Innovation a Top 3 Priority - What about Metrics?

by Yann Cramer

According to yearly McKinsey surveys, innovation is one of the Top 3 priorities for around two-thirds of companies. It is a critical enabler of differentiation and growth. To create a sense of urgency, align individual performance contracts, and convincingly communicate with investors about innovation, companies need to assess the effectiveness of and return on their innovation investment.

A question I am often asked is:


"Sure, but what metrics can we actually use?"


Looking at it from the investor's perspective, outcome-oriented metrics focus on what innovation delivers to today's and tomorrow's bottom-line and, from there, to shareholder value:

• Revenue growth from new products/services
  
• Customer satisfaction with new products/services
  
• Return on investment (ROI) in new products/services
  
• Percentage of sales from new products/services
  
• Number of new products/services launched

What new is

For most of these metrics the company has to define what "new" means, in other words set the time period following launch during which the product will be regarded as new. Such time period may vary considerably by sector, as a function of the typical development time of products and their typical longevity in the market. For example, a pharmaceutical company may consider a product to be new up to 5 or 10 years after its launch, while a consumer-electronics company will probably regard a product as no-longer new after 1 or 2 years.


What is new

More fundamentally, the company also has to define what is new. Measuring revenue of new products and services comes straight out of the basic Management Information system. But innovation can be about process (eg a cheaper way of sourcing/manufacturing a product) or about business model (eg Apple's shift from just selling devices to selling devices and content such as music or books). Setting up the system to apply the above metrics to process innovation or business model innovation will usually require some work, but it is essential if the company wants to:

• Harness the value-creation potential of staff that are working outside the product development/marketing/sales circle (they too can create shareholder value!)
  
• Be mindful of radical innovation opportunities that new business models often provide

Driving innovation

As in most activities, there are also useful process metrics to track in order to provide levers on the outcome-oriented metrics. R&D spending as a percentage of sales will provide a measure of the investment in innovation and sustainability. It is also one of the few ratios that is typically not too difficult to benchmark against competitors.

Other process metrics include:

• Number of ideas in the pipeline
  
• Number of ideas sourced from outside the organisation
  
• Number of products/services in each stage of the idea-to-commercialisation pipeline as a percentage of the total number of ideas in the pipeline
  
• End-to-end time-to-market
  
• Time in each stage of the pipeline

These indicators will be useful to identify where the blockers are be in the pipeline and provide managers with insights into how they can make the innovation process more fluid and fast.

McKinsey Global Survey Results about assessing innovation can be found at McKinsey Quarterly.


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Yann Cramer is an innovation learner, practitioner, sharer, teacher. He's lived in France, Belgium and the UK, he's travelled six continents to create development opportunities with customers or suppliers, and run workshops on R&D and Marketing. He writes on www.innovToday.com and on twitter @innovToday.

Innovation That is Measured is Treasured

Why Results Require Rewards: Encouraging Action With Incentive

by Robert F. Brands with Jeff Zbar

Imagine a company that has taken the time to consider the role of Innovation in the corporate mission. Employees were encouraged to be part of the innovation process but their reward was compensation linked strictly to output.

Does that encourage value-added thought process? In my mind, it encourages work, which should need no encouragement at all.

Now, what if that same company put a reward system in place whose reward system was based on innovation and results, not hours or labor? It aligned reward to patents granted, products launched, or sales achieved? And its reward process was integrated along side its Vision, Mission, Strategy, and Resources/Budget?

I would argue that that organization has asked itself a key question: What motivates your team to excel in innovation? The answer is Net Rewards for Net Results.

Many companies see cash as the ideal motivational perk. This might not be the case. A recent survey from McKinsey found that three non-cash motivators rise above all other forms of incentive:

1. Praise from managers
   
2. Attention of leadership that takes place in one-on-one conversations
   
3. The chance to lead projects, teams or task forces.

Such nods and recognition topped even cash bonuses, increased base pay, and stock or stock options - the three top-ranked financial incentives, McKinsey found.

"The survey's top three nonfinancial motivators play critical roles in making employees feel that their companies value them, take their well-being seriously, and strive to create opportunities for career growth," the McKinsey report noted. "These themes recur constantly in most studies on ways to motivate and engage employees."

Though being discussed last in the list of the 10 Imperatives to Innovation, "Net Rewards and Net Results" arguably holds equally high a position as any other imperative. There's a fundamental connection between the two. Rewards must be in alignment with the expectations of the organization and its people. Some organizations seek to innovate, but try rewarding people based on R&D spend. It is a worthy financial metric, but is no guarantee for success.

Incentives should not be about output or spend. It's about "thought-put," and the creativity, ideation and esprit de corps brought to the effort.

Done right, rewards the organization in search of inspiration, motivation, ideation - all the imperatives that drive innovation. It rewards the individual for performing at a high level, and the team for working effectively as a Unit of One.

For the organization that seeks results, incentive is a kind of Reward ROI. By investing in employee rewards as a carrot, think of innovation as ROI derived from the alchemy of ideas-to-money. As we've written before, innovation leads to improved performance, heightened sales, more black on the bottom line. This profit - whether in actual product on the street or improved organizational performance - brings benefit to all stakeholders: shareholders, executive leadership, employees, customers and consumers.

Various perks can drive incentive. Incentives must be earmarked for all participants at the table. This may include the development team itself, to the marketing, finance, R&D, sales, customer service or people from other departments who helped with ideation, market research, justification or any other process that went into creating the new initiative.

