Innovation Management - Taking Ideas to Concept

Recently a leading software company conducted a series of idea generation exercise involving all employees. The campaign was titled “India Innovation Network” and all employees were encouraged to generate & submit ideas. The campaign was very successful as employees submitted hundreds of ideas.

These ideas were meticulously documented and captured in their intranet portal. Company now faces a daunting task of how to select these ideas and how to converts the selected ideas into products.

Today, the biggest challenge for companies is to convert these ideas into product or product concepts. Unfortunately there is no easy way of doing this. As a innovation consultant, I have developed standardized processes to filter ideas and develop product concepts. The process vary from one company to another, however what I will be describing here is a general framework. You can adapt parts of this framework to fit the needs of your organization.

Generate & Capture Ideas systematically

In many of the creative workshops or brainstorming sessions, participants are encouraged to come up with ideas. Most participants come up with lots of brilliant ideas – but are too lazy to document them properly. As a result the ideas are often written down in a single line – in a way that only the person who came up with that idea can understand it and no one else. If these ideas are submitted as innovation ideas then it is almost impossible for others to understand it and take it forward.

At this point, I must emphasize that for any ideas to become reality will need efforts from other people: peers, superiors and stake holders. So if other people cannot understand your idea, then that idea has already lost its value.

To overcome this, make it a practice to capture the ideas in a systematic way. I recommend a standardized form in which ideas must be documented and entered into the system. Download a sample form.

Ideas that are filled in this form must then be archived in knowledge management system for further analysis.

Idea Assessment techniques

Idea assessment starts is needed when there are several ideas to be scrutinized. It is best to use a combination of internal and external experts for idea assessment – mainly to get a neutral opinion. Internal experts have a deeper subject mater expertise and can judge the ideas accordingly, while external experts have a wider expertise. Also the presence of external experts will remove the possibility of favoritism or faulty judgment of ideas.

Idea assessment team should first establish criteria for selecting ideas. Typically, ideas should be classified into low hanging fruits, medium, and challenging ones.

Company Strategy

Ideas must also be classified into categories based on the company’s strategy:

• Ideas inline with the current strategy.
  This would typically be product extensions or modifications that will overcome the current shortcomings and result in wider usage. A good example will be iPod Nano as an extension of iPod. Similarly, Blackberry Connect on Nokia phones is an example of product extension.
  
  


• Ideas inline with the long term business strategy.
  This would typically be new product introductions. Products that are similar to existing products – but are addressing. For example Nokia 3100 & Nokia 3110 – both low cost phones developed specially for the needs of India, and Dell’s introduction of printers.
  
  


• Ideas which need drastic change in strategy.
  Some ideas are so dramatic that it requires companies have to change their strategy – or introduce a new service lines and build a whole new business infrastructure. Such ideas require major diversification of business. Apple’s introduction of iPhone is one such example. Getting into cell phone handset business marked a huge change in strategy for Apple. This required setting up a different line of business, a separate distribution system and a completely new support system. Similarly, EMC2 acquisition of Iomega. With this acquisition, EMC2 is entering into consumer products.

Once the ideas are classified, it becomes easier to decide on which ideas must be taken ahead. It is not a good idea to discard any ideas, instead, rank the ideas by a priority number in each of the category based on Market Opportunity Analysis.

Market Opportunity Analysis

All innovation ideas must be scrutinized for the possible market opportunity with that innovation i.e. what is the market demand for this idea. Since a detailed market opportunity analysis is unviable at this point of time, only a basic or a high level analysis must be done. Ideas must then be prioritized or ranked based on this market opportunity analysis.

Product Concept

All Ideas can be also be classified into Product Ideas or Service Ideas. Most ideas will either be a:

• Product extension idea


• Service extension idea.


• A service extension for an existing product.


• Productization of a service.


• Manufacturing improvement.


• Cost reduction ideas.


• New product ideas.


• New service ideas.

Classifying ideas into these categories will help making decisions on which ideas to fund for further development.

