Overview for Magna

1. Tools and Techniques of
Innovation
Andrew Maxwell Ph.D.
Chief Innovation Officer
Canadian Innovation Centre

2. Agenda
Introductions
Goals of innovation
Innovation objectives
Criteria for innovation
Ideation
Innovation portfolios
Barriers to Innovation
Sources of innovation
Innovate forward

3. Schedule – Day 1
• Introductions and outcome expectations 9.00 – 9.50
• Goals of innovation 9.50 – 10.20
• Objectives exercise 1 (inc break) 10.20 – 11.20
• Innovation selection criteria 11.20 – 12.00
• Innovation criteria exercise 2 (inc lunch) 12.00 – 13.15
• Ideation in groups 13.15 – 14.00
• Assessment exercise 3 (inc break) 14.00 – 14.45
• Innovation portfolios 14.45 – 15.30
• Portfolio criteria in groups 15.30 – 16.00
• Portfolio exercise 4 for homework 16.00 – 16.30

4. Schedule – Day 2
• Review of previous workshop 9.00 – 9.30
• Review of homework 9.30 – 10.30
• Barriers to innovation exercise (inc break)10.30 – 11.30
• Review of barriers 11.30 – 12.15
• Sources of innovation 12.15 – 12.45
• Sources exercise (inc lunch) 12.45 – 13.15
• Innovation leadership and culture 13.15 – 14.00
• Innovation implementation 14.00 – 14.45
• Innovate forward exercise and wrap up 14.45 – 15.15
• Discussion and wrap 15.15 – 16.30

5. Andrew Maxwell Ph.D.
• Associate Professor, Entrepreneurial Engineering,
Lassonde School of Engineering
• Chief Innovation Officer, Canadian
Innovation Centre
• Professional engineer (Imperial College,
London and MBA, London Business School)
• 15 years with technology multinationals
• Cofounded four technology businesses
• Innovation subject matter expert with IRI
• Teaches technology entrepreneurship at
Temple and York Universities
• Active in the Innovation Management Community
Introductions

6. 1. Goals of Innovation
Improve profitability (and bottom line)
Enhance brand and reputation
Retain and attract employees and partners
Improve balance sheet and investor attractiveness
Ensure survival
Build community

7. The Economic Conception of Innovation
Joseph Schumpeter
Innovation is not just the development of a new
product, it includes the:
• Introduction of a new good, or a new quality of a good
• Introduction of a new method of production (need not
need include new technologies)
• The opening of a new market
• The securing of a new source of supply
• The creation of a new organization

8. Innovation success leads to:
Improve top line, bottom line or market share
Strengthen balance sheet
Strengthen brand/reputation
Increase workforce retention (incent stakeholders)
Enhance community engagement
Long term survival
Improve environmental performance
Attract investors/acquirers

9. Without specific innovation goals … low
likelihood of success
 Improve quality of
processes, products and
services
 Create of new markets
 Extend product range
 Reduce labour costs
 Improve production
processes
 Reduce use of raw
materials
 Reduce environmental
damage
 Reduce energy
consumption
 Conform to regulations

10. Internal drivers
1. Unexpected event
2. Contradiction
3. Change of work process
4. Change in industry structure
External Drivers
5. Socio-economic changes
6. Political changes
7. Technology changes
Drucker‘s Innovation
Framework
Innovation Drivers & Sources
Internal sources
1. Research
2. Shop floor
3. Sales/service
4. Customer service
External Sources
5. Customers
6. Suppliers
7. Competitors

11. Importance of Innovation
(recommended videos)
Bob Cooper on the importance of new product development
Simon Sinek on Getting to why
John Bessant on Innovation Management

12. Innovation Management is a Process
Innovation is a management process the requires
specific tools, techniques and discipline
Innovation involves the development of
organizational processes and procedures for
generating, considering and acting on innovative ideas
Innovation research focussed on technology; but real
challenge is to understand innovation process and the
cognitions and behaviours of people in that process
Innovation is a social science as well as a physical science

13. But innovation is challenging
However most companies stop innovating because
innovation involves doing something new and different:
Changing current processes and procedures
Modifying management style and communications
Developing new organizational structures
Abandoning existing products and finding new ones
Modifying incentives, compensation and recruitment
Change company culture and attitude to risk
Most organizations unwilling to change many of these –
which creates self-imposed barrier to innovation