For example, in the NPD process, the team or division should be rewarded with a compensation package that includes a percentage of sales derived from new products delivered. The neat thing about NP sales is that success is rewarded and people stay engaged and involved they care post development or launch.

Simply put, the fruits of your team's labor benefit all - and rewards must reflect that. Moreover, this type of validation acknowledges individuals' ability to envision new concepts, help shepherd them through the R&D process (even if the individual is not part of R&D, per se), and play a key role in bringing product to market.

Rewards can enhance valued employees' commitment to the organization, boost morale, motivate future efforts, reinforce positive outcomes, encourage repeat performances and help keep employees' "eye on the ball" vis a vis innovation and ideation. It also strengthens the connection between strategy and results.

In sum, when Net Rewards are based on Net Returns in the innovation process, everybody - the organization, the innovators, the stakeholders and the consumers - wins.


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Robert F. Brands is President and founder of Brands & Company, LLC. Innovation Coach Robert Brands has launched a new site - www.RobertsRulesOfInnovation.com - to complement his upcoming book.

Study of Innovation Risks

Building upon the Boston Consulting Group innovation study, Altin Kadareja has configured a research study for his graduate thesis titled: "Quantification of Innovation Risks".

He is focused on developing a model that can identify, analyze and quantify the risk of innovation projects. This model stands besides innovation project management practices and is based on a step by step structural framework empowered by a PRA (Probabilistic Risk Assessment) analysis.

He is closing out his research this week, so please help him out by filling in a
short online survey (only 13 questions).

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Innovation Metrics of Leading Companies

by Stefan Lindegaard

I have often shunned the idea of metrics for innovation as it has been very difficult finding companies being good at this.

However, I believe it is important to work this out in order to raise the innovation productivity and in this post I share some input from a couple of large corporations based on a discussion on LinkedIn last year.

The discussion was started by Jimm Feldborg, who is R&D Manager at Grundfos in China. Jimm pointed out that a good start is to understand whether your indicator is a:

• Lag indicator. The results are lagged with weeks, months or years and cannot be changed. Some examples are rewards and the number of patents.


• Current indicator. The results happen right now giving you some possibilities to act and change and thus affect the future results. Some examples are the number of ideas generated and ongoing projects.


• Lead indicator. The results are predictive for the future. You can make radical change in your approach and thus affect the results. Examples are pretty hard to give here.

Jeff Murphy, an Executive Director at Johnson & Johnson, suggests that innovation metrics (and metrics for any deployment like this) need to be dynamic by design. He continues:

1. Initially, metrics should focus on engagement, training and participation of individuals.


2. Then, as you begin to build a critical mass of capable individuals, the focus of your metrics shifts to your innovation pipeline (active projects by stage, flow of projects through concept, development, launch or kill...) and early wins. This is in addition to item 1 metrics above.


3. Finally, as your organization's initiative begins to mature, your focus shifts to the end goals - return on investment, successful new products or services launched, revenue from new launches, etc. as well as optimizing your development and commercialization process. This is in addition to the item 2 metrics above.

If an organization gets ahead of itself in the metrics area, it can lead to unrealistic expectations during the early stages. On the other hand, if it gets behind on implementing the appropriate metrics and delays getting to #3, it leads to under-performance, and activity without business results.

Jeff emphazises that the key is to match your selected metrics with your deployment lifecycle. He also states that there are literally hundreds of metrics that you can choose from, but optimally, 8-15 metrics at any one time for an organization will be enough for senior management and/or the effective management of the innovation deployment. If any more granularity is needed, that should be done at the functional level.


Lessons from Intel

Personally, I keep getting back to a visit at Intel a few years back. It was interesting to get an inside view of this Silicon Valley giant, but it was also strange to sense how it was driven by control rather than creativity. I did miss a more creative sense, but I take my hats off for their ability to measure their innovation initiatives in which they track the following information.

• Number of innovation-related rewards and recognitions


• Numbers from various feedback mechanisms, showing employee acceptance and understanding of the initiative


• Results from the innovation self assessment capability maturity framework (survey measuring five levels of maturity related to innovation behavior)


• Percentage of our budget dedicated to innovation, research, and exploration of emerging technologies


• Shareholder value created from innovation activities. (Shareholder Value = IT Efficiencies + Business Value provided to the IT customers)


• Number of ideas generated in specific innovation harvesting campaigns


• Number of ideas harvested from the campaigns and turned into implementable projects


• Number of invention disclosure filings (IDFs)


• Number of Intel patent submissions


• Number of white papers published.

You can read further in this paper, Developing Systemic Innovation in an IT Organization, that provides an overview of how Intel works to foster and encourage innovation through its IT organization.

Paul Chaudury, VP of Innovation at Sara Lee, mentions that he has successfully followed the below KPI creation and reporting process at his prior job:

1. Net sales from new products. Reported monthly.
   % of net sales from new products at year 1 and the next three years


2. Projected value of the pipeline. Reported quarterly.
   Risk adjusted year 2 sales value of all ideas and projects in pipeline.
   Different probability rates for each phase in stage gate.


3. Average time to market from concept to launch date. Reported monthly.
   # of weeks from exit of concept phase to launch date


4. Aggregate portfolio net present value. Reported quarterly.
   Risk adjusted NPV of cash flow of all projects in pipeline from feasibility to launch phase in stage gate process.

Paul mentions that most of the calculations were automated and that reporting was done to senior management. KPIs were part of the key annual objectives and performance review for all involved with innovation. After a year from implementation, the process was continuously improved to fit the needs and it became a part of the company culture.

