INNOVATION MANAGEMENT MANUAL Abstract DARON DIGGES

Transcription

1 INNOVATION MANAGEMENT MANUAL Abstract This manual will contain a number of specific strategies that will be specific for NZ businesses, these processes will directly impact the overall innovation strategy. DARON DIGGES

2 TABLE OF CONTENTS Overview... 2 Overview of NPD process... 2 Organisational identity... 3 Overall NPD strategy... 5 Corporate and business strategy... 5 Innovation Strategy... 5 Innovation Framework... 8 Miles and Snow s TYpes of companies Understanding the product Innovation Supporting Strategies Portfolio management Performance metrics Critical Evaluation References P a g e

3 OVERVIEW This manual will contain a number of specific strategies that will be specific for NZ businesses, these processes will directly impact the overall innovation strategy. The below will be discussed in detail: Technology strategy, marketing strategy, platform strategy, open innovation, intellectual property. Portfolio management section, we discuss the processes for project selection A range of different processes which are appropriate to different innovation strategies. OVERVIEW OF NPD PROCESS Below is an outline of the process involved with NPD process, headings that will be covered in this assignment. Figure 1 Decision Hierarchy Anderson (2016) 2 P a g e

4 ORGANISATIONAL IDENTITY DO YOU HAVE A MISSION STATEMENT? A statement that is the company s creed, philosophy, purpose, business principles, or corporate beliefs. It focusses on the energy resources of the organisation. E.g. to be the leaders in. WHAT IS YOUR COMPANY VISION? A vision is the act of imagining the company and the plans for the future, this involves foresight and guided by an informed notion of the realistic possibilities of the company. This vision should keep in mind the limitations of the company as well as displays the most desirable outcome of the future of the company (Huldtgren, Boming, Kahn, & Friedman, 2013). WHAT ARE YOUR CORPORATE VALUES? This is the code of conduct and behavior of the people involved with fulfilling the mission, this will from the plan of action used to complete the mission which is the strategy. E.g. to expand markets, create new markets or increase revenue? Keep in mind there needs to be a quantifiable amount that the company can aim for. DO YOU HAVE AN INNOVATION STRATEGY? This is a plan of action used to achieve long-term or overall aims of the company ( Strategy,2010). This provides goals and direction for innovation across the company. E.g. to improve technology or to increase external collaboration. DO YOU HAVE A FUNCTIONAL STRATEGY This is the process of innovating, this could be a new method, idea or product. ( Innovation, 2010). A strategy is about achieving objectives and planning ahead, while innovation is about discovery (you don t know where it s going until you get there). Strategies used by functional departments to support business strategy. E.g. Having an IT, HR, Sales or Marketing strategy. WHAT YOUR COMPANY VISION AND GOALS SHOULD INCLUDE: Figure 2 Vision and Goals 3 P a g e

5 Modular and Architectural Incremental and Radical What types of Innovation does your company do? Product and Process Open and Closed Figure 3 Types of Innovation ENTERPRISES SHOULD ALSO EMPHASISE Planning and controlling systems with a high degree of flexibility Respect for individual (employee) initiative and personal growth Tolerance for mistakes and allowing room for failure Have a go at defining your company mission statement, vision and values. Start to think about how your company innovates, what do you think the innovation strategy is? Even though it may seem too complex to do now, it will be further explained in this report. Now that you have defined the organisation identity, proceed to next section that covers the corporate, business and innovation strategy. 4 P a g e

6 OVERALL NPD STRATEGY This defines the company goals in terms of total product development effort, including the role of product development in your business. Technology and platforms Product types, lines or categories Areas for strategic focus Markets or market segments Where to deploy the NPD strategy: Figure 4 Areas for strategic focus (Anderson, 2016) Spending allocation across the areas Which markets get how much focus, how many resources In order to gain achieve your goals of becoming a successful business, each area should have an equal amount of work put in to improving. Key practices can aid with NPD success and will be described further. There are both internal and external capabilities required in terms of resources. Intellectual property is a strategy is looked over and not focused on clearly but by following this manual, it will allow for successful development. CORPORATE AND BUSINESS STRATEGY This is the overarching strategy of a diversified organization, this should answer the question as to where the business should compete on the market and demonstrate how synergy is created through getting this business. The strategy should identify if there is a competitive advantage gained through the structure of the company. There are individual functional strategies of the company that can be combined to show the overall business strategy. The following need departmental strategies: Marketing Technology New Product Development Supply Chain Legal Resources Human Resources Information Technology Figure 5 Departmental Strategies that can be amalgamated In the following notes, all of these areas will be involved, both directly and indirectly with the greatest emphasis on new product development. INNOVATION STRATEGY Following from the initial description, the best (more successful) companies have shown to have a higher percent (76%) of new product strategies that integrate their entire NPD programs. The Rest have only 54%. WHAT DEFINES A GOOD INNOVATION STRATEGY? 5 P a g e

