How to Get a Better Return on your Innovation Investment
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So you’re convinced that investing in Innovation is a good thing to do but you’re not sure that you are getting good value from your investment. You’ve seen over a dozen articles on innovation in the last year alone. These often look at a few iconic examples (e.g. Apple, eBay, or P&G) but some of the advice is conflicting and you wonder if you can really replicate Apple’s business model in your industry! You think that some of your innovation management practices need improvement but there seems to be little empirical evidence about what really works in terms of managing the innovation process. We’d like to share some findings from Arthur D. Little’s 8th Global Innovation Excellence Study – a detailed cross-industry benchmark – and invite you to benchmark yourself against your industry peers. The study is based on looking at the relationship between innovation success (based on impact of innovation) and innovation performance on a comprehensive framework which breaks down innovation activity in different areas and looks at adoption of best practice in each area. What you will learn This webinar will provide some hard evidence on which innovation practices separate top innovators from others within and across a wide range of industries, including four key cross-industry innovation management practices which are most consistently linked to strong innovation performance: • Understanding important technologies in terms of their contribution to corporate goals. • Using external sources of business intelligence in a structured way. • Reacting to changes in targeted segments by reviewing the product/service portfolio. • Mobilizing the whole organization to develop new ideas. To view this webinar in its entirety, please visit: http://budurl.com/fwwd
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How to Get a Better Return on your Innovation Investment
- 1. How to Get a Better Return on your Innovation Investment June 20th 2013 Live tweet with #ROInnovation
- 2. Rick Eagar Partner, Arthur D. Little Eagar.richard@adlittle.com +44 7710 536471
- 4. 4 Three discussion topics What is Innovation Excellence in practice? How well do we innovate? How can you benefit?
- 5. 5 We have responses from 600 companies across two time periods Industry Cluster 0% 10% 20% 30% Other Pharmaceutical and Bio-… Logistics, Transport and Trave Oil and Gas Aerospace & Defence White goods and consumer elect Utilities Food and Beverage (incl. Suppl Medical Technology and Medical Electrical Engineering and Ele Automotive Manufacturing and A Telecommunications, IT/Softwar Chemicals (including Specialit Industrial and Manufacturing Geography Europe Asia Ame- ricas Source: ADL GIES 2012
- 6. 6 What is Innovation Excellence? Zoom in on “How” (Process quality) 8 critical sub-processes/capabilities Upstream capabilities (Doing the right things) Downstream Capabilities (Doing things right)
- 7. 7 Some real differences across industries Highest importanceLowest importance http://www.adlittle.com/3906.html
- 8. 8 Some real differences across industries Highest importanceLowest importance http://www.adlittle.com/3906.html
- 9. 9 Innovation Success Measures “New” share of Revenues* “New” share of EBIT* Impact of Innovative “Cost-Out” Process improvement* Time-to-Market* Innovation satisfaction (weighed by product, service, process or business model innovation activities) * Normalised across industries
- 10. 10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 200 300 400 500 600 700 800 Average score of 6 / 10 Note: R2 = 0.33. The relationship is significant at p<0.001 – there is less than a 1 in a 1000 chance that this relationship is due to random effects Source: ADL GIES 2012 (N=273) Top innovators Others Natural innovators Dormants World class innovators Strivers World class Innovators Achieve significantly better innovation success than others, and have developed and implemented sophisticated, modern innovation management approaches to support success Natural Innovators Achieve high levels of innovation success – yet they seem to do so without having all the best practice innovation management mechanisms in place Strivers Are working hard on developing sophisticated innovation management practices. Achieving good performance, but have not yet reached the levels of success of World class innovators Dormants Their innovation success is limited but they have also not yet implemented the best practices needed to improve, and so generally have significant improvement potential Score on Arthur D. Little Innovation Excellence Index InnovationSuccess = Average across sample
