Strategic Innovation – Definitions and Glossary

Innovation Glossary

my definitions, interpretations, what to do and comments

Contents

Innovation &  The Pareto principle (80:20 Rule) applied to Innovation.   

The Innovation Process:  The Customer:    The Market.  Branding:

Review 1:

Finance:

Open Innovation:

Innovation Culture:

Front-End Innovation:

Back-End Innovation:

Creativity – Ideation:   The coming up with ideas:    Brain-storming – The Rules:    The Funnel

Innovation:

“Doing something that is new to you that makes as significant difference”.

This is anything you do in your business that leads to a business improvement that is measured through increased profitability (or protecting profit).

It can involve any business activity. Innovation often implies a technological development but it can also be used for a new marketing /branding / operations / financial / accounting or people based activities that may or may not involve any use of technology.

Innovation can occur in all business activities and involve products, processes or services

It is NOT invention – that is coming up with something new to the world. Invention is about discovery and understanding. It has no commercial success associations.

Innovation is all about commercial success.

It is about the successful commercial implementation of an idea that adds to your business performance and growth

You can have a successful invention, one that works and does what it was designed to do but it may (probably) have no commercial potential – the market is too small, it is too expensive to make, it is not perceived to have value or deliver the benefits wanted by the customer.

If an idea is not successful and does not contribute significantly to the profitability of the business, it was Not Innovative, just a reasonable idea that has failed commercially.

What is innovation success? That all depends on the sector and the investment to succeed.

Having a new idea for the layout of your desk / office / shop-floor that improves productivity but costs virtually nothing will have a very high Return on Investment (ROI), the Ratio of the cost to implement to the financial benefits ensued. Alternatively the development of a new idea may be very expensive and take a long time but relatively there is still a significant contribution to profit from that activity. Most businesses will require a ROI of at least 3:1, more likely greater than 6:1, or in many cases, much higher, depending on the net profitability of the idea.

Throughout my career, I have had “thousand” of people coming up to me with a “brilliant innovative idea” – the vast majority had not been thought through and with a bit of research and thinking, were dropped fairly quickly. Others, with a bit of thought, had potential but there was a realisation that they could never be the ones to make it commercially viable. Most were engineering solutions to an observed problem but on reflection, would be too costly to develop, with a very small market, giving very little improvement and the killer was normally that it would involve selling to a completely new market – a new product into a new market is diversification – the riskiest route for business growth. Research has shown that even world-class businesses only achieve a success rate of approximately 1 in 200 of their ideas that were agreed to invest in at board level, will achieve the expected ROI within 3 to 5 years. These are businesses with track records of success. You can see why Innovation has a strong linkage to idea failure. The vast majority of these ideas were “dropped” well before they got near to market but even so a success rate of 0.5% is very low (or put another way – your chance of failure is 99.5%). This is why it is so important to take every idea through “the Innovation Process” to evaluate it commercial potential.

The Pareto principle (80:20 Rule) applied to Innovation

The Pareto principle says that 80% of your outputs comes from 20% of your activity. i.e. 80% of your profit is from 20% of your customers. It can be adapted in that from my experience only 20% of all ideas have any business potential, the other 80% will have significant problems and will be (should be ) rejected early on. Of the 20% with potential, only 20% of these will make it to the marketplace and be of sufficient success to at least recover the cost of development from the profit from sales. (20% of 20% is 4%). Of these only 20% will be really successful and make a significant difference to the performance of the business (20% of 4% = 0.8% – very near to the 0.5% identified above!). This is for Innovation – working towards commercial success. For Invention, other research has shown that less than 1% of “inventions” ever recover their development costs from sales, less than 0.3% are commercially successful and only 0.066% become well-known brands in their sector

The Innovation Process:

The Innovation Process is a process to research, test, assess and plan to select those ideas with the best synergy to your business ability, knowhow, expertise, experience, capability and customer base that are then perceived as less likely to fail. No one can predict the future and how successful a new idea will be but you can do everything within your capability to reduce the risk of failure.

“If you want to succeed, first you must plan not to fail”

To assess the commercial potential of any idea, you must test it against a number of conventional business activities.

The Customer:

this is the most important test – no customers, no business!

Do your market research with your current customers and also identify future new customers.Talk to them – yes you can use surveys but you need to get way beyond what a survey will give you. You need to understand every aspect of their business that they will be willing to talk to you about, and that means there must be trust between you and you will never develop trust through surveys, only by face-to-face conversations. This is your Primary research. Follow this up with Secondary research – use Google and every other source to gather as much intelligence on your customers and competitors as is legally possible.

Find out what are their real problems – what do they dread happening when they go into work? How painful is it? How much is it costing them? How urgently do they need a solution? How much will they be willing to pay for one? What has the completion offered? How can your suppliers help?

Use the Creativity techniques described below to find solutions that your customers like. – Yes involve them in the process – it will get their buy-in and involvement in testing.

The Market:

This is wider than the customer – it is every potential customers and competitor, anywhere. If you solve the problem, how will other customers react? How will competitors react? What channels can you use to promote it? What information do you need to record throughout its development (videos of customers tests, feed-back comments etc.) that can be used in future marketing.

 

Branding:

This is the ideal opportunity to really understand your brand (A Brand is how your customers and critics see and describe you) and how the new idea complements the brand, Will it be a brand within a brand?

Review 1:

What have you found out? What do you still need to do? What more do you need to do? What is this information telling you? Does the idea still have legs?

