some of these conceptual and policy related issues of innovation, but seeks to provide in a phase by phase framework an understanding of the key tools and techniques required to implement a successful opportunity management framework in an organisation. The backbone of this framework depends on strong project management competencies.
This opportunity management framework for innovation presented in this paper has been developed after analyzing different frameworks used by consulting firms and Multi National organisations. In all cases the common denominator was the ability to manage projects efficiently in order to deliver the results at all levels.
The Black Box Method
In order to understand how organisations convert rapidly and efficiently ideas into concrete results, we are using the black box method as described by the Innosupport organisation (Innosupport, page 24 -37). This method aims at understand a formal description of the transformation rules linking inputs to outputs. To do so we construct a model exhibiting behaviours that approximates what is observable from the outside of the “black box”.
Our black box model will be very simple and will basically connect 3 pieces as shown on exhibit 1;
- The ideas generation or opportunity identification
- The Black box (the framework for converting ideas)
- The business results
Exhibit 1 - Black Box Model
To understand what is inside the black box, we need to understand first, the key inputs and outputs of the model that are outside the box. These two components are the idea generation or opportunity identification and the business results.
Outside the black Box – Ideas, Opportunities
Without new ideas, there will be no new opportunity. On the other hand, not all ideas are an opportunity. Innovative companies organize the idea generation process by structuring an approach using different techniques. The European Commission Directorate - General enterprise, sponsored a study on “Innovation Management and the Knowledge Economy”. This EC study was published in 2004 and introduced 10 key Innovative Management Techniques (IMTs) typologies (EC, 2004, P 35-36).
The identification of IMTs results from a new way of thinking. It is not necessarily due to technology, but more to the capacity of firms to apply their knowledge to improve their business internally and their relationships with external actors. This is true for both large and small firms, as innovation is vital to the survival of both in a competitive, changing marketplace.
The 10 IMTs (EC, 2004, P 35-36) identified are presented in the following exhibit 2:
Exhibit 2- Top 10 IMTs typologies as per European commission
All of these techniques are described in details in the study. For our black box analysis, we assume that organisations are using at least one of these techniques to generate ideas and identify opportunities to growth. Best in class companies such as General Electrics, Motorola, Nokia and others are actually using many of them at all levels of their company. The more techniques you use, the more ideas gets generated.
Outside the black Box – Business results
Using any of the mentioned techniques to generate improvement ideas is great but at the end of the day we need to deliver results to our shareholders, to our customers and to our employees. From a shareholder perspective, innovation needs to translate into measurable numbers. Building on the model describe in a presentation called “Measuring the business value of projects” (Upland Consulting, 2002), we link directly the project drivers with the actual Profit and Loss statement lines as shown on exhibit 3.
Exhibit 3- P &L linkage with project drivers
By doing so, we can identify which innovation management techniques should be used in order to support the company strategy. For example, if a company strategy is to growth rapidly by developing new products, they should emphasize methodologies and tools from the IMTs No 2, 8 and 9. Bottom line, shareholders need to see the connection between investment in innovation and the P &L lines.
According to the study (EC, 2004, P 28), from an employee and management point of view, innovation needs to address two main challenges, top line growth and bottom line efficiency. Key questions requiring answers in order to ensure results could be summarized this way in exhibit 4:
Exhibit 4 -Two Main innovation challenges for employee and management
Looking at outside of the black box, we can identify how, in an organisation, ideas get generated and we can connect the impact of their implementation to the business results. The input is driven by a set of methodologies and tools that fits into ten types of innovation management techniques while the output is the measurable consequence on the business financials and other intangible benefits. Inside the black box is the framework that connects all pieces together and provides the discipline to do it not only once, but repetitively.
Inside the black Box – The opportunity Management framework
The definition of the project life cycle as per A Guide to the Project Management Body of Knowledge (PMBOK® Guide). 3rd edition is “Project managers or the organization can divide projects into phases to provide better management control with appropriate links to the ongoing operations of the performing organization” (PMI, 2004, p19). The opportunity management framework used by innovation management consulting firms such as “Make Innovation Happen” (http://mihcentre.co.uk) or multi national such as Nortel Networks (Nortel Networks, 2001) fits exactly the description of the PMBOK® Guide. It is a series of phases that connect the input of ideas with the output of business results. Although the framework from these organisations may vary in terms of naming or tools and techniques used during each phase, they all have in common 4 different phases as shown in exhibit 5. The particularity of this framework resides in the steps that are followed in order to produce the deliverables required to reach the decision points. The name of the game is to get to the decision points as fast as possible by eliminating bureaucracy and streamlining the decision making process.