7 It should be tailored to the specific organization The innovation strategy must provide a sound basis for providing alignment across the organization; for establishing priorities; and for evaluating limitations. Figure 6 NPD cycle taken from Anderson, (2016) Looking at risk (cost of the product, previous customers, customer demand, and product sustainability), reward (market research, size of the market, benefits, lifetime of sales) and strategic fit (generating future opportunities). The combination is considered the evaluation for the outline of the innovation strategy. The figure below shows the outline, where the goals for NPD are described, the selected areas for focus are previously described, portfolio decisions are still to be mentioned. Figure 7 Outline of Strategic plan and relation to the NPD process (Cooper & Edgett, 2010) DOING THE PROCESS RIGHT Alignment with company strategy by building on current products, growth in new areas and emphasis on NPD for growth compared to the alternative of M&A (merger and acquisition). 6 P a g e

8 Portfolio selection and management should be consistent with currently planned capabilities of the company. The current strategic alliances should be also be consistent with the company goals. IP is important for NPD and should be consistent with the innovation direction of the company. DOING THE RIGHT PROCESS Appropriate systems and processes to support NPD e.g. Stage-Gate. The level of formality depends on the size of business and the corporate structure. Making sure the process is fit for purpose is important. (Re-evaluating this process could be important for this). The organisational structure and HR management should allocate the overall resourcing, this includes the internal and external needs for products. Line Management needs to be weighed up against matrix management based on the size. Those with smaller company s would find matrix structure more beneficial for the cross functional aspect along with the team structure. Recognition and reward is essential for incentives to product good new products. Creating a creative/innovative culture and environment improves the working environment; encouraging work and down time can be a tool to ensure the company is functioning as a team. Having a clear vision and support from the top management is important for reinforcing this. THREE PILLARS OF INNOVATION Figure 8 Pillars of Innovation Having a competent company is important to make sure that all the resources are aligned with the company this includes the skill of the employees and the value of new products being delivered to customers. Correct resource allocation is critical and based on a strategy as discussed. Management is an important pillar for the innovation process and is sometimes the difference between a good and average business. Now try to note down the business and the basics of the innovation strategy of the company (some framework will help you later on in this manual to fully define this). Ask yourself, are you doing the process right AND are you doing the right process? If not read over the content again and maybe seek external sources such as an external consultancy to review your NPD process for improvements. Spending this money on a consultant (or doing it internally) may pay off in the long run with more products making it to market and successful products. Ask yourself, is your company competent? Does it have a sound innovation strategy? Is there a clear and thorough management of these projects? 7 P a g e

9 INNOVATION FRAMEWORK INNOVATION MATRIX Is a tool for managing innovation encompassing four basic types of innovation. Figure 9 Innovation Matrix (PDMA 2016) Basic Research Sometimes when the product is very new the problem or the target area may not be well defined. Research grants and others can help fund research in specific innovation areas like in NZ where there are few larger enterprises. Profit is also a good method of funding projects and research but this needs to be profitable to be sustainable for NPD, sometimes these 3 innovation techniques can be combined in a portfolio of projects, to ease risk. Breakthrough/Radicle Innovation Sustaining/Routine Innovation Although some problems are well defined, business can get stuck trying to solve the problem, sometimes it is a NPD process issue. These types of problems can be solved through synthesizing across domains in order to pull in diverse resources. Large organizations tend to be very good at improving current technology, through product iterations, but because of the large resources large companies are good at this. For smaller companies in NZ, this type of innovation is not so common and lean towards more unconventional types such as breakthrough. Only develops existing markets (does not create new ones) with better value added to the products. Disruptive Innovation. This is the most troublesome area because its value isn t always immediately apparent. Many companies both large and small can miss the opportunity due to this problem. Risk is a big factor when developing in this area because for smaller companies in NZ, the radical develop that is not profitable could be detrimental to the business as a whole. There are generally a light target market or non-current consumers and would require a new business model leading to high failure rates (not the norm). Helps create a new market and value network if done right, the initial focus should be on a small influential target market, like NZ. Where the new product targets specific needs of an existing product so they can get a foot hold in the market. With this method, more customers can become converted to the new product by having a competitive edge and eventually converting existing competitor product users. 8 P a g e