Finance:

This is the real start of business planning. You hopefully will have a Business Plan for the current business, You will now need a project business plan of the development and implementation activities. Create a Bill of Materials (BOM) – everything you will need to buy. Consider every activity – cost as much as possible, including people time. Create a rough Project plan (Gantt Chart etc.), a Profit & loss statement and cash-flow forecast for the project and then integrate it into the Main Business Plan – how does it affect the P&L, working capital and Cash-flow requirements of the business. Also consider the time elements of the staff working on the project. If they are working on the project, they are not working in or on the business. Will you need to recruit extra staff to provide cover.

Importantly, what will be the break-even position? How long will it take to recover development and implementation costs from new profit if Murphy’s Rules of Innovation apply?

Murphy’s Rules of Innovation:

  1. It will always take twice as long as initially thought – probably 3 to 5 times longer
  2. It will always cost twice what was originally budgeted – often 3 to 5 times as much

Is it worth it?

Open Innovation:

Open Innovation is being open to ideas form wherever they come from. Normally this is described as finding new ideas from outside of your normal business activities. There are networks that you can tap into where other businesses offer their ideas for you to exploit. You may be approached by an inventor, supplier or customer with their idea that they think you may be interesting in developing for them so that they can then buy it to solve their problem or opportunity.

I used to work in the building sector where the product was made by crushing and grinding the raw material, heating it, re-crushing it, mixing it with water and other (food grade) materials and forming it into shape by extrusion and finally heating it again – basically kitchen cooking techniques on a massive scale – the “ovens” were over 100 yards long. When I suggested that I go to the Food Exhibition at the NEC, I was told not to as it had no relevance to the manufacture of building products even though we used Kenwood Chef mixers, liquidisers, ovens, microwaves and other food making equipment in the R&D laboratories in making prototypes materials. I did go and discovered a number of new technologies that we could use to improve efficiency & product quality. Taking proven ideas from another sector is one of the low risk ways to adopt Open Innovation

In many businesses, it expected that most ideas will come from middle & senior management or “technical” employees – this is what they are employed to do – solve problems and provide solutions. Businesses often ignore the wealth of expertise, knowledge, experience, ideas and ability of EVERY employee, customer or suppliers. If you can open access to this, then you have a truly “Innovative Culture” and have the potential to continuously improve productivity and profitability with very little management input other than in the idea filtration and implementation processes.

Innovation Culture:

An Innovation Culture in the business where everyone is expected to look at all times as to how they can improve what they are doing and are given permission to test and optimise ideas.

To have a successful Innovation Culture, first you must have a well-defined business strategy that is shared amongst ALL of the staff, not just directors or selected managers. Of the several thousand businesses that I have engaged with, less than 1% have any form of elaborated Business strategy. Once every employee understand why they are employed and what is expected of them to contribute towards the success of the strategy, then with the right encouragement and support, they will deliver the strategy with little managerial intervention. This approach will lead to continuing innovation and due to the engagement of the staff, continuing productivity improvements

The two main blocks on innovation & productivity are

  1. Interfering micro–management – a sign that there is no clear strategy
  2. Using Key Performance Indicators as targets – they are INDICATORS of how you are progressing. If they are used as targets, once the target is achieved, no further progress is made, killing productivity. Used as indicators, they show how much additional progress has been made and where to aim in the future – how can I do better? They are meters on the wall, like clocks, to measure progress. Time doesn’t stop, neither should productivity improvements.

Front-End Innovation:

Back-End Innovation:

 

 

 

Creativity – Ideation:

The coming up with ideas:

The traditional approach is “Brain-storming” to create a large number of ideas to consider.

For an idea to be of interest, there must be a “need”.

  • What is the problem?
  • How much “pain” is it causing?
  • How urgent?
  • How much is not solving the problem, costing?

You are then looking at a solution to a problem.

The first thing is to define the problem and then use problem solving techniques such as brain-storming, Fish-bone diagrams (Ishikawa diagrams), mind-mapping or bionics (how would nature solve the problem?). Without a full understanding of the problem it is impossible to find the “right” solution.

Brain-storming – The Rules:

  1. Have separate sessions for “the Experts” and “Non-experts” – The experts intimidate the non-experts and can’t help but make comments, pull faces or make sounds if they disagree with any suggestion. Non-experts should include representatives from all departments and ALWAYS include the Receptionist in both sessions.
  2. Have a Reporter to record all ideas onto flip charts
  3. No criticism is allowed – all ideas are good ideas at this point.
  4. Re-consider ideas that have been rejected in the past – their time may have come.
  5. The maddest ideas are often the best –If not in themselves but as seeds for other ideas
  6. Create as many ideas as possible – quantity over quality.
  7. Limit each session to a maximum of 2 hours. (Preferably 1 hour)

Collect the ideas, group and print for distribution to the groups for clarification and further ideas.

The Funnel session:

The first sessions are divergent to collect as many ideas as possible.

The Funnel session is to review the ideas and converge them into a reduced set or sets. Combine ideas, exclude ideas (after providing a reasonable reason for their exclusion) and filter them into a list of “possibles”. This then leads into a second brain-storming session to develop on these ideas. What will need to be done to take them further? What sort of time-scales are involved? (now, soon, later, next year, 5-years+). What is the likely cost? (within current budgets, Exceptional budget, include in future budgets). Who will lead on the assessment of the preferred ideas? (every idea needs an “Owner”). Create provisional teams.

The aim is to reduce all of the ideas to a maximum of 5 to go forward into an initial commercial assessment using the Innovation Process.

The idea owner and their cross-function team then takes their idea through the Innovation Process to produce a project business plan with the evidence on which a decision can be made

 

 

………TO BE CONTINUED……….

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