14. The most difficult change is changing
behaviours
Most company practices encourage behaviours that stifle
innovation, changing the behaviours of individuals is challenging:
Don’t pre-judge ideas…..but use appreciative listening
Don’t postpone decisions….that itself is a decision
Don’t ignore how an innovation affects both your organization
and your customers..otherwise you won’t succeed
Don’t shoot down poor ideas….first build on them
Don’t reject ideas without reason..you won’t get any more
Increasing innovation requires changing decision making

15. Maxwell’s three laws of innovation
1. There is a natural tendency for organizations to keep
doing what they’re doing and resist changes. In the
absence of a force, they will continue to do what they’ve
always done.
2. Larger organizations require more force to change what
they are doing than smaller organizations.
3. For every force there is a reaction force that is equal in
size, but opposite in direction. When someone exerts a
force on an organization, he or she gets pushed back in
the opposite direction equally hard.

16. Innovation
Innovation is the creation of new or more effective
products, processes, services, technologies, or ideas that
are accepted by markets, governments, and society.
It is the acceptance by a user or customer, that makes it
innovation, rather than invention, with which it is
confused. Invention is just the creation of a new idea.
Innovation is also confused with improvement. The big
difference is that you can improve things by just doing
current things more efficiently or more effectively.
Innovation requires doing new things or doing them
differently.

17. Innovation
Innovation in organizations is also constrained, as it is
assumed to require product innovation, and require
technology development expertise.
In reality, innovation also includes:
Product Innovation
Process Innovation
Service Innovation
Business model Innovation
……….. And can be applied to all areas of an organization

18. Product Innovation
 The goal of product innovation is to create new levels of
performance or enhanced functionality or maintain current
features at a lower cost
 New levels of performance can:
 Provide enhanced utility for the customer
 Enable functionality that was not previously possible
 create new types of services, or enhanced processes
 Product innovation often involves the development of new
technology or the application of an existing technology in a new
application
 Can be incremental or disruptive

19. Process Innovation
A change in the way a product or service is
manufactured, created, or distributed
Process innovation involves implementation of new or
improved production or delivery method.
Process innovations can be intended to decrease unit
costs of production or delivery, to increase quality, or
to produce or deliver new or significantly improved
products.

20. Majority of individuals in Canada (and US) work in
service industry
Even where people work in manufacturing, many
of these individuals provide support services
Service innovation is biggest opportunity to
increase competitiveness
Improvements in service innovation can be
measured in terms of increases productivity and
value added
Service Innovation

21. Business Model Innovation
Business model innovation includes revenue model
innovation and supply chain innovation
Revenue model innovation can often increase
competitiveness and drive adoption by:
• Creating enhanced customer utility
• Enabling a different pricing strategy
• Providing a low risk adoption option
• Improve the compelling value proposition
Sometimes a technology innovation requires a revenue
model innovation to achieve commercial success

22. What product/service will be delivered to which
customer segments
What components or services will be acquired externally
What value-added will be undertaken in-house
This involves consideration of:
 Core competencies necessary for long term success
 Availability of suppliers in supply chain
Availability of distributors in market channel
 Strategic risk management of relationship
Alex Osterwalder’s business model canvas is a great
framework for discussing each of these issues
Supply Chain Innovation

23. • Distinctions between incremental and disruptive
innovations are based on the impact on the market,
not on the sophistication of the technology advance
• Incremental innovations make changes to existing
products or services that tend to reinforce existing
market positions
• Disruptive innovations change the nature of
competition in the marketplace, and can often lead to
the creation of new ventures
Incremental versus Disruptive Innovation

24. The Innovation imperative
Three choices:
Innovate your organization,
Partner with an innovative organization or
Wait for innovation to happen………..

25. Perspectives on Innovation
 The goal of innovation is positive change that leads to increased
productivity; a fundamental source of increased
competitiveness and wealth of nations
 Innovation is typically understood as the successful introduction
of something new and useful by both private enterprises, as
well as, government and public organizations including:
 Work Methods
 Technologies
 Processes and Practices
 Products
 Services

26. Characteristics of Innovation Initiatives
• All scientific, technological, organizational, financial
and commercial initiatives, which are intended to, or
indirectly lead to the implementation of innovations.
• Some innovation activities are themselves innovative,
others are not, but are necessary for the
implementation of innovations.
• Innovation activities also include R&D that is not
directly related to the development of a specific
innovation.