I also scratched the topic in a recent blog post, Increasing Innovation Productivity in which you can also find a few metrics used by P&G.

Francois Couture also started a new discussion related to this in my Leadership+Innovation group on LinkedIn.

Your input is highly appreciated.


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Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.

Value Creation: The Ultimate Goal of Innovation

by Robert F. Brands with Jeff Zbar

Why innovate?

Some would argue that companies innovate to achieve a heightened competitive advantage, streamline the organization, or create intellectual property - including patents, trademarks and other protected property - that create value in the portfolio.

Many reasons and rationales can be argued for the pursuit of innovation. Yet no purpose for or result from innovation can be more compelling than Value Creation. This metric is the ultimate measure of return on investment when measuring innovation's role in creating value.

Simply put: Innovation done well drives value creation - for the organization, its customers, its internal stakeholders and its external shareholders.

Successful innovation turns ideas into money. All the processes, creativity, time, sweat, research, dreaming, refining, modeling and retesting transform effort into tangible, valuable results.

This includes innovation that touches all sectors in the company or organization - not just in the creation of a new product or service. Enhancing the business model or networking, enabling a new core process, creating a new channel, brand or customer experience delivery model, or offering a new product system, boosting product performance, or providing a new service each creates value.

Nowhere is this more relevant and apparent than in the acquisition process. If one were to look at acquisitions with and without a patent portfolio, I would argue that a well-created and -managed patent or IP portfolio can double company value. My former company, Airspray, created of the novel packaging and dispensing process that turned liquid soap into foam. It was a company with a typical value of 7-8x EBIT. Yet, the addition of this patent to its portfolio resulted in 15x EBIT paid when the company was acquired in 2006.

This is especially important in today's market. Current economics continue to hold down already devalued corporate stock prices. Companies are challenged to find ways to boost their value to stakeholders - as well as to keep customers and prospects engaged and purchasing goods. Value creation borne from innovation can be critical indeed. As evident in the Airspray example, one item in our patent portfolio almost doubled the EBIT paid at acquisition. This example is not unique, but was the result of painstaking and thoughtful focus on value created by innovation.

Moreover, value creation and innovation done well can immeasurable enhance the corporate brand. Between adding new products, reviving the corporate dress, even launching new marketing creative or advertising campaigns, customer value can be created through the value-added components and enhanced public face of these endeavors.

Of course, it's essential to find that delicate balance between cost, price, and return. Balance is found, in part, by seeking stakeholder input and customer feedback during development of any innovation process.

The arguments for innovation are, frankly, inarguable. Value, brand enhancement, share price and perception among various stakeholders can be elevated by innovation done well. Add to the equation the inclusion of intellectual property derived during the process, and the overall ROI can be well worth the investment.


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Robert F. Brands is President and founder of Brands & Company, LLC. Innovation Coach Robert Brands has launched a new site - www.RobertsRulesOfInnovation.com - to complement his upcoming book.

Should you be measuring ROR instead of ROI?

by Ric Merrifield

For literally decades, the notion of return on investment, or even more specifically return on invested capital (R.O.I. either way) was the gold standard for justifying a business decision. If the return exceeded the investment enough (also weighing risk, disruption, and many other factors) then it would get the green light for funding.

This was, and is, especially common in investments in enterprise software. But I predict we will see a (long overdue) rapid decline in the use of R.O.I. as the gold standard for project justification for these four reasons:

1) Smart organizations have figured out that you can justify almost anything with R.O.I. math. Someone recently said "if you do project X at a cost of $2 million and it saves you $5 million per year, then you should do it, right?" Many people would say yes, I would say there's nowhere near enough information. For large companies, a $5 million savings could be a distraction to more important activities, just to name one reason, but too often I see these sorts of projects approved.

2) The metrics are often very squishy. Organizations don't generally have great metrics to begin with, but especially when anchored to the process view (which is often very volatile, with a short half-life), and when the process changes, organizations end up comparing apples to oranges. The simple solution there is to use the business capabilities lens described in the pages of Rethink, starting with the "what" outcome you are measuring, and then looking to the "how" of process.

3) There needs to be larger context setting. What overall goals is the department, division, or enterprise setting? It isn't enough just to cover costs for a lot of projects. These days, it's about staying ahead of competition, differentiating, and knowing who your most valued customer is (see #4 below). If the $5 million in savings in #1 above doesn't connect to a key performance indicator, you need to be certain that it's not going to be too distracting or disruptive in an area in need of much more attention someplace else and the "shiny object" project selected out of context from the rest of the organization always has that risk.

4) Many organizations need to look at their R.O.R. (Return On Relationship). How much do you spend on each customer and how much do you get in return. Someplace in almost every industry, their is a vital set of relationships, sometimes it's partners, sometimes it's customers or sales channels, and sometimes it's employees and you have to know what is most valuable to your most valued relationships so that when the least valued relationships whither, you don't worry, but when you see blinking red or yellow lights in the most valuable relationships, nothing can get in your way of fixing that.

So as we enter this new decade, and hopefully start to get further out of a recession, start to measure your R.O.R., do better context setting in terms of the value of a project to the overall, be sure you have concrete metrics, and be leery of the R.O.I. math of the one-off "shiny object" projects.

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Ric Merrifield is known at the "Business Scientist" at Microsoft Corporation in Redmond, WA and is the author of "Rethink". He blogs about ways to rethink through getting out of what he calls "the 'how' trap".