- 11. 11 Five Major Insights: Decoding innovation success Driving growth 4 practices stand out and have a high impact on innovation success (regardless of industry, size or innovation focus) 4 high impact practices There is a clear correlation between capability in innovation measurement and innovation success Top quartile innovators obtain 13% more profit from new products & services and 30% shorter time to break- even Performance & financial results Mastering the KPIs There is strong evidence that excellence in innovation management leads to higher innovation success When managing growth, top innovators outperform others by 15-20% – In particular in identifying unmet needs, building culture and competence 1 2 3 5 4 “If you can’t measure it you can’t manage it” Innovation Excellence conclusions
- 12. 12 1: A good capability delivers! 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 200 300 400 500 600 700 800 InnovationSuccess Score on Arthur D. Little Innovation Excellence Index = Average across sample R2 = 0.33 Note: R2 = 0.33. The relationship is significant at p<0.001
- 13. 13 2: Top Quartile Innovators get nearly twice the EBIT from Innovation and much faster New products/services share of total sales New products/services share of total EBIT 35 % 15 % 16 % 6 % ≤ 3 years on market*** ≤ 1 year on market*** 15 % 29 % 16 % 7 % ≤ 3 years on market*** ≤ 1 year on market*** OthersTop innovators Avg. time to break-even for new products/services 15 22 No. months to break-even** Impact 30% 13%
- 14. 14 3: Good Innovation measurement correlates with success “If you can’t measure it, you can’t manage it” Clear correlation between companies’ capabilities in innovation measurement and the innovation success achieved Less than 20% of companies believe they are better than average in innovation measurement capabilities This underlines both the inherent difficult of effective measurement of innovation, and the significant potential for companies to improve their capabilities in this area Report % of people in each category. Companies really need to get a handle on measuring their innovation performance Self-rated innovation metrics capabilities Average innovation success -10%** Don’t measure Bottom 25% Below average Above average Top 25% -25%*** -20%*** -14%***
- 15. 15 4: Four high impact practices identified 4. Reacting to changes in targeted segments by reviewing of the product/service portfolio 2. Using external sources of business intelligence in a structured way 1. Understanding each technology in terms of its quantified contribution to corporate goals 3. Mobilizing the whole organization to develop new ideas
- 16. 16 POLL QUESTION
- 17. 17 Which of the high impact practices is your organization weakest in (choose one)? 1. Understanding each technology in terms of its quantified contribution to corporate goals 2. Using external sources of business intelligence in a structured way 3. Mobilizing the whole organization to develop new ideas 4. Reacting to changes in targeted segments by reviewing of the product/service portfolio
- 18. 18 5: Growth accelerator framework Clear, shared vision and strategy for growth Centers of excellence Interfaces & processes Partnerships & open innovation Piloting Implementation planning Corporate improvement / innovation program Capability development Tool development & hand-over Growth vision & mission Team building Entrepreneurship Change management Segmentation & profiling Trends & scenario’s Competitor analysis Business models & value chain Innovation benchmarking Core competencies assessment Emerging technology heatmaps Adjacencies mapping A Pilots & roll-out Organization & processes Culture & change Capabilities & tools Unmet needs Solutions Value proposition & value selling Go-to-market strategy Features & modularization Innovation platforms & roadmaps Finding growth Delivering growth Customers & markets 1 Competencies & technologies 2 5 6 7 8 Growth roadmap 4 Opportunity spaces 3 Feasibility assessment Opportunity evaluation Opportunity scouting Business case development Implementation B C Source: Arthur D. Little
- 19. 19 Finding growth Deliveri ng growth Pilots & roll- out Organization & processes Culture & change Capabilities & tools Unmet needs Solutions Customers & markets Competencies & technologies Growth roadmap Opportunity spaces Implementation 1 2 3 Clear, shared vision and strategy for growth 5: Top Innovators do up to 25% better in adopting best practices in accelerating growth What do top innovators do better? Correlation between growth practices and innovation success 20%10%0% Average: 16% Megatrends impact Dedicated function Approved roadmap Open innovation Pilot and roll-out Select opportunities Compelling proposition Growth strategy Leverage competencies Entrepeneurship Unmet needs Note: Percentage indicates percentage-point difference Differences in usage between top innovators and others 1 2 3
- 20. 20 5: Top Innovators have overcome important internal challenges that are keeping back others No problem for top-innovators : 1. Obtaining top management support 2. Alignment towards a common strategy for growth 3. Establishing cross-functional relationships 4. Enabling fast decision-making 5. Minimizing internal bureaucracy Font sizes are proportional to frequency of mentioning Similar answers were clustered to facilitate interpretation Challenges Yellow topics are indicated by most innovators but not by top innovators