27. Innovation: A Management Process
Innovation is a management process the requires
specific tools, techniques and discipline
Innovation involves organizational processes and
decision-making for generating, considering and acting
on useful ideas
 Most research on innovation has been devoted to the
process of technological innovation; the how-to
(innovate) approach
Less attention has been paid to innovation behaviors
the adoption of innovation and difficulty of changing

28. Rationale for Firm-Level Innovation
Improving Performance: The ultimate reason for a firm to
innovate is to improve its performance, for example by
increasing demand or reducing costs
Market Advantage: A new product or process can be a
source of market advantage for the firm
Productivity Enhancement: The firm gains a cost
advantage over its competitors to gain market share and
increase profits
Product Innovation: the firm can gain a competitive
advantage by introducing a new product, which allows it to
increase demand and mark-ups.

29. Rationale for Firm-Level Innovation
Product Differentiation: Firms can also increase demand
through product differentiation, by targeting new markets
and by influencing demand for existing products.
Changes in Organizational Methods: Firms can improve
the efficiency and quality of their operations
Improving Production Processes: Innovation can also
improve the capabilities of production processes can make
it possible to develop a new range of products
Improving Knowledge Management Processes: Innovation
can also improve the firm’s ability to gain and create new
knowledge that can be used to develop other innovations.

30. Innovation in Organizations
Organizational innovation is typically linked to
organizational strategies, goals and objectives
Companies cannot grow through cost cutting, process
improvement and re-engineering only.
Innovation is a critical factor and the key to achieve top-
line growth and bottom-line results
The investment in innovation varies from a low of 0.5 % of
total capital to a high of 20%
The average investment in innovation across the
organization spectrum is about 5%

31. Goals of Innovation in Organizations
 Improvement in quality of
processes, products and
services
 Creation of new markets
 Extension of product range
 Reduction of labour costs
 Improved production
processes
 Reduced use of raw
materials
 Reduced environmental
damage
 Renewal and upgrading of
products and services
 Reduced energy
consumption
 Conformance to regulation

32. A Study by the Boston Consulting Group BCG
and the American Association of Manufacturers
(NAM)
 The report assesses the state of innovation in the USA and
the leading industrial countries around the world, including
Canada.
 The report develops a set of innovation indicators and
applies them to the manufacturing sectors in the countries
selected for the study
Innovation Imperative in Manufacturing

33. Investment Growth
in Sector
New Business
Development
Economic Growth
of Sector
Total Score
Sub Score
CategoryScore
Topic Score
Infrastructure
Policies
International
Innovation Index
State of Education
Quality of
Workforce
Infrasturcure
Quality
Business
Environment
R & D Output
IP Generation
Knowledge Transfer
to Industry
Commercialization
of Innovation
Business
Performance
Public Impact of
Innovation
Innovation Inputs
Innovation
Performance
R & D Tax Credit
Taxation Level
Government R&D
Funding
Education Policies
Trade Policies
IPR Policies
Immigration
Policies
High Tech Exports
Labour Productivity
Market
Capitalization
Employment
Growth in Sector
Fiscal Policy Other Policies
Innovation
Environment
R & D Results

34. BCG Study: Drivers of Innovation
0 10 20 30 40 50 60 70 80
Investment in IdeaGeneration
Listening to theVoiceofCustomers
Increasing Management Focus
Establishing Innovation-Friendly BusinessCulture
Effectively Using OutsideSourcesforInnovation Ideas
Partnering withSuppliersforInnovativeIdeas
Dedicating AdditionalResourcesto InnovationInitiatives
Providing IncentivesforInnovation
SMEs
LargeCompanies

35. Aspects of Process Innovation (1)
0 10 20 30 40 50 60 70 80
Developing Quality Ideas
Managing a Portfolio of Ideas
Ensuring Rapid Development of Ideas
Communicating Innovations to Sales
Personnel
Effective Marketing of Innovations
Less Innovative Companies
Innovative Companies

36. Aspects of Process Innovation (2)
0 10 20 30 40 50 60 70 80 90 100
Well Defined Business Processes
Clear Financial Hurdles
Unambigious Management
Responsibilities
Organizational Structure Aligned Around
Processes
Incentives for Correct Use of Processes
SMEs
Large Companies

37. Disruptive
innovation
Application
innovation
Product
innovation
Platform
innovation
Enhancement
innovation
Integration
innovation
Experiential
innovation
Process
innovation
Marketing
innovation
Value migration
innovation
Line extension
innovation
Value engineering
innovation
Harvest
& exit
Renewal Innovation
Organic
Renewal
Acquisition
Renewal
Dealing with Darwin, Geoffrey Moore
Developing an Innovation Strategy

38. Innovation exercise 1
Geoffrey Moore identifies four reasons to innovate:
 Customer intimacy
 Technological leadership
 Enhanced productivity
 New market creation
Examine:
• Market challenges that are driving innovation
• Core competencies
• Strategic innovation options
Look at the current innovation initiatives in your organization
and Identify any challenges