Importance of Enterprise 2.0 Connections to Innovation ROI

by Hutch Carpenter

In a recent post on the Spigit blog, Study - Collaborative Networks Produce Better Ideas, I described the research of Professor Ronald Burt. He found that employees who are better connected across the organization generate higher quality ideas than those with limited connections. Wider access to the ideas, knowledge, experiences and judgment of colleagues makes employees stronger in innovation.

I posted this write-up in the Continuous Innovation group on LinkedIn. One person made this observation:


"Need to keep in mind that collaborative networks have little to do with technology. There are certain personality types that keep the organization connected. The proportions of those people in an organization is related to the specific corporate culture."


There's a good alternative perspective. That really, the same people that connect via collaborative networks are those that would be doing it in an offline world as well. The rest of the employee population likely continues to work in a more insular world.

I see it differently though. First, I agree that there are people with natural connector personalities. They would span the different parts of the organization no matter what. Anyone think David Armano wouldn't be one of those types?

But not everyone need be an uber connector to see benefits from plugging into a more connected network. My personal experience on sites like Twitter and FriendFeed tells me that everyone benefits from these online social networks. We may not all be uber connectors, but we do increase our degree of connectedness.

The graph below is my concept for how this effect manifests:



Assume a population of employees: 25 in this hypothetical example. The blue line is the level of connectedness for employees working the way they have for decades. Your connections tend to be local and departmental, with some tenure you gain a larger informal network. In Professor Burt's terms, most workers are relatively insular in terms of who they access for information and ideas. But some broker connections across different corporate 'tribes'.

The red line represents the level of corporate connectedness for employees including the ability to find others online. To me, this is a no-brainer. Of course people are going to connect with others they wouldn't have otherwise. The number, diversity and depth of connections increase.

The gray zone between the red and blue lines represent that improvement. Some people won't get too much increase. They really are in-person types of connectors. But others thrive in the online environment. They have more specific interests, and didn't know who else in the organization held them. Through the social software, they find more people with interests similar to theirs. Or at least with experience relevant to their interests.

Don't need to be an uber connector there. Just need to be able to make connections.

Next..the ROI math.


The Natural Logarithm Method

Take a look at the graph below. It shows the scatter plot of how ideas were rated for different employees (Y axis). The X axis represents the degree of connectedness for employees, based on actual social network analysis conducted by Professor Burt in his study:



The scatter plots show that employees who have a high diversity of connections across the organization provided higher quality ideas. The converse holds true as well.

Regression shows the equation that represents the observations:


Value of Idea = 5.51 - 0.91 * ln(Level of Network Constraint)


The equation shows that, on average, every increase in a person's level of connectedness with different parts of the organization produces higher quality ideas. Note the natural log curve. The effect increases as connectedness improves. What I like about that is that the benefits increase, even if the work of increasing employees' network diversity gets more difficult as you try to connect those last holdout groups.

Extrapolate the effect out to the organization at large. Raising the overall level of workforce connectedness will have a salutary effect on the average quality of ideas generated. In an era of ever higher levels of market volatility, improving the organizational 'innovation IQ' is a critical aspect of surviving and thriving.

One thought on the accelerating benefit - increased idea quality - as connectedness improves. In a large population, would this have any correlation to network effects?

It's not perfect, but Professor Burt's analysis demonstrates a strong ROI basis for leveraging social software to increase the diversity of connections.

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Hutch Carpenter is the Director of Marketing at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

Optimizing Innovation Conference Wrapup

by Braden Kelley

We are happy to bring you some of the key points and insights from all of the speakers at the Optimizing Innovation Conference, which was held October 21-22, 2009 in New York City.

The speakers at this intimate conference were the innovation directors from several Fortune 500 companies, who shared their approaches to topics as varied as innovation management, process, innovation metrics, and more.

Click the link of the speaker you are most interested in, or read them all!

• Microsoft - Joe Boggio and Michael Steep


• AT&T - Rajendra Seksaria


• Anheuser Busch-InBev - Patrick O'Riordan


• Panel Discussion


• Alcatel-Lucent - Dr. Guido Petit


• 3M - Mauro Porcini


• CogniStreamer - Wim Soens


• Xerox - Francois Ragnet


• Kraft Foods - Dr. Stephen K. Goers


• SmartOrg - Dr. David Matheson and Don Creswell


• Chevron - Jack Anderson


• Google - Dr. Daniel Sturman


• American Express - Steve Faktor


• Creax - Simon Dewulf


• Pfizer - Roopa Unnikrishnan


• Whirlpool - Moises Norena


• LinkedIn - Dr. Ellen Levy

Overall, it was a great conference. The Connecting Group will be hosting a European version next year called 'Breakthrough Innovation 2010' in Barcelona, Spain from March 17-18, 2010.

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Optimizing Innovation - Dr. David Matheson of SmartOrg

by Braden Kelley

We are happy to bring you some of the key points and insights from Dr. David Matheson's talk at the Optimizing Innovation Conference, which was held October 21-22, 2009 in New York City.

Dr. David Matheson of SmartOrg conducted a workshop on optimizing profitable growth in uncertain times. He started by talking about how when it comes to innovation, you should always start with the following three questions:

1. Does anybody care?


2. Can we do it?


3. Should we do it?

And then explore some of the things that make innovation difficult to pursue:

• Time horizon
• Payback
• Uncertainty
• Risk
• Competitive Landscape
• Scale & Reach
• Mission Fit
• Incentive Structure
• Market Adoption Rate
• Regulation
• Past Experience
• Unknown Unknowns

You have to keep in mind that the mental models that people use for project evaluation, don't work for innovation (assumption, hockey sticks, etc.).