Feasibility Study

Ideas submitted will often fall into three categories:

1. Feasible to implement it today.
   Eg: Develop a hybrid car or develop an electric car
   


2. Ideas that will require technology enhancements to make it feasible.
   Eg: Develop Electric cars with a range of 300Miles per charge.
   


3. Ideas are so futuristic that with current (or near future) technology the idea is not feasible. Eg: Develop a Nuclear powered car.

It is always best to implement ideas that can be implemented immediately – as such ideas have lower risk & higher returns on investments. However, companies that work on cutting edge technology products can also consider ideas in the second category (i.e., ideas will need technology enhancements)Futuristic ideas with high market opportunity must be presented to board or top leadership of the company. Futuristic ideas will need huge investments and a big appetite for risk – this means that only few companies can afford such projects, and its mostly the government labs that can undertake such projects. Motorola’s Iridium project was one such futurist idea, B2 bomber is also one such futuristic idea.

Market Requirement Specifications

Market savvy companies often keep themselves updated with the market demands. Such companies often conduct surveys to identify market requirements. If such market requirement study reports are available, then it must be used for idea screening. Ideas that match with market requirement specifications are the ones that should be taken up first.

GO AHEAD decision

Any idea generation sessions & submissions will have to be scrutinized and filtered before a GO AHEAD decision is made. The decision will have to be made by the BU heads and top leadership based on the budgets available and the potential gains. (Typically, larger the budget, higher the management level will be needed to make the decision. Ideas which are very futuristic or ideas that need change of business lines or business strategy will have to be approved by the shareholders or the board of directors or promoters. The professional management team should refrain from making such decisions.

Once a GO AHEAD decision is made, the next step is to develop a prototype or a simple “Proof-of-concept (POC)”. Prototyping or a POC will minimize the risks and increase the chances of success. People who submitted the idea must be involved in the prototype development, therefore allocation in terms of people, efforts & resources must be made along with the GO AHEAD decision.

Closing Thoughts

Idea screening is the first step in taking the raw ideas into a solid concept. Innovation is not easy – but getting ideas for innovation is. This results in people submitting LARGE number of ideas. But that poses the next challenge – how do I pick up the precious stones from the huge rubble of rocks?

In this article I have presented a basic framework for idea classification and filtering. This process though time consuming will result ideas becoming closer to reality. This exercise is the first necessary step in taking a raw idea into a concept.

The second step in the process of taking an idea to concept is called Prototype development and market analysis – which will soon follow this article.

Also See:

Ideas Classification Spreadsheet Template

Ideas Submission Template

Innovation by Imitation - Toyota Imitates Segway

Toyota today announced a series of products that resemble Segway – called Toyota Winglet. See the picture below:

Also see how it resembles Segway

With this release – Toyota seems to be making a bold statement – it is seeing a new need for personal transportation, which is pollution free and relatively faster than walking. At the same time, Toyota has improved upon the Segway. Segway was introduced with great fanfare in 2005, and since then the product had no updates & the sales was languishing – which is typical of any “alpha” release.

To succeed, Toyota winglet needs a significant improvement over Segway in terms of performance and battery life. Since we have not seen any real devices yet – it is best to wait and watch.

This form of innovation is common in Japan & Korea. Japanese & Korean companies thrive on imitation as form of innovation.
See:

1. Imitation as Innovation



2. Imitation to Innovation: The Dynamics of Korea's Technological Learning

For more information see: http://www.toyota.co.jp/en/news/08/0801_1.html

New Product Development & Project Management

A product manager is always eager to get a new product out into the market place. New product development will always need money for development & testing. As the product manager tries to work with other departments within the company, he is faced with one ominous question: When will the new product be released?

In most companies, new product development has not evolved into a perfect science – where there is perfect predictability with measured milestones. Ideally one would love to have such predictability – but when the development process involves charting into unknown territories: New technology; new materials; untested manufacturing process, there is only one certainty - “We do not have an exact answer.”

The product manager will have to deal with the uncertainty of the product release. The best way to deal with this uncertainty is to play a role of project manager.

A smart project manager will answer the question by showing a complex project plan, with clearly identified obstacles, milestones and resources needed for project completion. In short answer the question by saying if we get the following resources and if we overcome the following obstacles and if we achieve the following milestones, we can release the new product by this date.