39. 2. Establishing innovation criteria
Develop strategic objectives
Define how innovation will be measured
Establish key criteria for measuring innovation ideas
Establish innovation constraints (timescale, resources)
Create innovation criteria framework

40. The BSC Strategic Perspectives
2. Customer
3. Internal
Business
Processes
1. Financial
4. Learning
and Growth
Vision and
Mission

41. • Robert L. Sutton: “You know how to manage for
efficiency and productivity. But if it is creativity you
want, chances are you are doing it all wrong!”
• James March: “Unfortunately, the difference
between visionary genius and delusional madness is
much clearer in history books than in experience.”
Creativity

42. • Take your past successes and forget them
• Ignore people who have solved the exact problem you face
• Encourage people to ignore and defy their bosses and peers
• Find some happy people and get them to fight
Paul Erdős
Nikola Tesla
Steve Jobs
Weird Ideas for Cultivating Creativity

43. • Translation: Nobody bought his
products/services when he
offered them. Their value
became apparent later.
• So, there is something to be said
about the human side of the
customers.
“He was ahead of his time”

44. • Never listen to customers…
– "If I had asked my customers what they wanted, they would have told
me a faster horse." – Henry Ford
– “The best way to predict the future is to invent it.” – Alan Kay
– Don’t Listen To Customers, Understand Them
– It is not the job of your customers to know what they don’t know
• Always listen to customers…
– Knowing what a customer needs is critical to closing any deal
– What are their personal and company goals? Understand that, and you
can point out and explain how your product will help them
– Solicit and Listen – Customer Feedback is critical to business success
– “If you're not talking to customers, you don't uncover a lot of
opportunity, you just keep upgrading” – Scott Cook (Intuit)
Role of customers:

45. • What works:
– Defining a target customer base, even if it doesn’t exist today
– Understanding the needs of the target customers
– Having an objective and sticking to it
– Gauging the support behind a concept
– Engaging only the most experimental customers
• What doesn’t:
– Building what the customers ask for
– Adding features to existing products
– Cost and schedule being the primary concerns
– Responding to customer needs without an understanding of their
operations
Customers and Innovation

46. 1. Improve quality
2. Create new markets
3. Extend the product range
4. Reduce labor costs
5. Improve production processes
6. Reduce materials usage
7. Reduce environmental damage
8. Replace products/services
9. Reduce energy consumption
10.Conform to regulations
How do you measure innovation
success
Measuring innovation success

47. Idea
Market
Compet-
encies
Feasibility
Strategy
Idea assessment

48. Idea Assessment – Business
• Alignment with strategic objectives
• Provides appropaite Return on investment (ROI)
• Has appropriate risk profile
Idea
Market
Compete
ncies
Feasibility
Business
Innovation strategy

49. • Competitive situation
• Customer current and future needs
• PEST factors
• Reputation
• Relationships
Idea
Market
Compete
ncies
Feasibility
Business
Market factors

50. • Core strengths that create sustainable
competitive advantage
• Ability to execute
– Critical expertise areas
– Peripheral expertise areas
– Infrastructure
• Ability to launch
• Ability to support Idea
Market
Compete
ncies
Feasibility
Business
Competencies

51. • Core feasibility, for example:
– Technical completeness;
required inventions & breakthroughs
– Deployment & support
• Resources
– Infrastructure
– Human capital
– Financial resources
• Existing business
Idea
Market
Compete
ncies
Feasibility
Business
Feasibility

52. Developing Selection Process
 Competitive
pressures
 Price
 Quality
 Features
 Delivery
 Service
 Market trends
 Political
 Economic
 Social
 Technological
Resources
People
Money
Processes
Relationships
Strategic
Financial return
Timescale
Strategic objective
Market
Existing business
Brand
Suppliers
Distributors
Core competencies
Technical
Infrastructure
Complementary
products/services
Innovation goals
Financial
Reputational
Customer centric
Environmental

53. Innovation exercise 2
We have identified seven different categories of innovation factors
that might affect a project.
 Competitive pressures
 Market trends
 Resources
 Strategic
Based on the current pressures facing your company, and the
current innovation initiatives
Identify the top five factors that should be considered
For each identify a way of assessing go/no go
 Market
 Core competencies
 Innovation goals

54. 3. Coming up with innovative ideas
Where do good ideas come from
Frameworks and perspectives for developing ideas
Thinking inside the box
A design thinking approach
Capturing and recording ideas
Exposing ideas to a go/no go decision