"How good are you at articulating your ignorance?"


When it comes to evaluating innovation projects and building an innovation portfolio, you have to make people state percentage ranges (one person's definition of likely is different than another's). But keep in mind that these may change with new information. Focus on the range not the assumptions.


"Nobody knows the future."


As much as you might try and look for it, data does not exist on the future. Gartner reports are often extrapolations made by recent MBA graduates - they are not data.


"If I walked in and asked for $500,000 and said I could make $2,000,000, the COO would laugh at me and I wouldn't get the money. But if I asked for $500,000 and promised $750,000 then I would get it. Why is that?"


A company's culture and our own credibility pose challenges for people pitching innovation ideas using the expected costs and expected returns.


"In the room here you just validated that most of you spend money on validating what you think you already know rather than testing what you are most afraid of."


"In would argue that to follow the fail fast principle and maximize learning, that you should invest in testing proof points, not in validaton."


If it is a good calculate risk made on the best information you are going to get, with appropriate offset for risk, then it is a good investment.


"If you want more certainty, you'll get more mediocrity."


"Project Risk is not equal to Portfolio Risk"


It is EXTREMELY important that you do not transfer corporate risk to individuals if you want to succeed in innovation:

• Measure Value


• Embrace Uncertainty


• Maximize Learning

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Optimizing Innovation - Patrick O'Riordan of Anheuser Busch-InBev

by Braden Kelley

We are happy to bring you some of the key points and insights from Patrick O'Riordan's talk at the Optimizing Innovation Conference, which was held October 21-22, 2009 in New York City.

Patrick O'Riordan, Global Director of Insights & Innovation at Anheuser Busch-Inbev spoke about balancing short, mid, and long-term initiative in your innovation pipeline. Patrick sits in the marketing organization and serves the top 10 markets and focuses on filling the innovation pipeline using a decentralized, lean organization. Recently, they've been opening up more to their peers and people outside of their organization.

They've lost global share of thoat over the last 10 years (Diageo too), but they are gaining within alcoholic beverages at the expense of spirits. The Chinese are gaining a taste for beer and China is the biggest market (by consumption).

Anheuser Busch-InBev has a 'World Class Commercial Program' focused on creating a marketing excellence culture - focused on renovating & innovating.

It's not all about new products, but about staying contemporary with our customers:

• Look at innovation through the consumers' eyes


• Renovation could be a bottle or label change (same basic product)


• Renovation offers similar benefits


• Innovation offers similar benefits in a better way or additional benefits

"Never fall in love with the process"


They focus on clear goals and clear targets and their innovation culture is tied into their corporate culture. They have eight modules in their innovation process - four at the front-end and four at the back end, with four stage gates for the four stages at the end - with a fuzzy front end.:

• Define R&I Strategy & Brief


• Develop concept platforms


• Generate ideas


• Write & test concepts


• Prioritize


• Determine feasability


• Develop product


• Execute launch

They created an online innovation management system only about 18 months ago and it has had a huge impact on time to market.

Anheuser Busch-InBev focuses on Share of Throat (SOT) innovations (new skus), Share of Beer (SOB) renovations & innovations (new skus), and securing & improving competitiveness renovations & innovations (part of the core - existing skus). They distinguish between liquid and packaging innovations.

They do measure how much of their revenue comes from innovation (now that we've been going for a few years). They would like to work with their competitors to make sure that their category stays relevant.

In the Anheuser Busch-InBev model, different organizations have different time horizons:

• BU/Country = 0-18 months (competitiveness and SOB renewal)


• Zone + Global = 18-36 months (SOB & SOT renewal)


• Global - long-term = 36-60 months (consumer trends/growth opportunities)

One of the things that the central innovation group organizes, is InnoWeek - an innovation week workshop. They have to go and live it and work it with them including legal, CSR, and other roles. They have an Oceans Eleven type approach with functional experts that bring best practices to different countries.

They focus on satisfying the emotions of the customer, and do a lot of ethnography and observation and co-creation with pro-sumers. You have to keep in mind that the consumer sometimes says one thing but means and does another thing. They are also looking to partner with other companies (like Apple, P&G, Danone, Unilever, BMW, etc.) to share customer insights.

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Optimizing Innovation - Francois Ragnet of Xerox

by Braden Kelley

We are happy to bring you some of the key points and insights from Francois Ragnet's talk at the Optimizing Innovation Conference, which was held October 21-22, 2009 in New York City.

Francois Ragnet, Managing Principal, Technology Innovation at Xerox spoke about technology transfer and the paper-free office. Xerox generated 940 patents in 2008 and has 8,000 active patents and invests $884 million in R&D (5.2% of revenue). 5,000 world-class scientists & engineers are generating more than 2 patents a day for Xerox. They recently started an Innovation Hub in India where they will try to leverage open innovation.

From Francois' perspective, part of the difficulties in innovating in the services space is to create something that is repeatable and differentiated. Innovation in services relies on learning from failure.