- 21. 21 How can you benefit? Get the overall results (website, card, mail, …) Participate (at no cost): – Answer calibrated questionnaire (± 1 hour) – Enjoy the output !: Position relative to peers and the world My strong and weak points Recommended improvements Toolkit access: http://www.adlittle.com/survey_toolkit.html
- 22. 22 Overall position relative to sector peers and the world InnovationSuccess2 Innovation Management Approach1 Innovation performance overview Company ABC is sophisticated in its Innovation management approach, and has a top quartile innovation success Innovation success could be enhanced by upgrading: 1. Technology portfolio mgmt 2. Resource & Competence mgmt 3. Post-Launch capabilities 4. Business Intelligence Comments Innovation management approach Basic Inter- mediate Sophisticated Low Quartile Medium Quartile Good Quartile Top Quartile Your CO Industry peers Other industries 800 720 640 560 480 400 320 240 160 80 0 499 Score Your co . Industry avg Top companies* 648* 567
- 23. 23 Position relative to Peers Product / service port- folio mgmt. Business intelligence Development & Launch Post- Launch Resource & Competence Management Idea management Technology portfolio mgmt. Inno- vation strategy Company ABC’s capabilities based on survey resultsThe strategic importance of the model as reported by industry peers Strategic importance: Industry average Innovation management approach: Company ABC* Product / service port- folio mgmt. Business intelligence Development & Launch Post- Launch Resource & Competence Management Idea management Technology portfolio mgmt. Inno- vation strategy Highest importance Lowest importance * Scores reflect Company ABC’s position compared to the rest of the industry Bottom Quartile 3rd Quartile 2nd Quartile Top Quartile
- 24. 24 Improvement areas Innovation strategy Model part Business intelligence Idea management Product/service portfolio mgmt. Technology Portfolio mgmt. Development & Launch Post Launch B D Approach level (based on max. score) Improvement areas E G H Resource & Competence mgmt Innovation Management Approach Company ABC Industry average Top companies 20% 40% 60% 80% 100% 800 720 640 560 480 400 320 240 160 80 0 695* 474 Score 374 o Develop and leverage technology roadmap o Articulate goals & targets o Further formalise technology & IP intelligence o Specify roles and process o Provide better strategic guidance o Strengthen processes o Align roadmaps o Structure make/buy decisions o Structure and share approach to accommodate different project types o Improve as Company ABC expands beyond current core going forward o Improve competence and IP mmnt o Improve portfolio management processes and tools C F I = Major improvement areas
- 25. 25 In conclusion Good progress with understanding Excellence 6/10 work to be done! Excellence gives much higher Performance Some things matter more than others Quick Excellence Health Check available for you
- 26. 26Stay up to date on upcoming webinars by following us @sopheon Rick Eagar, Partner, Arthur D. Little http://www.adlittle.com/ Eagar.richard@adlittle.com Questions? Email alise.houserman@sopheon.com Thank You for Attending
Notes de l'éditeur
- What I thought we would do is Explain how we think about innovation excellence and measuring innovation – and how we have used these concepts in a recent Global Innovation Excellence Study. I’ve brought a few copies of the report – it can also be downloaded from the website.Then i’d like to share some of the findings of the study about how well we innovate – you will see there is still a lot of room for improvementThen we will cover some of the major insights.Finally, I’d like to invite you all to participate – participation is free, and it provides a benchmark against global best practice and peer performance.
- We ran it in 2009-2010 and then again in 2012.Fundamentally we have trends across time which means we have previous empirical evidence for study design. It also means we can look at what has changed over time in different sectors.We have a broad spread of responses – they broadly match ADL presence.
- There are lots of ways to think about innovation. In ADL we use a structured framework that has worked for us for quite a while, It was initially introduced in 1995 based on Arthur D. Little’s consulting experience in the area of Technology and Innovation Management and has been gradually refined through extensive caseworkand the evolving Global Innovation Surveys.The model provides a structure to examine the different components of theinnovation system and which also sets out a range of best practicescompanies can adopt to achieve high innovation performanceInnovation Strategy: Corporate strategic & innovation priorities (how is organisation organised, who has responsabilities how are targets set).Business Intelligence: Tools and techniques used to identify, extract and analyze business dataTo more classical parts of the process of ideation, product and technology portfolio, idea management and development and post launch. For each of these the benchmarking process looks at the addoption of best practices.