55. “The trick to having good ideas is not to sit around in
glorious isolation and try to think big thoughts. The trick is
to get more parts on the table.”
Steven Johnson
https://vimeo.com/83980563
Where do good ideas come from

56. Frameworks and perspectives
Good ideas are infrequent
Using improvement approach
Sources of ides
Trends

57. From Stevens and Burley, 1997
Reality check most ideas suck!

58. Impact
Adoption cost (inverse)
Goal

59. • Personal experience: Identify a gap in the
market based upon personal experience
• Market knowledge: Understanding potential
customer needs
• Current suppliers limitations: Identifying gaps in
current product or service offerings
• External changes: Political, economic, social,
technological
• Finding new ways to do business (i.e. turning a
product into a service)
Five sources of innovation

60.  There is a clear understanding of why innovation is important for
the company
 The innovation strategy of the organization is clear
 There is a simple method for communicating the need for
innovation and collecting the resulting ideas
 There is support for innovation
 Leadership support
 Alignment of incentives
 Allocation of necessary resources
 Effective system for deciding which ideas to implement
 Commitment to implement good ideas in timely manner
“Organizations, by their very nature are designed to promote order
and routine. They are inhospitable environments for innovation”
Ted Levitt
Ideas are only generated if:

61.  Analyzing problems with current products (Fault analysis)
 Awareness of competitive offerings
 Application of an existing technology to a new arena
 Anticipation of a trend (Political, Economic, Social, Technological)
 Exploring customer behaviours (Design Thinking)
 Fuzzy front end discovery process (Lean Start Up)
 Open innovation (pro-active or reactive)
 Supplier inputs (either existing or new)
 University or other academic research partners
“If you can not find a consistent way to come up with new ideas in
your organization, then you need to find alternate ways to respond to
externally generated ideas”
Sources of innovation

62. Thinking inside the box

63. Apollo 13 – Houston we have a problem
Problem
CSM Built by North American Aviation
LM Built by Grumman
as a result…
CSM Square LiOH filters
LM Round LiOH filters
Solution
www.youtube.com/watch?v=Z3csfLkM
JT4

64. Apollo 13 – Closed World
There is nothing you can’t fix with duct
tape…

65. Idea generation
Analyze your strengths and weaknesses, identify those
areas that can give you a competitive advantage
Focus on marketplace trends and competitive activities
to identify future market gaps or opportunities
Identify if you can use your strengths to create a
compelling value proposition that:
Motivates customers to purchase from you
Provides a competitive advantage that competitors can not
easily replicate
Is a large enough opportunity to justify the investment

66. “If the people running Amazon.com
don’t make some significant mistakes,
then we won’t be doing a good job
for our shareholders because we
won’t be swinging for the fences.”
Jeff Bezos
Innovation is about taking higher levels of risk
“I don’t mind failure. I’ve always thought that
schoolchildren should be marked by the number of
failures they’ve had.”
James Dyson
which means accepting higher levels of failure

67. • Genius is 1% inspiration, 99 % perspiration.
• I start where the last man left off. ... All my work was
deductive, and the results I achieved were those of invention
pure and simple.
• I have not failed. I’ve just found 10,000 ways that won’t work.
• Opportunity is missed by most people because it is dressed in
overalls and looks like work.
• Hell, there are no rules here. We are trying to accomplish
something.
• Restlessness is discontent and discontent is the first necessity of
progress. Show me a thoroughly satisfied man, and I will show
you a failure.
Thomas Edison on ideas

68. 1. Most people think innovation is about developing a new
technology……
…… but it is actually about changing behaviors
2. Most people think that innovation happens in one part of an
organization…….
…… but it permeates the organization
3. Most people think becoming innovative is easy….
…… but changing behaviors, and moving away from
what has made you successful is very challenging
4. Most people think you always have time to get more information to
make a decision…
….. But innovation is often a race against time
Innovation is important to the future of your
business
but it is challenging to become more innovative
“The biggest risk is not taking any risk…In a world that
changing really quickly, the only strategy that is guaranteed
to fail is not taking risks.”
Mark Zuckerberg

69. The most important aspect of implementing innovation
is to decide what opportunities not to pursue
“Innovation comes from saying no to 1,000
things to make sure we don’t get on the
wrong track or try to do too much.”
Steve Jobs

70. Innovation exercise 3
Use one of the techniques or approaches to identify an idea,
Then evaluate the ideas against the criteria