This is almost akin to saying “you cannot schedule invention” – but in a nice way.

New Product Development & Projects

New product development requires a planned effort by employees dedicated for it. The scope and size of the efforts depends on the type of product being developed. Often times, product development will become a project. In case of complex products, this might involve multiple projects. For sake of simplicity & ease of understanding, I am considering a simplified case where the entire product development is represented by a single project.

Product Management & the Product Manager

In mature companies, there will be dedicated staff for project management. In addition, there will be a program management office. But in a vast majority of companies – there will not be any project manager assigned for new product development project.

In case there is no dedicated project manager, then it is imperative for the Product manager to don the role of a project manager. In such a case, the product manager also doubles as a project manager. Even in case of having a dedicated project management & program management office, the uncertainties in new product development will force the product manager play a role of project manager.

Establish a Project Office

The first step in developing a new product is to establish a Project Office. The project office is a dynamic team of stake holders who can help the project and can give constructive inputs to the project team. Note that the project office is different from the project team. The project team consists of members who work on the project – engineers, developers etc. The project office consists of various stake holders.

This should be a formalized team of several managers as needed by the product:

• Project manager
• Product manager
• Engineering Manager
• QA manager
• Finance manager
• Representatives from various stake holders
• HR manager (if human resources is a critical issue for the project)
• Vendor relationship manager
• R&D manager
• Production Manager
• Sales Manager(s)

The project office meets once a week or once a fortnight based on the need. (The meeting can also be via conference calls or net meeting)

The purpose of this project office is to communicate the project’s progress, the current constrains faced and its impact on the project.

Project Manager and the product manager should drive the project office and educate all the stake holders about progress & constrains. It is the responsibility of the various stake holders to remove constrains for the project team and ensures that the project moves smoothly as per plan.
Points of Interest to the Project office

Various stake holders in the new product development have various interests. For example production manager needs to know when & how to schedule the production of the new product, Finance manager needs to know when he should release the budgets for procuring new tools, equipment, etc. To address these questions, the project office should publish:

• Current Project schedule
  
  Project schedule & project status must be current at all times. Project should be broken down into various work-based-package elements and tasks within work packages. All these must be updated and kept current on weekly basis. The project details must be shared with all stake holders. There are times when the project schedule will change – i.e., slip. When a slip occurs, all stake holders should be made aware of it & the reason behind it.In complex projects – such as Tata Nano, it is best to have a project war room – where all the project details are available and often displayed.
  
  
• Identified Project Risks.
  
  All projects have risks. Some are identified while some are not. Identifying the project risks is the first step towards mitigating those risks. Publishing all the project risks to stake holders is a sure way to seek help from stake holders to mitigate those risks.The entire project team – project manager, team members, engineering teams, product manager, manufacturing teams & and all associated members in the project team and the project office have the responsibility to identify project risks and inform it to the project office.
  
  Project manager along with Product manager have the responsibility to orchestrate the current risks to all stake holders.
  
  
• Project constraints
  
  All projects will have constraints. The most prominent of them is the resources constrain: People, materials, tools, skills etc. These constrains are internal in nature, i.e., the company can solve it internally – by providing the required budget. In addition product development projects have external constrains when the project has dependency on external third party resources or information.
  
  For example, in a new car development, the constraint will be supply of component & component related information (drawings, specs etc).
  
  External constrains can be inform of government regulations, non-standardized specifications, non-ratified industry specifications etc. External constraints are mostly informational in nature. For example, if the product requires FDA approval in case of automatic insulin injector.
  
  Lack of knowledge or skills within the project team is also a constraint. When developing a state-of-art product, the project team may not have all the skills or the knowledge needed. For example, several years ago, I was involved in developing a new generation of microprocessors which needed a new manufacturing process in nano technology. The manufacturing process was so new, that none of the project team members had any knowledge of the electrical circuit behavior in the new manufacturing process. In another example, the project team had no knowledge about thermal characteristics for packaging.
  
  Product manager along with other stake holders must deal with these external constrains and provide guidance to the project team. While the Project manager must deal with the internal constrains.
  
