Chapter 3 Processing Innovation © David O’Sullivan

Reflections Explain the relationship between change and innovation. In his change management method, Kotter talks about creating a sense of urgency. Explain what this means. List a number of traits of excellent organizations. Explain some of the main traits of innovation culture. List a number of barriers to innovation. What is the fifth-generation innovation model? Explain the dangers of having too much routine.

Activities [Discussion of selected student ‘Activities’ from previous chapter]

Learning Targets Show the main reasons why organizations invest in innovation Understand some of the reasons why innovation fails Discuss the key stages in the innovation process Understand the importance of opportunity recognition in the innovation process Explain the innovation funnel Apply an innovation method to building an innovation plan Innovation is a process of management in most oganisations Changes to products, processes, services, organisations, … Changes can be incremental or radical - large or small. Innovation is often confused with ‘Invent or Invention’ which is defined as creating something that has never existed before

Innovation Investment Organizations invest an average of 4% of turnover on Innovation Budget typically spent across various functions e.g. Computer Services Product Design Process Improvements Training etc.

Innovation Investment Innovation Expenditure as % Turnover in Western Europe Manufacturing 3.7% Services 2.8%

Goals of Innovation 1. Improved quality 2. Creation of new markets 3. Extension of the product range 4. Reduced labor costs 5. Improved production processes 6. Reduced materials 7. Reduced environmental damage 8. Replacement of products or services 9. Reduced energy consumption 10. Conformance to regulations

Goals of Innovation Improve Quality 65% of organisations surveyed Create New Markets 50% Extend Product Range 46% Reduce Labour Costs 40% Improve Production 35% Reduce Materials 25% Reduce Environ. Damage 23% Replace Products/Services 21% Reduce Energy Consumption 18% Conform to Regulations 18%

Problem Between 50-70% of all Innovation fails to impact on organisational goals Implications … Wasted resources – time, people and money Loss of morale Higher resistance *Various. See: Paul Strebel in Harvard Business Review on Change 139-157 (Harvard Business Review, Boston, 1999)

Failure of Innovation Various reasons Common reasons across all organizations: Poor goal definition Poor alignment of actions to goals Poor participation in teams Poor monitoring of results Poor communication and sense of community

75% of Ideas Fail Three possible outcomes for you ideas: You continue with idea (25% chance of success) You stop idea but start a new idea (Increase chances of success!) You stop the idea and so save time and money

Failures Survey of 13,000 new products 14% made it to market 65% of these succeeded i.e. 91% new products failed representing almost 50% of investment Success factors Fit with market needs Fit with company strengths Technical superiority Booz Allen and Hamilton 1981

Failure Survey of 200 Failed Products Better ‘mousetraps’ 28% ‘Me too’ products 24% Technical ‘dogs’ 15% Competitive pricing 13% Too expensive 13% Ignorance 7% Calantone and Cooper 1979

Idea Attrition Leading an innovative development from a vision to a marketable product or service is a long process that increasingly sharpens the picture of the innovation to be developed. Typically the road to a marketable innovation leads through the following stages: (i) Raw idea creation, (ii) Submission of most promising ideas for further evaluation, (iii) Projecting of most promising proposals, (iv) developing prototypes/ demonstrators, (v) marketing/ implementation of the launch able development. Vice versa, for every successfully marketed launch an enormous number of raw ideas was developed, submitted, projected, and so on. Consequently, a successful innovation does not only contain the cost of the project that directly leads to success but also the cost of several proposals, projects, and prototypes lost along the way. Obviously the costs of failures are higher the later the failure occurs: the cost of a lost written and submitted idea is just a fragment of the cost of a lost project or, even worse, of a lost prototype or launch able development. Recent statistics (G.A. Stevens/ J. Burley: “Piloting the Rocket of Radical Innovation”, published in Research and Technology Management, March – April 2003) quantify these losses. According to these statistics one successful innovation requires 3000 raw ideas, 300 submitted ideas, 125 small projects, 9 early stage developments, 4 major developments and 1.7 launches. Turning these figures into failure rates shows dramatic results: 99.97% of raw ideas on innovations fail. Submitted ideas fail with 99,67% probability, small projects with 99,2%, and early stage developments with 88,9%. Three out of four major developments fail, and still 40% of all launches that successfully passed the innovation process, cannot be successfully exploited.