- It’s important to realise that not all industries are the sameWe can see that the importance of different parts of the model varies by industry – as we saw yesterday in ABB’s presentation the energy sector (upstream and power generation) emphasise the importance of resources.ONE OF THE THINGS THAT WE TOOK A DEAL OF CARE WAS TO NORMALISE ACROSS INDUSTRIESEach of the 8 component gets a score and these are weighted based on industry importance.
- It’s important to realise that not all industries are the sameWe can see that the importance of different parts of the model varies by industry – as we saw yesterday in ABB’s presentation the energy sector (upstream and power generation) emphasise the importance of resources.ONE OF THE THINGS THAT WE TOOK A DEAL OF CARE WAS TO NORMALISE ACROSS INDUSTRIESEach of the 8 component gets a score and these are weighted based on industry importance.
- How do we measure innovation success?It’s difficult… studies after studies have struggled to link it to profitability.Our approach is to look at things we can attribute to innovation so increased “new” revenueIncreased new share of EbitImpact of Cost reductionTime to marketAnd some measure of satisfactiion (weighted by the relative spending on Product & Service / Process / or Business Model innovationThe footnote is important, we did our best to normalise responses by industry category – we can do this because we have data on spread of performance by industry from previous studies and this study.
- As I said One of the key trends we are happy to see is a relationship between innovation management processes and
- 1 – there is a good relationship between adopting best practice processes and innovation success (that’s a relief for those of us who believe in processes).2 – There is a real pay off from innovation. And real pay off from being better at innovation3 – There is a shocking relationship between tracking innovation performance and innovation success. And a lot of respondents are not doing it very well. It’s something that we’ve talked about for years, 4 – We have pile of data and we’ve identified four things that really appear to have real impact across all industries.5 – Finally – this year we had a specific module on innovation and growth and we’ve identified some of the best practice for high growth high innovation companies.
- So what do the results look likeThe first thing is that we see a relationship between innovation success and use of the types of best practice processes we cover in the Global Innovation Excellence Study.The good news is that the relationship is statistically significant.There is a spread – it isn’t a perfect line (but if I showed you a straight line you’d be rolling on the floor).
- We found a strong and positive correlation between companies’ assessment of their own capabilities in innovation measurement and the innovation success achieved. This underpins the long-accepted maxim supported by our own experience in working with clients, namely “If you can’t measure it you can’t manage it”. We see a clear correlation between use of innovation metrics and innovation success with decreasing performance in innovation metrics capabilities, innovation success also decreases significantly (dropping monotonically with each successive drop in quartile). This underlines the inherent difficulty companies have in measuring innovation and the significant potential for companies to improve their capabilities in this area.In general, we see best practice as beginning with innovation strategy and objectives, focusing on a small number (less than 10) of innovation metrics which cover innovation, inputs, process, output and impact.
- Mobilizing the whole organization to develop new ideasA common mistake in idea generation is to let a single R&D Group or an Innovation Unit solely lead the process. The whole organization (one could even say the whole world) has to be mobilized in order to improve:a) the chances of coming up with a great original/new idea and;b) the opportunity to enrich and get feedback on “new ideas” from a wide range of business functions early on.A growing number of companies realize that they have failed to make innovation the business of everybody and that this is costing them dearlyReacting to changes in targeted segments by reviewing the product/service portfolio This practice is concerned with reviewing the product/service portfolio frequently, and in a structured manner, in order to meet potential changes in targeted segments. This is about optimizing resource allocation in line with changes in their target segments, removing “waste” from the portfolio of projects.
- There are lots of ways to think about innovation. In ADL we use a structured framework that has worked for us for quite a while, It was initially introduced in 1995 based on Arthur D. Little’s consulting experience in the area of Technology and Innovation Management and has been gradually refined through extensive caseworkand the evolving Global Innovation Surveys.The model provides a structure to examine the different components of theinnovation system and which also sets out a range of best practicescompanies can adopt to achieve high innovation performanceInnovation Strategy: Corporate strategic & innovation priorities (how is organisation organised, who has responsabilities how are targets set).Business Intelligence: Tools and techniques used to identify, extract and analyze business dataTo more classical parts of the process of ideation, product and technology portfolio, idea management and development and post launch. For each of these the benchmarking process looks at the addoption of best practices.