10 PORTER STRATEGIC FRAMEWORK (PORTER, 2008) If an increased market share was one of your previously written down goals (in the practical example) then Michael Porter s company s strengths might appeal to your company by looking at these three strategies: COST LEADERSHIP STRATEGY Growing the company s market share by appealing to those customers that are shopping around for the most affordable product for the most value, is more relevant to economies of scale so do not apply to NZ specifically. If this is your company proceed to STEP 1 below to see how NPD relates to this strategy. DIFFERENTIATION STRATEGY Focussing on a broad product base gaining a larger market share by delivering unique and superior products. This is not very beneficial for the NZ market, where the market scale is smaller so will not be beneficial. Customers will stay loyal through this but constant innovation is important to deliver new product features that are attractive, equally delivering a product that is not up to the stated value with reduce market share drastically. If this is your company proceed to STEP 2 below to see how NPD relates to this strategy. SEGMENTATION STRATEGY This adopts a narrow market focus, perfect for the NZ market. This is based on having a sound knowledge of the key market and therefore provides a strong focus on marketing and NPD effort. This method provides the opportunity to fully understand customer needs and provides the opportunity for higher margins. Alternatively there is danger with being dependent on a single narrow market. If this is your company proceed to STEP 3 below to see how NPD relates to this strategy. RELATION OF THE STRATEGY TO NPD FOCUS Step 1 Step 2 Step 3 The level of NPD funding is low. The major emphasis is on minor product changes, often centered on cost reductions. There is little to no focus on long term research or development. Technology will often play an important role but mainly in improving manufacturing systems. A significantly higher level of NPD than for cost leadership. Products and their differentiating features that can command a price premium. Intimacy with customers, to fully understand their current and future needs. Sound foresighting to predict short to medium term trends. Relatively strong emphasis on research and longer term development. The level of NPD funding is generally higher than for cost leadership of differentiation. But, it is highly dependent on the product category and its potential for creation of high margins. Major emphasis is on customer intimacy (now and the future) Often working with lead user groups in the target market to identify new opportunities. Technology often playing an important role in the development of new product features. 9 P a g e

11 MILES AND SNOW S TYPES OF COMPANIES Prospector Strategy Adopters Analyser Strategy Adopters Defender Strategy Adopters Reactor Strategy Adopters They are risk tolerant and keen to explore new opportunities. Flexible in developing and applying new technologies. Value speed to market in order to capture greater market share. They balance the priorities of a prospector and a defender. They are moderately risk tolerant. They often follow prospector companies with imitator products also called fast followers Imitation products that adds greater value to the market The costs associated with NPD for the analyser are lower than for prospectors. The NPD capability is based on product and market analysis combined with skills in reverse engineering and design improvements. Technology often plays an important part in reengineering. Risk averse - focus on a narrow and stable market and category of products. Focus on core capabilities, even a single technology. Resist radical developments Swift to respond to competitive threats Cover a full range of product variants within its focus product category NPD focused on product enhancements Not usually technologically aggressive Have no clear strategic goals Responds to market changes with no clear plan for technology development or market entry Are generally regarded as not successful long-term WHICH ONE DO YOU ADOPT? The selection of strategies outlined in previous slides provide a framework or guide to developing the NPD strategy. A combination or hybrid of these various strategies is likely to be best for specific applications, smaller markets like NZ generally find it beneficial to take a more conservative approach or have a hybrid strategy not putting all their eggs on basket. Do some research and understand what type of innovating technique you are trying to accomplish. After asking yourself the in the previous exercise on the basics of your innovation strategy, now properly defined your strategy based on the porter strategic framework that your company falls under, then do the same to see which Miles and Snow strategy is best for you to adopt. 10 P a g e

12 UNDERSTANDING THE PRODUCT Understanding what makes up a product is important for innovation, essentially for those strategies that require adding value to current products. NZ is a good market for testing product viability on a smaller market scale but also have a higher risk of the market not conforming so the whole product should be developed thoroughly from the core outward to the basic then augmented which often reveals potential for new product opportunities as shown in the figure below. Figure 10 Product Benefits (Anderson, 2016) PRODUCT DIFFERENTIATION INNOVATION SUPPORTING STRATEGIES 11 P a g e