  
• Project (product) acceptance criteria.
  
  Every product development effort must start with the end product in mind. The end product must have certain features, functionalities, performance metrics, packaging needs, market release date, a selling price, cost to manufacture etc. All this together form the product requirements criteria. If there are “N” product requirements, not all the requirements can be met – mainly due to opposing factors, project constrains etc. It is therefore important to identify the basic minimum set of product requirements that must be met – in order to declare the project successful – and this is called as project acceptance criteria.
  
  Product Manager must publish a “Product Requirement Document” also called as “Product specification Document”. This document will list all the requirements on the product. In today’s dynamic world, the competitive pressures may force changes on the product requirement as the project progresses. This results in scope creep and may result on wasted efforts.
  
  The best practice to manage this will be to develop a market requirement document. This is a live document which captures all the market requirements, and this document can be updated or changed at any time as the market needs changes. The market requirements can be served either with a single product (aka “One size fits all” approach) or with multiple products. (Address the market needs in form if different segments). It is the responsibility of product management to figure out how best they can serve the market requirements – either with a single product or with a suite of products. For example, Microsoft used to have a single version of the Operating System (product) to meet all the market requirements – DOS, Windows 3.0, Windows 95, Windows NT, Windows 3.1, Windows 98, etc. But as the market demands increased, it found a need to have multiple products: Windows XP Home edition, Windows XP enterprise edition, Windows Vista Basic, Windows Vista Home edition, Windows Vista premium etc.Similarly, Auto manufactures have several versions or products to meet the needs of customers. Toyota has several brands and in each brand has several variants to meet different needs of its customers: Camry LE, SE, XLE, Hybrid, Corolla LE, XLE, S, &XRS models
  
  
• Project status Tracking
  
  Project tracking is often viewed as a function of project management. It is role of the project manager to collect various project metrics and publish them regularly. However, it is the responsibility of all the stake holders – i.e., members of project office to provide those metrics and timely updates.
  
  For example, one of the metrics that should be provided by production manager is: predicted cost of manufacturing the new product. As the cost of raw materials or machinery or labor changes, the cost of manufacturing should be updated as well. This increase/decrease in costs must be tracked as part of the product development project.
  
  Similarly, Finance manager must update the “hurdle rate” and the expected margins – based on the market changes to interest rates. Sales manager should provide the changes to expected market demand or the demand forecast etc.
  
  These inputs must the provided at regular basis and the data is made available to all members of the project office, so that one can take meaningful decisions in benefit of the entire project.
  
  In addition to inputs from stake holders, the project manager must publish the project status & progress with respect to the original plan and the actual.
  
  The project metrics should be simple and easily understandable by all members in the project office. It is essential that they personally feel comfortable with the data and the parameters must truly reflect the state of the program’s progress. Simply tracking statistics such as the number of people on the job or the number of hours logged, the number of prototypes built tells the company very little.
  
  
• Current Action Items & their owners.
  
  An ongoing project will have action items, their owners and the deadlines by which those action items be completed. Members of the project office should know what these action items and also know the impact of these action items on the project.

Project Results

When new products are introduced, the outside world (every one who was not involved in the project) will view it as a single breakthrough – more like a flash in a pan. But for project members, the new product was a result of long arduous journey – with several milestones that marked a systematic progress towards the final goal. In many cases, the successful project will have random changes which nearly destroyed the project.

If the project has a long development schedule stretched over several months or years, then the project teams should celebrate successful accomplishment of major milestones. Keeping track of all milestones and achieving them in a systematic way is the only way to achieve the project goal.

Project Exit Criteria

New product development projects will have several challenges – both internal & external to the organization. Internal challenges may be:

• The development budget was slashed.
• Critical people left the project.
• Critical resources needed for the project was not available at the right times.
• The project missed critical milestones.
• Other internal challenges.
• Cost of the product exceeded the market expectations

External challenges include:

• Market requirements changed.
• Business environment changed significantly.
• Cost of the raw materials increased beyond the projected levels
• The product development needed things that were beyond the present limits of technology.
• Government regulations changed or industry standards were revised.
• Etc

These challenges are asynchronous in nature. It is the responsibility of the project office to continuously monitor such challenges and mitigate the risks. However there will be times when such challenges will overwhelm the project team – then it is best to terminate the project.