71. How should you invest your Development funds & people?
What is your investment portfolio?
TechnologyImpacttoBusiness
HIGH
LOW
Likelihood of Commercialization
Within Next 5 Years
LOW HIGH
Portfolio Management is about resource allocation
Which Development projects should you resource
The relative prioritization of these
It’s how you implement your Strategy
4. Developing a strategic portfolio
It’s real when you spend money

72. % of Projects in the Average Development Portfolio
There has been a strong trend to smaller, lower risk and less innovative projects
Development Project Type 1990s 2000s
New-to-world, new-to-market
innovations
20.4% 11.5% 43.7% decrease
New-product lines to the
company
38.8% 27.1% 30.1% decrease
Additions to existing product line
in company
20.4% 24.7% 20.8% increase
Improvements & modifications
to existing company products
20.4% 36.7% 80.1% increase
Total 100.0% 100.0%
-60% -40% -20% 0% 20% 40% 60% 80% 100%
Negative trend

73. • Too many projects for the
limited resources available
• Portfolios unbalanced –
too many ‘small’ projects
• Few or no high value
projects
• Poor project prioritization
• Few businesses have a
portfolio management
process in place
• Best performers fare much
better on these metrics 69.0%
58.6%
62.1%
69.0%
62.1%
78.8%
75.0%
88.8%
80.6%
76.0%
96.4%
88.0%
100.0%
100.0%
96.0%
50% 60% 70% 80% 90% 100%
No portfolio management process
Poor project prioritization
Few or no high value-to-the-business
projects in portfolio
Poor balance: too many minor projects
in potfolio
Too many development projects for
the resources available
Worst Performing Businesses
Average Business
Best Performing Businesses
Percentage of Businesses
Reasons for failure

74. Worst
Performers
Average
Business
Best
Performers
Promotional developments & package
changes
12% 10% 6%
Incremental product improvements &
changes
40% 33% 28%
Major product revisions 19% 22% 25%
New to the business products 20% 24% 24%
New to the world products 7% 10% 16%
45% 55% 65%
10 Point Steps
Top performing businesses have a
more innovative, bolder but riskier
portfolio of development projects
Too many small, low value projects

75. D: DISRUPTIVE
Unmet consumer need. New
technology.
P: PROGRESSIVE
Addresses consumer need
better than competition.
Significant technology
development.
C: CONTINUOUS
Range extension or upgrade.
Technology available, some
development required.
T: TACTICAL
Graphics change, bonus bags,
deletions, seasonal.
Incremental Sales
(NSV - First Full Year)
23%
15%
40%
22%
D
P C
T
Resource Allocation
T
47%
12%
23%
4%
D
P
C
Number of Projects
T
78%
4%
D
6%
P
12%
C
Look at your current portfolio

76. Management
makes strategic
choices:
resource splits
by bucket
Project types
Markets, segments
Product lines
Technologies
Geography
Categorize
projects by
bucket, then rank
in each Bucket
until out of
resources
Resource
allocation will
thus mirror
your strategic
priorities
Doing Strategic Buckets
Best Practice Example
Major, Bold
Innova-tions,
Platforms
Other: extensions,
modifications,
improvements cost
reductions
Std New
Product
Projects
The business's strategy dictates
the split of resources into buckets
Use strategic buckets

77. Market Segments
41%
Residential
19%
Automotive
12%
Institutional
28%
Industrial
Product Lines
35%
Roofing
Membranes
38%
Sealants
20%
Flooring
Coatings
7%
Deck Coatings
Use two or three dimensions for Strategic Buckets:
Project Types, Product Lines, Market Segments, etc.
Resources by product lines & markets

78. • Roadmap:
– Management’s view of how to get where
they want to go
– Or to achieve their desired objective
• Provides a way to develop, organize
and present information on:
– What new products or product lines the
firm will develop
– What new platforms it will develop
– The timing & sequence of these
– Technologies to invest in:
• Fundamental research work
• Technology acquisition & licensing-in
Provides ‘placemarks’ for major developments 5-7 years into the future
Develop strategic product roadmap

79. Strategic:
 Given your strategic arenas
 What major products do you
need in order to win in each
arena?
Market Analysis
 Where is the market going?
• Trend analysis
• Market forecasts
• Industry studies
 What new products will be
needed?
Multiple inputs and a cross-functional team of experts
required to develop the Product Roadmap
Options for strategic roadmap