13 Platform Strategy Technology Strategy Marketing Strategy Intellectual Property Strategy Platform Strategy is not a product, it is a collection of common elements especially underlying core technology implemented over a range of products. It enables products to be deployed rapidly and consistently encouraging a longer term type of strategy. It can influence underlying operational efficiencies and create a platform that is easy for the company and the market to both understand. It supports future growth or the company to aid with achieving strategic goals. Technology driven organisations are depended on achieving a competitive edge though new technologies. Market driven technological organisations are heavily focussed on meeting customer needs. Most organisations will fall in the middle ground with a strong focus on meeting customer needs (foresight is needed for this strategy). Is better suited for the NZ market by focussing on the best opportunities with a limited resource availability, achieving a unique competitive advantage. Must be aligned with the goals of the company (Previously described in the example) To fully identify the need the current market (Market mix) and product portfolio should be defined. IP is the creation of the mind, inventing. Just like other forms of property, they can be sold, licensed, exchanged or given away. You may decide that your company is going to develop a IP product that will be protected by law (e.g. patents) to earn recognition or financial reward. Figure 11 Supporting Strategies (Markham & Lee, 2013) After going through the information you will have a general understanding on the product needs. Go back over the strategy you have already developed in the previous example and change it to better suit the supporting strategies if needed. Remember is it okay to have a hybrid strategy combining two or more ideas as long as you weigh up the risks involved with each strategy as described. 12 P a g e

14 PORTFOLIO MANAGEMENT NPD STRATEGIC CYCLE Figure 12 NPD Strategic Cycle (Anderson,2016) PORTFOLIO PLANNING STEPS Step 1. Identification, selection & prioritization of opportunities - It is important that there is strategic alignment and have a positive financial criteria. Step 2. Balancing of portfolio - Balance between number & project type (risk & cost), resources & capabilities Step 3. Resource allocation - Based on availability, strategy, project requirements & investment plan. Step 4. Align and finalize product portfolio plans - Existing and new projects may be accelerated or killed. STEP 1: IDENTIFICATION, SELECTION & PRIORITIZATION OF OPPORTUNITIES This involves discovering a project and determining the product pipeline performance, this is measuring the performance from the start to the end, estimating how this would affect other projects and influence other opportunities that may arise. STEP 2: BALANCING OF PORTFOLIO Financial Strategic Multiple Methods Financial models and indices Probabilistic financial models Options pricing theory Strategic buckets Scoring models and checklists Analytical hierarchy approaches Behavioral approaches Mapping approaches bubble diagrams, product roadmaps Strategic and financial Strategic with mapping approaches Strategic, financial and scoring models 13 P a g e

15 From the above, take the financial or strategic route (or both which is preferred) that can be used to balance portfolios, from this they can be compared with each other to determine which ones are the best suited. NOTE: This stage is essential to avoid biasing the results, having this stage influenced can possibly have the negative affect of choosing a project that is not viable and could possible ruin a smaller company (NZ SME). Below is an example of a strategic mapping matrix, a variation of projects can be plotted on here depending on the financial or strategic viability, the size of the project is represented by the size of the circle. At the end, this can be weighed up and balanced so that smaller companies (in NZ) can make a fully informed decision on the type of project that would be the most rewarding and less risky. It is important to develop an effective innovation portfolio that has one primary area of focus (one quadrant), but also pursues other quadrants of the matrix as well and builds synergies between varied approaches. Effective portfolio management entails being able to infuse core principles into everyday operations Satell, G. (2013). HOW TO BE HAVE A BETTER PORTFOLIO (Cooper & Edgett, 2010) Have suggested that having the following will improve the performance and quality of the portfolio: Financial approaches are most popular and dominate portfolio decisions. Benchmark businesses place less emphasis on financial approaches and more on strategic methods. Benchmark businesses tend to use multiple methods (e.g. strategic with scoring methods). Focus on high value, high impact NPD projects. Those that use both financial and strategic method for modelling projects seem to better in terms of success compared to others by visually weighing up projects before they are commenced. Bubble diagrams, options pricing, scoring models and payback period were included in the methods that lead to better portfolios. Having the product aligned with the company business strategy is equally important, smaller businesses have shown to be better performers when projects have been completed that relate to major product revisions, new to the business products as well as new to world products, which is beneficial to NZ who has a smaller market to work within PDMA P a g e

16 TECHNOLOGY PLANNING Provides the guidance to evolve and mature relevant technologies to address the vision and goals of an organization (alignment of the business). It is an active document that is influenced though future foresighting and changes in company strategy FORESIGNTING Figure 13 Foresighting (Anderson, 2016) Above is a figure describing the foresighting paradigm that influences how it can be done on the basis of creating future projects and predicting what the market will do in the future. STRATEGY This is how technology is utlised as part of the organisation s overall corporate and business strategy or the task of building and exploiting an organisation s technological assets: What technology is required? Developed Internally Sourced Externally What competencies are required? Developed as a core competence Sourced externally ROADMAPPING This technique can be used for new product and or processes that involves short-term and long-term goals with specific technology (solutions) to help meet the goals. There are several technologies to the correct one should be chosen to proceed, the development of multiple technologies can be coordinated with a road map 15 P a g e