To facilitate fast decision making, product manager & the project office must publish the project exit criteria at the start of the project, and this should be a living document that gets updated periodically.

People involved in the project become so attached to it, that they tend to think that killing a project signifies a personal failure. Such emotional connections will hamper rational thinking and decision making. But continuing on a bad project is like throwing good money after bad. History has shown that bad projects are often tough to kill. So it is the responsibility of the product office to closely monitor the product development project and take timely decisions.

Also see: Why Bad Projects Are So Hard to Kill

Closing Thoughts

New product development will usually consist of multiple projects or it may be one project with several sub-projects. Successful product development projects will need involvement from all stake holders. It is therefore essential to create a project office – where all the stake holders are involved and are engaged in new product development. Ideally it is good to have a dedicated project manager – but in case of small/medium sized firms which may not have dedicated project managers, then the product manager will have to play a dual role.

Successful new product development will also need a well defined product acceptance criteria or product requirements document. A prudent product manager should also know when to kill the project and should have a well established project exit criteria & the project office must play its role in determining the continuation of the project or to terminate the project.

Another Mega Merger Fails

Today’s business headlines screams: Alcatel-Lucent chairman, CEO to resign

And I say – “Another one bites the dust”

Mega mergers often fail to deliver value. Ever since I started watching the M&A activity, Almost all the mega mergers have failed to deliver value for the shareholders and the deal makers – the CEO of the acquiring firm is always forced to resign when the merger fails to improve share holder value.

To understand this better, just look at the history of recent mega mergers:

• HP – Compaq: Hewlett-Packard top executive ousted
  
• Daimler-Chrysler: Daimler and Chrysler to split up
  
• AOL-Time Warner: Case accepts blame for AOL-Time Warner debacle
  
• Merger of Deutsche Bank and Dresdner Bank fails
  
• Federated-May
  
• Wells Fargo – First Interstate
  
• AT&T – NCR

Also see:

• The Dubious Logic of Global Megamergers
• The impact of mega mergers on stock performance
• After Back-Slapping Wanes, Mega-Mergers Often Fail
  

Product Management - Developing breakthrough products

How does companies such as Apple, P&G, Nokia, Ikea, Google, Tata Motors, Toyota etc., comeup with so many successful products? How do successful companies - GE, IBM, Microsoft, Cisco, Unilever, Intel, HP, etc., maintain their market supremacy?

The secret to success lies in their ability to spot market winners ahead of the competition. Spotting a market winner is not an art - but it is no science either.

In political leadership circles, there is a saying - "The best way for one to become a leader is to identify a bunch of people walking in a particular direction and then walk in front of them"

The same logic can be applied in the marketplace: Identify the market needs and provide them with a product that meets the need.

This idea sounds so simple, yet for most companies - it is very difficult to implement. It doesn't mean that the company leaders cannot identify the market needs. They surely can. But they cannot quantify the market opportunities - and thus spend endless cycles waiting, watching and trying to quantify the opportunity - even when the competition runs ahead.

For example, given the current high oil prices - customers are demanding lower cost transport options, yet leading car manufacturers: GM, Ford, Toyota, Volkswagen, Nissan-Renant are still pondering over electric cars. On the other hand, Tata Motors is working its way on two alternative cars: An electric car & an Air car.

In software arena too there are plenty of examples. IBM completely missed the ERP market opportunity to SAP; DEC lost the PC opportunity to IBM; SAP lost the CRM market opportunity to Siebel; Microsoft lost the Internet search engine business to Google.
Similarly, a decade ago, Toyota was able to speed past Chrysler, Ford & GM with its hybrid car technology. While the Big three decided to wait & watch. Now GM & Ford are desperately trying to play catch-up in the hybrid car market.