Metric System Metric available since 17th Century Customers reluctant to adopt Mars Climate Orbiter Disaster (1998) NASA reveals some calculations were ‘Imperial’! Yes, these were ‘rocket scientists’ U.S. Aerospace Industry prefers ‘Imperial’ Where else has ‘Imperial’ remained?

Scurvy Fatal disease on voyages Half of all sailors died on long voyages! Simple and cheap cure found in 1601: Citrus Fruits In 1795 Navy finally adopted cure Not adopted in merchant fleet for another 70 years

Sanitation Greatest innovation in history Saves millions of lives! 40% of current world population lack sanitation! Half Million children die in Asia each year (2008) MRSA in Irish Hospitals

Primary Causes Poor definition of goals Poor alignment of actions to goals Poor participation by employees in teams Poor monitoring of results Poor communication and participation in communities

Process of Innovation

Applying Innovation Better definition of goals Better alignment of actions to goals Greater participation of individuals in teams Better monitoring of results Greater communications and building of communities

Goals “Objective of an Effort” Examples: Vision Statements, Stakeholder Requirements, Conformance Standards, Development Strategies, and Indicators of Performance

Actions “Expenditure of Effort” Examples: Solving Problems, Generating Ideas, Developing Proposals, Managing Projects

Teams “Resources of Effort” Examples: Leaders, teams, pay reviews, …

Results “Outcome of an effort” Examples: Status of Goals, Actions and Teams Relationships between goals and actions goals and teams, etc… Exceptions, Reports

Communities communities refers to all people who share a common purpose of supporting innovation in the organization organization and leadership, communications, and knowledge management.

Leaders in Industry Tom McCabe, M.D., Boston Scientific Setting Goals Michael Welch, M.D. Fidelity Investments Managing Portfolios Lionel Alexander, M.D. Hewlett Packard People and Teams Frank O’Connor, M.D., Ingersoll-Rand Monitoring Results (Scorecard)

Innovation Funnel GOALS ACTIONS RESULTS TEAMS COMMUNITIES Create Idea Recognise Opportunity Develop Idea Funnel is a metaphor for the innovation management process. Ideas flow into mouth of funnel and are evaluated progressively as they pass through. Successful ideas pass all stages and are implemented. Ideas consume more and more resources as they pass through the various stage gates in the funnel. Most ideas will be weak and need to be removed early to optimise resources. Key criteria for selecting ideas is alignment with goals and availability of teams. Cost and benefit is another important criteria for selection. This decision is taken at the level of the action and is ultimately traceable back to goals. Missing from this funnel are ‘Problems’ which are also typical actions and ‘Quick Wins’ which are ideas that can be implemented immediately without resource requirements and hence flowing into the funnel fully. Process: The first stage in innovation is for someone or team to create an idea. It is typically a technical insight into a product or process or thought about a service. In some cases ideas arises from observed problems either now or in the future. Ideas can also be stimulated by the goals of the organisation or an opportunity that appears suddenly. Various stimuli can lead to the generation of an idea from reading magazines and observing problems to visiting other organisations and informal discussions with colleagues. Idea creation leads to opportunity recognition where someone can see an opportunity for developing the idea into a new product, process or service. The opportunity recognition stage involves idea evaluation stage where ideas are prodded and tested. Often ideas are improved, merged with other ideas and in many cases abandoned. An important test for an idea is that it matches the goals of the organisation and available resources – people and money. If an opportunity is recognised then the idea moves to a new stage where it can be developed further. The final stage of the innovation process is realisation and in many cases exploitation where the customer and other stakeholders makes the final evaluation. TEAMS Realise Potential COMMUNITIES

Innovation Funnel

Innovation Knowledge

Innovation Team

Summary Show the main reasons why organizations invest in innovation Understand some of the reasons why innovation fails Discuss the key stages in the innovation process Understand the importance of opportunity recognition in the innovation process Explain the innovation funnel Apply an innovation method to building an innovation plan

Activities

Search Online http://www.youtube.com Henry Chesbrough on Open Innovation Michael Porter on Strategy Innovation at Google Tom Peters: Innovation is Actually Easy! Sun's 25 years of innovation