Innovation for the 21st Century
The Least You Need to Know about How to Develop a Portfolio of Innovation in 18 minutes
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Vincent Suppa www.linkedin.com/in/vsuppa
www.NetComLearning.com
Cash
Idea
www.NetComLearning.com
Idea
Cash
www.NetComLearning.com
Y=A*
a K
www.NetComLearning.com
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The Innovation Ambition Matrix Where to Play Transformational
Innovation Ambition Matrix Nagji & Tuff ©
Developing breakthroughs & inventing things for markets that don’t yet exist.
Adjacent
Serve Existing Markets and Customers
Expanding from existing business into “new to the company” business
Enter Adjacent Markets Serve Adjacent Customers
Core
Create New Markets Target New Customer Needs
How to Win
Optimizing existing products for existing customers
Use Existing Add Incremental Products & Assets Products & Assets www.NetComLearning.com
Develop New Products & Assets
70% Core
Distribution of R&D Budget
20% Adjacent 10% Transformational
www.NetComLearning.com
10% Core
Distribution of Returns Return Ratio is inverse of resource allocation ratio
20% Adjacent
70% Transformation
www.NetComLearning.com
80% Core
70% Core
18% Adjacent
20% Adjacent
2%
10%
Transformational
Transformational
A Leading Consumer Goods Company
A Diversified Industrials Company
45% Core 40% Adjacent 15% Transformational
A Midstage Technology Firm
Incremental improvement are the norm:
Uptick in ROI Usually cannibalize revenue without growing it New & Improved = Old & Same; previous margins return Little ventured & gained; product life cycle repeats itself
www.NetComLearning.com
So You Say You Want Transformational Innovation? Requires different structures & processes But most firms have requisite capabilities for core offerings This is why we see new & improved so often.
www.NetComLearning.com
Pro Forma Income Statement
How to Sell a Portfolio of Innovation to your Boss Risk Management
Timing New Initiatives
Visibility
Synergies
LowCore Risk
Adjacent www.NetComLearning.com
High Risk Transformation
Portfolio of Risk
CAUTION
RISK
Core Innovations Incremental changes to products | Incremental inroads into new markets New packaging: Nabisco’s 100 calorie packets of Oreos. Slight reformulations: Dow AgroSciences: from powder to liquid herbicides Replacing shrink wraps with pallets to reduce shipping costs.
Draw upon assets firm already has in place.
www.NetComLearning.com
Transformational Innovation Creating new products to new markets iTunes (new ecosystem) Tata Nano (new markets) Starbucks (coffee not has commodity but as experience)
Disruptive game changes requiring Unfamiliar assets New KSA’s
How to communicate about products bereft of antecedents & historical data points.
www.NetComLearning.com
Adjacent Innovation Leveraging competencies firm does well into a new space. Linear analysis with historical precedent
P&G Swiffer – generated new revenue stream by taking a handled mop & integrating it with a novel technology
www.NetComLearning.com
What’s the right portfolio mix for a startup? For a company teetering on bankruptcy? www.NetComLearning.com
Pre-IPO Startups Startup’s have no core offerings to build upon. VC’s demand reward premium matched to risk. Mature Firms more to lose protect by adjusting toward adjacent and core offerings.
www.NetComLearning.com
How to be Transformational Skills for Core / Adjacent different from Transformational Invite People You’d Normally Not Invite to Your Project
Designers Cultural anthropologist Separate employees, physically and Psychologist financially, from core business Sociologists Fringe people & subcultures Analyst expert in ambiguous data & fuzzy logic
Cannot escape firm’s gravitational pull of norms which reinforce the core. www.NetComLearning.com
Funding of all Three Categories Core & Adjacent Efforts Small-scale projects not requiring major infusions of cash. Funded through business units’ P&L via budget cycle.
Transformational Efforts Require sustained & major investments Funded through an separate legal entity: isolate risk rise above the gravitational norms of the firm. Merck uses Merck Global Health & Innovation Fund www.NetComLearning.com
Pipelining Transformational Initiatives Cannot use the typical funnel approach. Require non-linear processes Stage-gate processes would kill most T.I.
How to predict 3rd year sales for an offering that the world has never seen before? www.NetComLearning.com
Metrics You can’t manage what you cannot measure. Core & Adjacent efforts require traditional financial metrics that would kill off transformational initiatives. NPV & ROI require historical customer data, adoption rates, price points, etc. – But transformational offerings have no historical data points! www.NetComLearning.com
Transformational Initiatives Matrix Stage-gate processing is intersection of economic & external metrics. Use the antithesis. Non economic & internal metrics What if the only hurdle an initiative must clear to receive continued investment is that the firm will learn (not earn) from it? Firm focuses on net income. Just not in early stages. www.NetComLearning.com
What You Can Do Tomorrow 1. 2. 3. 4. 5. 6. 7. 8.
Survey all non-operational initiatives Force data into Innovation Matrix Determine patterns Facilitate strategy session with C level Get C level to identify & accelerate promising ideas Get C level to cancel or postpone least desirable projects Readjust your Innovation Matrix accordingly Facilitate next meeting next quarter
www.NetComLearning.com
Low Visibility
High Visibility
High vs. Low Visibility
Low Risk
High Risk www.NetComLearning.com
Network smart, not hard!
www.NetComLearning.com
.