Also see: Toyota will beat GM to the plugin electric hybrid

Why do incumbents stumble so badly?
Managers at incumbent companies see the emerging opportunity - but are almost always constrained by the existing management policies, current product lines, current product priorities and above all, constrained by lack of verifiable data - to make the correct decisions on emerging technologies.

It is not that managers do not see the market trends - they do. But in large companies, all decisions are based on numerical data. In case of demands for new products, such data is hard to come by and in absence of such researched data, managers are forced not to make any decision - and instead they opt to wait and watch.

In addition to lack of market data, managers will have to justify their investment decision on new products based on the existing "hurdle" rate. The current hurdle rate used for investment decisions are based on the current business and current products, and it has no relevance for new business lines, yet company managers (& investors) insist on using the current hurdle rates. This prevents companies from investing in new product opportunities. For example, Digital Corp - which was the market leader in Mini computers had all the right components to succeed in the PC market: it had the technology; engineering expertise; and market knowledge, yet in the end the company made a decision not to enter the PC business - because any business which has less than 40% margins is not a business to be in.

How Can Product Managers Overcome this?

When it comes to new product introductions - Product managers should be the ones taking the lead and evangelizing the entire organization. That also puts the onus to prove that the new products are commercially viable - i.e., the new product meets or beats the current hurdle rate.

Not surprisingly, product managers often stumble at this challenge.

Since there are no solid numbers one can rely on, Product managers will have to be creative and have to come up with other means to promote & propagate the need for this new product. In my experience, I have used product Opportunity Gap model to evangelize new product introductions.

Product Opportunity Gap Model (POG)

Identification of the market opportunities is at the core of this model.

A market opportunity exists when there is a gap between what is currently available on the market and the possibility for new or significantly improved products. A product successfully fills a product opportunity gap only when it meets the conscious and unconscious expectations of consumer and is perceived as useful, usable and desirable. Successful identification of a market opportunity is a combination of art & science. It requires a constant monitoring of factors in three major areas:

1. Business
2. Economic
3. Technology

Changes in the "BET" factors create a need for new products.

Product Opportunity Gap model puts the facts infront all stake holders and make them think how to fill the gaps in the existing products. Identifying product gaps will lead to product extensions and new product introductions.

As you can see Product opportunity gap varies from organization to organization. Identifying the product opportunity gap and positioning your product as the one which fills the gap.

POG Business Case for TATA electric cars:
Always start with listing the business factors affecting the existing product lines.
Business Factors:

• Sustained High Oil prices
• Global warming & pollution concerns
• Lack of competition in this market
• Inter city commute uses
• Similar products currently in the market

Economic Factors:

• High Inflation
• Relative Cost Advantage of electricity Vs Petrol/Gasoline
• Existing Electric Infrastructure

Technology Factors:

• High charge capacity batteries (Lithium Ion Batteries are now available)
• Efficient motors & Generators (dynamic breaks)
• Light weight technologies (leverage learning's from Nano project)
• Low maintenance ( Car maintenance is much lower in an electric car)

BET factors show that there is a need for electric cars in Indian markets. All the long term trend lines points to the market need, so at this point the audience would be convinced about the need for electric cars.

At this point, product manager should ask a budget for prototype development and market study. Developing a prototype will help in identifying the real costs, benefits and thus build a first cut financial model for the new range of electric cars.

A good advantage of "BET" model is that it makes people think about all factors that are driving the need for a new product. Stakeholders can be made aware of the existing trends in the business environment - and let them make a decision.

Closing Thoughts

Developing breakthrough products is a tough. The traditional rules of building financial models and projections do not work when it comes to developing new products. Therefore one should concentrate on evangelism within the company to build a need for new products. Product Opportunity Gap model is a tool for evangelism - and it brings all the points on to the table. At this point, the product manager’s job faces the moment of truth. If the stake holders agree to pursue the product opportunity internally, then product manager must then take charge and drive the project. Alternatively, stakeholders may prefer to launch a special purpose vechile (SPV) or a separate company to pursue this new opportunity. If that’s the case, product manager has done his job successfully and it is time to hand over the reigns to someone else. If the stakeholders shoot down the idea, then product manager still has opportunity to continue evangelize within the company and influence the stakeholders.