80. Competitive Analysis
– Where are your products relative to
competitors:
•Your relative strengths (or weaknesses)?
•Which of your products need
replacement or enhancement?
– Where will your competitor’s products be
in 1-3 years?
Product Line Analysis
 Review your current
product line:
 What’s the PLC (Product
Life Cycle curve) of each
product?
 Which products are tired
and becoming obsolete –
need replacement?
 What gaps do you have in
your product line – need
filling?
Embry-
onic
Early
Growth
Late
Growth
Mature Decline
Product
Line A
Product
Line C
Product
Line B
Product
Line D
Approachestodevelopingstrategicroadmap

81. • Create huge threats to
the dominant firms
in an industry
• Great opportunities
for others
• In the last century:
– Digital watches almost destroyed
Swiss watch industry
– Hand-held calculator devastated
mechanical calculating devices
– Ball-point pen, the Xerox machine
and the jet engine created great
dislocations
ProductPerformance
Time
Disruptive
Technology
Exploit disruptive technologies

82. • Here’s how: Prioritize your projects
– Rank projects according to their ‘value to the company’
– Rank or list them until you run out of resources
• Some tough issues:
– How to put a ‘value’ on projects
– Often multiple objectives:
• Profitability (IRR, NPV, EVA)
• Strategic importance
• Desire for ‘quick hits’
– Reliability & predictability of these measures
• Profitability – often difficult to accurately predict
• Some projects may be cancelled – estimates change!
Maximize the portfolio’s value:
Admirable goal – Tough to achieve
Maximize portfolio value

83. NPV (Net Present
Value)
Project’s Value in $000
Forecast of cash flows for X years
Sum of positive & negative cash flows
Cash flows discounted by 1 / (1+i)n
IRR (Internal Rate of
Return) –
the ROI as a %
IRR Is the value of i (%)
So that NPV = 0
Payback
Period
(in years)
Forecast cash flows
How many years before investment is
recovered?
Make Go/Kill decisions at Gates based on
Whether these financial numbers hit hurdles
ValMax method 1: Financial

84. Strengths:
– Gives the true return & value
•The way bonds, loans and
annuities are valuated by
financial institutions
– Recognizes that money has a
time value
– Favors projects that:
•Have sound income streams
(versus expenditures)
•Are close to launch (little is left
to be spent)
– Deals with constraints: bang for
buck
•Productivity Index = NPV /
Costs Remaining
Weaknesses:
– Relies on financial data –
unreliable
– Ignores probabilities of
success (hence ignores risk)
• So use a ‘risk adjusted’
discount rate
– Assumes strictly financial
goals
Strengths & weakness: NPV, IRR & PI

85. Mostly
financially
based
Determine
NPV
Clear hurdle?
Rank by NPV Better:
Determine
Productivity
Index
Gauges bang
for buck
Productivity
Index =
Output
Input
NPV
Development Costs
or Person-Days
=

86. Sophistication of
most financial
models is far
beyond the
accuracy of the
data input
Garbage in =
Garbage out
Trying to
measure a soft
banana with a
micrometer
Will tend to
favor “known”
projects with
low
uncertainties
Drives you to a
conservative, low
risk portfolio
Low hanging fruit
projects – fast,
cheap, certain
Not what we’re
trying to achieve
here!
Rely extensively
on financial
analysis, and
likely you won’t
do any bold
innovations
Financial tools not good for bold projects

87. Based on theory that qualitative factors predict
new-product project success & project value
Relies on “markers” that are proven to be
correlated with success & value-to-company
Examples:
•Competitive advantage
•Market attractiveness
•Strategic fit
A scoring system based on these factors
A point count system
Use scorecards at gates & portfolio reviews
Make sure you choose factors that really do
discriminate between winners & losers?
Select Projects Using a Scoring Model: ProfilingResources by product lines & markets

88. 1. Strategic fit
& importance
• Strategic alignment – fits our strategy
• Strategic importance & impact
2. Market
opportunity
• Market size, market growth rate, potential
• Competitive intensity & strength
3. Feasibility
• Technical – can it be done, can we do it?
• Marketing – do we have the capabilities & resources
4. Competitive
advantage
• Unique solution, differentiated
• Compelling value proposition to customer
5. Reward
Vs. Risk
• Potential for profit, payback time OK
• Acceptable risk
Five Key
Criteria
• Develop a scorecard
• Use this at Gate & Portfolio Reviews
Markets that predict success

89. • Bold innovations are riskier:
– Less than a 100% chance of commercial success
• Some won’t even be developed
– Hit technical roadblocks & die
• How to handle risks & uncertainties
• Several ways:
1. Risk adjusted discount factor in
your NPV calculations
• Use different values of i for
different project types
2. Probability-adjusted NPV
• Adjust the values of some inputs to the NPV calculation
• By their probability of occurring
• Example: Multiply Sales by a probability ( < 100%)
3. Options Pricing (Real Options or Expected Commercial Value)