Vincent Suppa www.linkedin.com/in/vsuppa
www.NetComLearning.com
Cash
Idea
www.NetComLearning.com
Idea
Cash
www.NetComLearning.com
Y=A*
a K
www.NetComLearning.com
*L
1-a
The Innovation Ambition Matrix Where to Play Transformational
Innovation Ambition Matrix Nagji & Tuff ©
Developing breakthroughs & inventing things for markets that don’t yet exist.
Adjacent
Serve Existing Markets and Customers
Expanding from existing business into “new to the company” business
Enter Adjacent Markets Serve Adjacent Customers
Core
Create New Markets Target New Customer Needs
How to Win
Optimizing existing products for existing customers
Use Existing Add Incremental Products & Assets Products & Assets www.NetComLearning.com
Develop New Products & Assets
70% Core
Distribution of R&D Budget
20% Adjacent 10% Transformational
www.NetComLearning.com
10% Core
Distribution of Returns Return Ratio is inverse of resource allocation ratio
20% Adjacent
70% Transformation
www.NetComLearning.com
80% Core
70% Core
18% Adjacent
20% Adjacent
2%
10%
Transformational
Transformational
A Leading Consumer Goods Company
A Diversified Industrials Company
45% Core 40% Adjacent 15% Transformational
A Midstage Technology Firm
Incremental improvement are the norm:
Uptick in ROI Usually cannibalize revenue without growing it New & Improved = Old & Same; previous margins return Little ventured & gained; product life cycle repeats itself
www.NetComLearning.com
So You Say You Want Transformational Innovation? Requires different structures & processes But most firms have requisite capabilities for core offerings This is why we see new & improved so often.
www.NetComLearning.com
Pro Forma Income Statement
How to Sell a Portfolio of Innovation to your Boss Risk Management
Timing New Initiatives
Visibility
Synergies
LowCore Risk
Adjacent www.NetComLearning.com
High Risk Transformation
Portfolio of Risk
CAUTION
RISK
Core Innovations Incremental changes to products | Incremental inroads into new markets New packaging: Nabisco’s 100 calorie packets of Oreos. Slight reformulations: Dow AgroSciences: from powder to liquid herbicides Replacing shrink wraps with pallets to reduce shipping costs.
Draw upon assets firm already has in place.
www.NetComLearning.com
Transformational Innovation Creating new products to new markets iTunes (new ecosystem) Tata Nano (new markets) Starbucks (coffee not has commodity but as experience)
Disruptive game changes requiring Unfamiliar assets New KSA’s
How to communicate about products bereft of antecedents & historical data points.
www.NetComLearning.com
Adjacent Innovation Leveraging competencies firm does well into a new space. Linear analysis with historical precedent
P&G Swiffer – generated new revenue stream by taking a handled mop & integrating it with a novel technology
www.NetComLearning.com
What’s the right portfolio mix for a startup? For a company teetering on bankruptcy? www.NetComLearning.com
Pre-IPO Startups Startup’s have no core offerings to build upon. VC’s demand reward premium matched to risk. Mature Firms more to lose protect by adjusting toward adjacent and core offerings.
www.NetComLearning.com
How to be Transformational Skills for Core / Adjacent different from Transformational Invite People You’d Normally Not Invite to Your Project
Designers Cultural anthropologist Separate employees, physically and Psychologist financially, from core business Sociologists Fringe people & subcultures Analyst expert in ambiguous data & fuzzy logic
Cannot escape firm’s gravitational pull of norms which reinforce the core. www.NetComLearning.com
Funding of all Three Categories Core & Adjacent Efforts Small-scale projects not requiring major infusions of cash. Funded through business units’ P&L via budget cycle.
Transformational Efforts Require sustained & major investments Funded through an separate legal entity: isolate risk rise above the gravitational norms of the firm. Merck uses Merck Global Health & Innovation Fund www.NetComLearning.com
Pipelining Transformational Initiatives Cannot use the typical funnel approach. Require non-linear processes Stage-gate processes would kill most T.I.
How to predict 3rd year sales for an offering that the world has never seen before? www.NetComLearning.com
Metrics You can’t manage what you cannot measure. Core & Adjacent efforts require traditional financial metrics that would kill off transformational initiatives. NPV & ROI require historical customer data, adoption rates, price points, etc. – But transformational offerings have no historical data points! www.NetComLearning.com
Transformational Initiatives Matrix Stage-gate processing is intersection of economic & external metrics. Use the antithesis. Non economic & internal metrics What if the only hurdle an initiative must clear to receive continued investment is that the firm will learn (not earn) from it? Firm focuses on net income. Just not in early stages. www.NetComLearning.com
What You Can Do Tomorrow 1. 2. 3. 4. 5. 6. 7. 8.
Survey all non-operational initiatives Force data into Innovation Matrix Determine patterns Facilitate strategy session with C level Get C level to identify & accelerate promising ideas Get C level to cancel or postpone least desirable projects Readjust your Innovation Matrix accordingly Facilitate next meeting next quarter
www.NetComLearning.com
Low Visibility
High Visibility
High vs. Low Visibility
Low Risk
High Risk www.NetComLearning.com
Network smart, not hard!
www.NetComLearning.com