"We learn wisdom from failure much more than from success. We often discover what will do, by finding out what will not do; and probably he who never made a mistake never made a discovery." - Samuel Smiles


"We can believe that we know where the world should go. But unless we're in touch with our customers, our model of the world can diverge from reality. There's no substitute for innovation, of course, but innovation is no substitute for being in touch, either." - Steve Ballmer


Xerox has an initiative called "customer-led innovation":

• We have technology showcase centers where we show people technology not products (researchers and customers coming together)


• We also do a lot of work practice studies (ethnography)


• Tthe naturalistic study and recording of human behavior


• Naturally occuring behavior, habitats, etc.

In designing our service solutions we also use ethnographic studies to make automated processes more intelligent and human.

While the paperless office has not become a reality, Xerox is still seeking ways to make this happen.

Xerox has an agile innovation pipeline that they use (FUNNEL top to bottom below):

1. Research (called Innovation)


2. Readiness


3. Productization


4. Integration


5. Operation

The traditional innovation funnel is very limiting and the handoffs from one stage to the next involve groups with different timescales and sometimes knowledge is lost in the handoffs between groups. The traditional innovation funnel approach is very much like a waterfall approach to software. But, that approach is very limiting, so we have tried to make this a more agile approach and create a group that goes across all of the innovation pipeline (to provide consistency and negotiate between the different stages and also to drive bi-drectional communication that involves passing potential research ideas back from the operations people to the research people).


"Too much process kills the process."


Key Xerox Innovation Criteria:

• ROI/Reusability


• Differentiation


• Cost


• etc.

Finally, there was a question from the audience about managing the necessary cannibalization of Xerox's existing business, and the response was as follows:

• We see services as a key part of the future of our company (documents and workflow)


• We don't see one replacing the other overnight

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Optimizing Innovation - Steve Faktor of American Express

by Braden Kelley

We are happy to bring you some of the key points and insights from Steve Faktor's talk at the Optimizing Innovation Conference, which was held October 21-22, 2009 in New York City.

Steven Faktor, VP, Head of the Chairman's Innovation Fund at American Express, talked about how when it comes to innovation and your desire to innovate, you have to ask yourself two questions:

• What can you do from your role in the organization?


• What is your credibility within the organization to do it?

He also talked about how when they were getting started, American Express did an innovation readiness survey to identify the areas where they might be able to go fast and those areas where they might face stronger challenges.

And, when it comes to innovation, American Express focuses on the 4 C's of InnovationTM - Context, Capabilitity, Creativity, Culture.

Steve also spoke about how the regulatory environment influences investment choices, and how the financial services industry has slow innovation because it is highly networked (ACH, POS, branch networks, etc.), rooted (rewards, contracts, convenient locations, etc.), and focused on safety (brand, reputation, conservative, etc.).

There are lots of opportunities for innovation:

• Business Models


• Systems and Processes


• Offerings


• Marketing


• Experience & Design

Here are ten scary reasons to innovate that Steve gave:

• Deep economic shift


• Saturation


• Mass substition - competition for scarce time


• Young customers ahead technologically


• Decline of tech barriers


• Newness no longer a disadvantage


• Business models - local vs global


• Transparency and empowermnent


• Security


• Regulation

American Express focuses its innovation efforts on the core, adjacencies (1-3 years), and future growth (3-5 years).

Ultimately collaborative innovation is going to be required - going it alone is not a great option. Over time they hope to move from working with employees and customers to working more with venture capitalists, academia, and other companies.

They have a stage gate process for managing the employee idea pipeline that involves:

• Ideation


• Concepting


• Feasability


• Build & Pilot


• Scale & Launch

American Express looks at a lot of different innovation metrics, including:

• # of ideas submitted


• # contributors


• Revenue potential


• Projected revenue


• Revenue generated


• Attrition


• Payback period

They have chosen to create several roles in the Innovation Network:

• Ideators (people who submit lots of ideas)


• Implementors (involved in selection)


• Promoters (no functional role, but help with communication)

And, at the corporate center, they focus on idea management, portfolio management, knowledge sharing, metrics analysis, rewards & recognition, etc.

It was interesting to see that a great majority of their submissions are focused on the core, but the biggest number of selected projects are adjacent projects. To date they have had 1,000+ ideas submitted, resulting in five pilots, four concepts in development, and three launches.

In the future, Steve would like to eliminate the term innovation and instead focus on growth, doing more experiments, and working with partners more.

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Are your innovation efforts working?

by Stephen Shapiro

Sometimes the question you ask is more important than the actions you take.

During President Obama's inauguration speech, he said:


"The question we ask today is not whether our government is too big or too small, but whether it works - whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified."


This is brilliant in its simplicity. The same thought applies to innovation.

The question you need to ask is not whether you are developing creative products, processes or business ideas, but whether your innovation efforts work - whether they serve your customers, serve your employees, and ultimately serve your shareholders.

Innovation is not about change for change sake. It is about purposeful change that creates value that reduces costs, increases sales, or improves cash flow.

In these troubling times, asking the right question is more important than ever. Do your innovation efforts work?

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Stephen Shapiro is the author of three books, a popular innovation speaker, and is the Chief Innovation Evangelist for Innocentive, the leader in Open Innovation.

Innovation Tournaments Interview

Interview - Christian Terwiesch of "Innovation Tournaments"

I had the opportunity to interview Christian Terwiesch, one of the co-authors of "Innovation Tournaments" about how to create and select exceptional opportunities. We also discuss a variety of other innovation topics including: barriers to innovation, education, and metrics.

Professor Terwiesch teaches MBA and executive classes in the areas of operations management and product development at The Wharton School of the University of Pennsylvania. He also holds a visiting appointment at INSEAD in Fontainebleau, France.