90. • When examining new project, tendency to look at total project cost
• However, this assumes that either you spend zero dollars or the full
project cost
• But this is not the case, if you adopt a lean or real options approach
• This approach assumes that any project advances through a series of
stages (Bob Cooper’s Stage gate) and that at each gate you can
decide to continue or not to continue
• These gates are not simply project milestones, but specific points
where you gather enough evidence to justify continuing
• In general, each stage eliminates a project risk, if the risk is not
eliminated then the project is cancelled
• These risks include: technical, market, financial and operational risks
Why Real Options is so powerful

91. • Value of the project if successful is $50M… based on DCF of future
incomes stream
• Costs:
– Development cost: $3M
– Commercialization (Launch) cost: $3M
– Detailed Investigation (prepare Business Case): $700K
– Preliminary Investigation: $300K
• But…
– Only 70% chance of commercial success if we Launch
– And 70% chance of success of technical success in Development
– 60% likelihood the Detailed Investigation will be positive
– Only 50% chance the Preliminary Investigation will be positive
• Would you invest? (Total investment is $7M)
Looks like a pretty risky investment!
Expected commercial value - example

92. • What’s the probability of success?
– .70 x .70 x . 60 x .50
– That is, only 14.7% chance of success
• Total investment is $7M
• But big pay-offs: $50M
• Would you invest?
Source: Winning at New Products, Robert G. Cooper, 2011, 4th Edition. Refer to page 243 and to Portfolio Management for New Products, endnote 1 for the detailed explanations.
Three Methods to Estimate Probabilities:
 Delphi (modified)
 Data Tables
 Scoring Model
 How does one handle the calculations for these risky investments?
 Break the project into stages
 Introduce probabilities
 Use Decision Tree Analysis to determine the ECV
Would you invest?

93. Commercialize
Commercial
Success
P=0.70 $50M
$0
Fail
$3M
Development
Technical
Success
P=0.70
Fail-
Kill
$3M
Detailed
Investigation
Fail-
Kill
Success
P=0.60
$700K
Preliminary
Investigation:
Success
P=0.50
Fail-
Kill
$300K
 Starting on the left, $300,000 is invested in a preliminary investigation with 50-50 odds of success
 If the investigation does not yield desired results, the project is killed
 If the result of the preliminary investigation is positive, $700,000 is invested in a detailed
investigation with a 60% chance of success
 Process continues through next two stages, with both investment and odds of success increasing at
each stage, for a total investment-- if the project proceeds to commercialization --of $7 million.
 The “payoff” if successful is the present value of future earning after launch, namely $50M.
Map the project as a decision tree

94. Preliminary
Investigation:
Success
P=0.50
Fail-
Kill
ECV=
$5.2M
Detailed
Investigation
Fail-
Kill
Success
P=0.60
Development
Technical
Success
P=0.70
Fail-
Kill
Commercialize
Commercial
Success
P=0.70 $50M
$0
Fail
$32M
$19.4 M
$10.9 M
Working back from the ECV of $35 million at the beginning of commercialization
($50M x 0.7), the ECV at the Start is a respectable $5.2 million.
Note that as one approaches launch, the ECV should increase; in this example,
on entering Development, the ECV has increased to $19.4M.
$35M
$3M
$22.4 M
$3M
$11.6 M
$700K
$5.5M
$300K
Expected commercial value of project

95. Fail
-Kill
Success
P=0.60
Technical
Success
P=0.70
Fail
-Kill
Commercial
Success
P=0.70 $50M
$0
Fail
Commer-
cialize
$32M
$3M
Development
$19.4 M
$3M
Success
P=0.50
Fail
-Kill
$5.5M
Preliminary
Investigation:
ECV=
$5.2M
$300K
Gate Start Enter Detailed
Investigation
Decision to
Develop
Decision to
Commercialize
Invest $300K $700K $3M $3M
ECV $5.2M $10.9M $19.4M $32M
Risk = Invest/ECV 0.058 0.064 0.155 0.094
Detailed
Investigation
$700K
$10.9 M
$11.6 M
$22.4 M
$35M
Risk is managed

96. Innovation exercise 4
We have identified several alternate ways to evaluate your current
portfolio
 Buckets
 Financial (NPV)
 Financial (IRR)
 Strategic (Market)
 Real options
Choose one of these techniques to look at a three or four of your
companies current innovation projects, to see if they build a
portfolio of innovation opportunities in your company, or if you
are working on too many incremental innovations