17 and is done on a basis of a set time. The figure below identifies the interdepartmental roadmaps and how they link to the overarching roadmap to complete project. Figure 14 Road mapping (Petricka & Echols, 2003) STEP 3: RESOUURCE ALLOCATION STRATEGIC BUCKETS Strategic buckets are is a common tool for companies to adopt to place a certain percentage of profit for developing future new products. An example can be seen below, where this is done mainly in a top down approach, this can be adapted to NZ market as a strategic tool for identifying budgets and scoping smaller project to ensure that the NPD projects do not cause the company to be financially vulnerable. Figure 15 Strategic Buckets (Anderson, 2016) Try using the four planning steps to start creating or to update your existing project portfolio, remember to identify and align projects with the company strategy previously defined. Once the balancing of the portfolio has been done, draw up a matrix and plot your own projects. Use the tools of road mapping, foresighting and strategy to come up with future possible project. This may take a team to do but is a good exercise for all. Lastly, strategic buckets can be used to develop budgets and to scope these defined projects within different developed areas. 16 P a g e

18 PERFORMANCE METRICS It is important to have a measurement criteria for performance and to keep a score of winning which has been proved to be beneficial by top performing companies. Business strategy metrics: Product innovation & technology strategy metrics (e.g., % Growth from new products in strategic buckets) Portfolio management metrics (e.g., prioritized list metrics NPV, ECV - value maximization, balance and strategic alignment). Project metrics (e.g., gate criteria and post launch reviews). MEASURING PERFORMANCE A two dimensional metric is that involves the type of NPD project and the timing of the project using the following criteria: Lagging past performance Real time current performance Leading likely future performance Learning provides learning from all measures to target in specific future areas KEY FINDINGS TO INCREASE NPD PERFORMANCE 1. Shorten Time to Market 2. Establish Strategy 3. Manage the Portfolio 4. Modify NPD Process 5. Structure and Management Using this information, determine what your company performance metrics are, are they to increase % of growth from new products? Now use this two dimensional metrics to learn from past, current and future performance. This tool is important for learning and improving. Keep in mind the key findings for evaluating future performance. 17 P a g e

19 CRITICAL EVALUATION By reading through this manual and completing the relevance exercises after each section you should be able to: Identify your company s mission statement, corporate values, goals, innovation type and functional strategy The NPD strategy should be clearly defined along with the corporate and business strategies, making sure that your company is doing the process right AND doing the right process. Innovation strategies should be developed through research; identifying the innovation type and using Porter s framework do determine the company NPD strategy. This is later refined with the types of products completed identified by Miles and Snow, to adopt for your specific company. Understanding the product is crucial for understanding the method of innovation to change the strategy further if needed to better suit the supporting strategies. Your company portfolio should have been clearly developed and managed by following the four simple steps given. This portfolio should have been planned including the need for possible resources, allowing for future planning including foresighting, strategic planning and road mapping and practical resource allocation. The performance of the current project should be compared to the past and the possible future. This learning tool is essential for improving and essentially measuring progress. As a final exercise use Cooper s success factors (Cooper & Edgett, 2010) to evaluate your current performance. Ask yourself this whenever you are handling a NPD project: Is it a unique, superior product? Does it have a strong market orientation? How does it look to the world? Is there lots of pre-development work? Is there a clear project definition? Is there a solid marketing plan? Is there a good organisational structure and climate? Is there top management support Are there leverage core competencies? Does it have market attractiveness? Are there tough go/no go decisions? What are the completeness and consistency of execution? Are all resources in place? What is the speed but not at expense of quality? Is there a clear NPD process? 18 P a g e

20 REFERENCES Cooper, R. G., & Edgett, S. J. (2010). Devekiping a product Innovation and Technology Strategy for your Business. Research Technology Management, Huldtgren, A., Boming, A., Kahn, P. H., & Friedman, B. (2013). Value Sensitive Design and Information Systems. Philosophy of Engineering and Technology, Markham, S. K., & Lee, H. (2013). Product Development and Management Association s. Journal of Product Innovation Management, Petricka, I. J., & Echols, A. E. (2003). Technology roadmapping in review: A tool for making sustainable new product development decisions. Technological Forecasting & Social Change, Strategy. (2010). Oxford dictionary of English (3 ed). Retrieved from Innovation. (2010). Oxford dictionary of English (3 ed). Retrieved from Anderson, A, M. (2016). Overview of strategic NPD managment. [PowerPoint slides]. Retrieved from Satell, G. (2013) How to manage innovation. Retrieved from 19 P a g e