Here is the text from the interview:

1. When it comes to innovation, what is the biggest challenge that you see organizations facing?

Innovation is seen as an art and organizations believe that the best way to nurture innovation is to simply create the right organizational culture and environment for people to become creative. Open floor spaces, many meeting rooms, x-functional collaboration, etc. But it is not enough to rely on culture and the passion of individuals. You need to put processes in place and you have to equip people with the right tools of innovation. Innovation is NOT an art, I can teach you the basics of innovation in a day. I found innovation tournaments to be one great tool for people and organizations to move to a more process driven approach to innovation.


2. From your experience, what are some of the keys to increasing variability to help get the best ideas?

Variability is key in innovation and in innovation tournaments. The more diverse the set of ideas, the better are your winning ideas. But I find that many companies have a hard time coming up with high variability ideas. Those in charge of innovation always turn to the same people for ideas, they listen obediently to their bosses and to their customers. That kills variability. I'll give you another example - In some of our most recent research, we look at how brainstorming meetings function. Many of us are taught to build on other people's ideas in such brainstorming meetings. But our research shows that while this might make us feel happy and collaborative, the resulting ideas are actually less innovative. At least at the ideation step, you have to just break a lot of norms and existing molds.


3. What metrics do you usually see organizations using to measure innovation success?

Organizations need to measure innovation - what you don't measure, you do not manage. Talking to companies, I often see them struggle with measuring innovation - often I get asked "what measures should we track?". Organizations often don't know what they should measure. And so they measure what is easy to measure. Number of patents, percentage of revenues generated from new products, R&D spending, etc. You should not measure just for the sake of measurement. Before you measure, you first need a game plan, a strategy.

Let me give you an example. For managers, measures are what the dashboard is for a driver. They give you information about the way the process operates. Now look at the dashboard in your car. You are driving 60mph, your engine spins at 3000rpm and you currently get 20 miles per gallon. So what? These measures are meaningless unless you have some targets in mind. Is your goal to quickly drive from A to B? Then focus on speed and ignore the fuel efficiency. If you care about the environment, get into a higher gear (I like to drive with a manual transmission...) so your rpm's come down at the same speed and maybe you want to slow down to 50mph. Every performance measurement system needs to be custom built to fit your business needs. You cannot just ask a consultant for the "right measures".


4. If you were to change one thing about our educational system to better prepare students to contribute in the innovation workforce of tomorrow, what would it be?

I like to say "Fail quick, fail cheap, fail often". Innovation is all about failures. In an innovation tournament, you have 100s of 'losing' ideas for every winner. Our educational systems do not provide candid feedback to students. Every little project is praised as being great and every student is told that they did a 'good job'. So when these students graduate, they think that everything they touch is great. But they fail to understand that every great innovator loses far more often than they win. Innovation is not about avoiding failures, it is about recognizing a failure early and then learning from it.


My book review of "Innovation Tournaments" can be found here.

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Part 2 - Nature's 10 Simple Rules

Here's the second half of my thoughts on Nature's 10 Simple Rules for Business Survival (read Part 1 here). Send me your views on this list. Also, make sure you pin it up on your wall, your company's survival may depend on it.

Nature's # 6. Integrate metrics. Nature brings the right information to the right place at the right time. When a tree needs water, the leaves curl; when there is rain, the curled leaves move more water to the root system. OK, I'm not a big metrics guy. Experience has shown me that a quick decision grounded in intuition often beats the 100 page report and meeting from hell. But I also find inspiration in understanding how the world works, and for that big picture we need numbers - just numbers from a lot of different sources. Smart, revealing, insightful numbers. For example, James Dyson worked through around 5,000 prototypes before coming up with the wildly successful Dyson vacuum cleaner. Let the truth of that number hit you around the head. When did any of us make 5,000 attempts at anything? If all you read are balance sheets, that's how you'll see the world and you will fail. Too many factors impact on us for any one perspective to show the way forward. If you think otherwise, ask a banker about subprime.

Nature's # 7. Improve with each cycle. Evolution is a strategy for long-term survival. The long-term is the only term if you want to survive. Short-term thinking - like the ridiculous obsession with quarterly earnings - has taken more eyes off the ball than a couple of streakers at a football match. The magic mix? Big, long-term ideas combined with the spirit of "Fail fast, learn fast, fix fast". We can all learn from the frenzied world of fashion. In my first job at Mary Quant, we had nine months to conceive, produce, launch, sell, and then discontinue, a complete line. We got better at it - I promise you.

Nature's # 8. Right size regularly, rather than downsize occasionally. If an organism grows too big to support itself, it collapses. If it withers, it is eaten. When businesses start there are usually just a few people doing everything. Then there comes a time when more people are on the job than can comfortably fit around the lunch table. Thus middle management kicks in and, as Kurt Vonnegut put it in Slaughterhouse-Five, "So it goes". Right size is such a great term. The right size of a business depends on the business. This is where business gets specific and where clarity counts. If you want to manufacture cars for the world to drive, your right size is nothing like that of a boutique fragrance. The key though is to know what's right - right size, right people, right choices - and to take action.

Nature's # 9. Foster longevity, not immediate gratification. Nature does not buy on credit and uses resources only to the level that they can be renewed. Since joining Saatchi & Saatchi, one of my great pleasures has been the opportunity to speak to the P&G Alumni. These are people who have worked for P&G and believe in P&G principles. Best of all, they keep the P&G flag flying long after they have left the company. They are in it for the long-term and the long-term extends beyond a job at P&G and even their working life. They are an amazing renewable source for P&G that promotes the company, attracts more great people to work there, and connects P&G in rich and complex ways to the communities and countries it works in. Longevity is about making a worthwhile contribution. Gratification is about an immediate sensation.