Exhibit 5 - Opportunity Management framework
Phase I - From ideas to opportunity
As we said earlier, ideas gets generate using tools and methodologies related to one or more Innovation Management Techniques (IMTs). Not all ideas represent an opportunity for the business. In order to qualify an idea as an opportunity, we need to use a management tool that will allow us to quickly identify if there is potential benefits link to the business results we are seeking. To do so, the next step following the generation of an idea is to integrate it into a value analysis or value engineering methodology (exhibit 6). The concept of value management provides a first screening of ideas by looking at the contributing value that this idea is bringing to the business. Value increase has been defined by Lawrence D Miles (1993, p 4) in the following way:
1- Value always increased by decreasing costs (while, of course, maintaining performance)
2- Value always increased by increasing performance if the customer needs, wants and is willing to pay for more performance
Exhibit 6 - Phase I, two steps approach, moving from an idea to an opportunity
The Value analysis technique will be used when reviewing ideas versus existing products, services or processes while the value engineering will be used when the idea is towards something completely new, no design decision were made so far. Many consulting firms and organisations are specialized in VA/VE techniques and can help an organisation with this process. SAVE International (http://value-eng.org) is the organisation that oversee the development of the professional standard for value management practitioner and could provide more in depth informations about the tools and techniques used as part of the methodology.
Phase II – From opportunity to Project Launch
Opportunities do not have an infinite shelf life. When an idea is confirmed as an opportunity, the organisation must ensure fast time to market. That being said though, before committing resources on this opportunity, because it reveals that it will add value to our product or our service or our process, we need to ensure that it is a viable option and that the benefits outweighs the gains. If we can confirm viability and an acceptable financial performance then we go ahead and launch the project. To validate these two important decisions making criteria's we will perform first a feasibility study, then we will do a business case (exhibit 7).
Exhibit 7 - Phase II Two steps approach for converting an opportunity into a project
If the feasibility study can prove that the opportunity is feasible technically, logistically, judiciary, environmentally and it provide the right flexibility, operability, usability and social acceptability, then we declare the opportunity viable. The US department of Energy (2002) provides a great template including all informations required to perform a feasibility study that will provide all key business answers. Once the opportunity is viable, the next step is to confirm that the benefit outweighs the gain. To do so we perform a business case in a traditional way of comparing investment required as one time cost plus cost incurred after implementation versus tangible and intangible benefits. There is many business case templates available on the internet, organisations should pick the one that's suits them best.
Phase III – From Project Launch to product launch (deliverables acceptance)
The opportunity is now a project and needs to be handle using project management 101 competencies. The PMBOK® Guide 3rd edition from PMI define the standard or what needs to be done while the methodology (could be a commercial one or your own) will provide the how to do it. According to the EC study (EC, page 104), it is important to emphasize during that phase that certain organisational conditions needs to be in place to successfully manage a project that drives innovation versus a project that address certain problems or provide ongoing improvements. These conditions are summarized in exhibit 8.
Exhibit 8 - Conditions for managing successfully innovation type of project
If we carefully look at these conditions, we can extract the key areas of the PMBOK which need to be specialized to focus it on innovation driven projects.
From the people side, it relates to matrix organisation possibly strong matrix (PMI, 2004, p 31). The tools require that the quality management plan include early testing and simulation to de- risks any major slippage due to non conformance to standards. The stakeholders management require early involvement of the customer and other key acceptance people in the project. It requires also some intermediate milestones such as demo, pre trial, trials etc.. to get feedback as early as possible. Fast prototyping deals with getting the product to work as fast as possible while ramp management deals on getting the process to be functional as per the capacity required to support all functions involved in the projects first. Finally, with innovation you cannot lose sights of your target product or service cost at all times. To do so you need to develop a detail cost model that will allow you to forecast product or service cost evolution over time.
Phase IV – From Product Launch to volume deployment
Contrary to other type of projects, stakeholder acceptance of launching a product does not signal the closing process for the project manager. Because many of the target metrics for the project will be achieved when the product reach certain amount of volume produced or shipped or installed, the project manager need to stay on watch and be ready to intervene if certain performance indicators do not come through. For example, when Nortel (Nortel Networks, 2001) develop a new product, there is a period of time after the launch called ramp up. This period requires the project manager to monitor the following indicators as presented in exhibit 9.
Exhibit 9 - Project manager areas to monitor
Only when there is a clear indication that the project targets will be met, the project manager will seek acceptance from business owners or other function line managers to close the project. For example, even though the product hasn't reach yet its target revenue per year, if the current sales profile and the marketing group agree that they will meet the target numbers within a certain time, then we can release the project manager.
Final Words
Innovation without the means to deliver it is a waist of resources. Today finding opportunities if you structure your approach using a combination of innovation management techniques could be overwhelming. Attending a PMI conference could provides you with some great ideas but if you don't have a framework or project management context accepted by your company or your organisation to channel these opportunities, it will depend solely on your influence ability to get these opportunities implemented.
This paper presented you a full end to end framework including idea generation, leading to an opportunity management framework leading to tangible and intangible business results. In a survey called Innobarometer 2004 (EOS Gallup Europe, 2004 p 6) done with 4,534 managers of EC state members companies, 74% to 77% of the company who responded, declared having introduce significant products or services improvement within the last two years while 56% declared having improve significantly processes related to logistics, production or delivery systems. Based on these numbers we can conclude that time to market for innovation on product or service is becoming a very important marketing tool to differentiate a company. On the other hand, if your company rely on good processes, then be prepare to introduce innovation at faster pace that you were use to do in the past.
Without a solid framework that provides the discipline that Steve Jobs was mentioning at the beginning of the paper, by the time you will be finished, you will be many significant improvements behind!