Is It Real? Can We Win?

Is It
Worth Doing?
Innovation

Minor innovations make up 85% to 90% of companyies

development portfolios.
Rarely generates the growth companies seek.
Innovation in development portfolios dropped from 20.4
to 11.5 in 1990-2004.
Incremental innovation leads to delay in projects, stress
organisations and fail to achieve revenue growth.
Types of Innovation

Little i
1. Necessary for improvement
2. Do not give competitive edge
3. Do not contribute much to profitability
.Big i
1. New to company or world
2. Push firm into adjacent markets
3. Can generate the profits needed
Big i

Risky
Probability of failure is high
Avoiding risk can stop growth

Solution!
Adapt a process which distributes innovation more
evenly across the spectrum of risks.
Two Tools

1. Risk Matrix; graphically represents risk exposure

across an entire innovation portfolio.

2. R-W-W Screen; Is used for evaluation of

different projects
List of companies which used screen

1. General Electric
2. Honeywell
3. Novartis
4. Millipore
5. 3M (used it for more than 1500 projects and taught
executives andWharton students how to use it)
The Risk Matrix

Employees a unique scoring system to help estimate

probability of success and failure for each project
x-axis shows the less familiar the intended market
y-axis shows the product or technology
Using the Risk Matrix

Assemble a team to assess each innovation projects

potential risk using these criteria:
1. How close target customers behaviour will match
current customers
2. How relevant the companys brand is to intended
markets
3. How applicable your capabilities are to the new
product
Example
Using the R-W-W Screen

To employ this tool each projects viability has to be

tested by the following criteria:
IS IT REAL?
A market exists for the product if:
1. Theres a need or desire for the product
2. Customers can buy it (affordability)
3. There are enough potential buyers
4. Consumers will buy (willingness to shift)
The product is real if:
1. It has precisely described characteristics
2. It can be produced with available technology and
materials
3. It will satisfy the market in its final form
CAN WE WIN?

The product will be competitive if:

1. It offers clear advantages over alternatives (Hybrid
Cars)
2. Those advantages can be sustained
3. It can survive competitors responses (price wars)
Your company will be competitive if:
1. It has superior resources
2. Managers have experience in markets and skills
appropriate for projects scale and complexity
3. Projects have champions who can energize
development teams, sell the vision to senior
management and overcome adversity
4. It has mastery of market research tools and shares
customers insights with development team
members
IS IT WORTH DOING?

The product will be profitable at an acceptable risk

if:
1. Its forecasted returns are greater than costs
2. It fits with your companys growth strategy
( For example, by enhancing customer
relationships or creating opportunities for follow
on business)
 Assessing Risk Across an Innovation Portfolio
THE RISK MATRIX
Risk and Revenue

Size of dot
It reveals two things
Screening with RWW

Is the market real?

Is the product real?
Can the product be competitive?
Can our company be competitive?
Will the product be profitable?
Does launching the product make strategic sense?
Project Screening Teams

Vary by company
Type of initiative
Stage of development
Members from all departments are included
Should not be regarded as obstacle to overcome
Should not be regarded as go/no go tool
Is it real?

Is the market real?

Is the product real?
Assessing market before product is more important
because market is less certain
When market is unfamiliar, probability of failure
increase
P&G research shows that 70% products fails because
companies misconstrue markets
Is it real?

Establishing nature of market is also a possibility

Costly process

Technology Push

Company emphasize on how to solve a problem

rather than what problem should be solve

Is the market real?

Is there a need or desire for the product?

Can the customer buy it?
Is the size of potential market adequate?
Will the customer buy the product?
Market is real when 4 conditions are satisfied:
1. Product is better than alternatives
2. Customers are able to buy it
3. Target market is big enough
4. Customers are willing to buy it
Is product real?

Is there a clear concept?

Can the product be made?
Will the final product satisfy the market?
Can We Win?

Assess companys ability to gain & hold on adequate

share of the market
Finding real opportunity doesnt guarantee success
Can we win? Analyses top three reasons for new-
product failure
Product didnt achieve its market share goal
Price dropped much faster then expected
Market was small or grew more slowly then expected
Can the product be competitive?

First thing to be identified is Does it have a

competitive advantage?
Considering tangible & intangible advantages
Can the advantage be sustained?
The first line of defense is patents
Evaluate the relevance of existing patents & decide
what additional patents may be needed to protect
related intellectual property
How will competitors respond?
Identify the potential threats
The best exercise is red team
Attacking your own product, find out the
vulnerabilities & find ways to reduce them
Can our company be competitive?

Project team needs to determine three things

1. Companys recourses
2. Companys management
3. Market insight
Do we have superior resources?

Success increase when company has resources that

both enhance customers perception of the new
products value & surpass those of competitors
Superior engineering, service delivery, logistics can
provide an edge by better meeting customer
expectations
Not having superior resources may lead to
deficiencies
Do we have appropriate management?

Skills required for the complexity of the project

Success requires a passionate cheerleader who will
energize the team, sell the vision to senior
management and overcome the adversity along the
way
But enthusiasm could lead to biased search
Can we understand & respond to the market?

Mastery of market research tools

Openness to customer insight
Ability to share them with development team
members
Feedback from customers
Fix deficiencies
Is It Worth Doing?

Will the product be profitable at an acceptable risk?

Are forecasted returns greater than costs?
financial analysis
Financial returns are sometimes unreliable because it
includes manipulation, overconfidence, biasness
Are the risk acceptable?
Forecast risk with standard sensitivity test: how will
small changes in price, market share & launch time
effect cash flows & breakeven?
 Does launching the product make strategic sense?
Project team should ask two questions:
1. Does the product fit our overall growth strategy?
2. Will top management support it?