Nature's # 10. Waste nothing, recycle everything. Some of the greatest opportunities in the 21st century will be turning waste - including inefficiency and underutilization - into profit. This rule can transform businesses, regions, nations, and people. One area of waste that I take very personally is the waste of human potential. That's why TYLA - Turn Your Life Around - is very close to my heart. This remarkable program based in New Zealand helps kids at risk start to make positive choices about their lives. We use mentors, fresh opportunities, experiences, support - whatever it takes to transform these young people into hard-working, energetic and joyful citizens. In today's tough climate, we want every hand to the pump. Waste not, want not.

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

Creating Innovation Metrics

Measuring innovation is where the rubber meets the road. While it's very easy to wax eloquent about innovation, I've found that for most companies, measuring innovation is quite a tall order. Moreover, even for those organizations that do measure innovation, are they measuring the right metrics, for the right reasons?

I've authored many previous posts on the topic of innovation, and have lectured often on the necessity for executives to completely embrace innovation as a core focus area. The power of innovation to totally transform a mediocre business into a category dominant company is really only deniable by the ignorant or the prejudiced. However even those businesses that embrace the concept in theoretical fashion can fail to implement productive innovation management programs if they do not understand how to measure its impact. In today's post I'll address how to measure innovation.

So, how do you tell if an innovation initiative is successful? According to Scott Anthony at Harvard Business Online, perceptions of inital successes or failures are often times misleading when it comes to whether innovation will be successful on a sustainable basis. To validate his assertion, Scott presents a simple case-study of two innovation initiatives and asks which one would you deem as being the most successful:

• Innovation A: This initiative enjoyed huge first-year revenues of $200 million thanks to "a clear value proposition, clever positioning, and a strong distribution network."


• Innovation B: This initiative offered what was at best an ambiguous business model and generated only $220,000 during its first year.

So which initiative was more successful? "It's obvious, right?" he says. "Innovation A is the winning proposition." Not so fast... Is revenue the only thing that matters? Just because something is easy to measure, and appears to be an obvious win, in and of itself this doesn't necessarily constitute a victory. Were the right things done? Were the right metrics measured? Let's see...

• Innovation A was Vanilla Coke. "It was a line extension that largely cannibalized sales of Coke's other products," says Anthony, with the note that Coca-Cola unceremoniously discontinued the flavor only three years later.


• Innovation B was Google. Enough said.

The Take Away: "Before making a decision about an innovation," notes Anthony, "make sure you know what type of idea you are evaluating. Then make sure you use the right metrics for meauring the success of that idea."

There is great truth in the old axiom "you can't manage what you can't measure" and perhaps nowhere is it more applicable than as applied to the practice of innovation. Let me be clear... measuring innovation is not difficult at all if you understand it. The problem lies with the uneducated managers and executives who view innovation as a vague, ambiguous, and undisciplined area that sucks time, resources, and investment without demonstrable return. While the aforementioned sentiments couldn't be further from the truth, they nonetheless represent the opinion of many uniformed people in a position of authority. They simply don't know what they don't know.

There are three CIOs in the corporate world - the Chief Information Officer, Chief Investment Officer, and the Chief Innovation Officer. Of the three I believe the one position that a company cannot due without is the Chief Innovation Officer. As with any other important discipline, your enterprise needs to place someone in charge of innovation. Without a dedicated innovation champion it is likely that your initiatives will die a slow and painful death. Furthermore your CIO needs to be set up for success and not failure. This means that he or she must have total buy-in from executive leadership that innovation is a corporate mandate and not a corporate albatross.

Let me attempt to simplify what many strive to make complex. Innovation is simply a philosophical mindset that is used as a catalyst to accelerate growth and efficiency. It is a business driver and nothing more. However the reason innovation is one of the most powerful business drivers is simply because it is a disruptive, high velocity, and high return discipline that can create a much greater impact than other drivers.

The truth of the matter is measuring innovation is as simple as aligning your innovation initiatives with your business objectives. While innovation can be measured in many different ways, the following bullet points will give you examples to use when framing your metrics and analytics:

• What to Measure: Focus on measuring the things innovation is designed to impact: process, growth, differentiation, and profitability.


• Innovation as a Percentage: Measure the trends. Look at the sales growth or contribution margin caused by products or services launched within the near term (i.e. past three years) as a percentage of the overall line item. The greater the influence of innovation as a growing percentage of the whole category being measured, the more healthy, vibrant and sustainable your enterprise is.


• Track Efficiency Gains: Measure speed to market, milestone hit rates, benchmark productivity, and other metrics designed to measure innovation's impact on process and efficiency.


• Track Competitive Separation: Measure how innovation is impacting win/loss ratios, changes in market share, increases in brand equity, competitive differentiation and other competitive metrics tied to innovation initiatives.

The bottom line is that most of the current market data indicates that companies that embrace innovation as a key business driver are the fastest growing and most profitable companies in the market. Businesses that use innovation to create, disrupt and disintermediate will attract the best talent, have higher brand loyalty, and have the best chance at long-term sustainability. Don't hesitate. Innovate!

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Mike Myatt, is a Top CEO Coach, author of "Leadership Matters...The CEO Survival Manual", and Managing Director of N2Growth.