Wednesday, January 18, 2012

Innovation Models

Recently, I attended a workshop led by Jay Paap about some very interesting innovation models, and I wanted to share what I learned with you. You may ask, how is innovation relevant to C2/GOMA? Well, the fact is that C2/GOMA is a new thing, so it is an innovation itself.

If you are a researcher or a practitioner, you might have experienced having your brightest and most useful ideas staying on paper and never seeing the light of day because of a lack of money. Therefore, in order to get the attention of money lenders and investors to make it happen, you should have a basic understanding of the innovation process and considerations that follow a good idea.

At the beginning of his workshop, Jay started with the definition of “idea.” He gave a simple, but powerful formula:

Here, “need” represents the customers’ current and emerging (or unarticulated) needs, and “technology” represents a solution to satisfy those needs.

The definition says that an Idea is a new and unique way of putting new or existing technology to work to address a new or existing need valued by the customer.

Then, Jay presented the Marquis Innovation Model:

In this model, innovation begins with the practice of relating technology to customer needs with the goal of developing new ideas. An idea is then selected. It is put through a concept test, developed, and--depending on whether it performs well or not--is then either used or diffused.

It is a straight-forward model. However, in most organizations, we can find a few problems in this process implementation:

  1. Not clearly defined/lost needs. When people hear or see a problem (or need) they quickly jump into solution mode (technology) and never capture and analyze the need properly. Or, they may get a formal request for a solution from a customer and never try to understand the needs that are behind it. By moving so quickly, they don’t create new ideas. Without properly defined underlying needs, people are never able to consider alternative technologies, or review their ideas after time passes. This is a big issue in organizations, and it is seen rather frequently.
  2. No clearly defined gates. A gate is a decision point in the process where the process can be stopped if needed. The truth is that the innovation process can be stopped at pretty much any time, but many people do not realize this, or they refuse to acknowledge it. By having defined and set gates in the process, people are made to reassess the growth and direction of their innovation. A gate enables the reanalysis and filtering of ideas. But a lack of these gates leads to two big problems: (1) people are reluctant to try something new because they fear the failure of the project, and (2) wrong ideas, that people started working on, are followed through to the end and result in failure with big damage.

Clearly defined ideas (needs and technologies) and the proper analysis and filtering at different gates are critical to successful innovation. We know what to do to get innovative ideas, but what do we do to create helpful gates? What criteria do we use? Jay Paap then went on to talk about making sure an innovation will be successful.

Whether an innovation will be successful or not is the biggest consideration in the innovation process, and the ultimate measure of success in marketing is financial results. It is measured as the Return of Investments (or ROI) and is calculated with the following formula:

In this formula, “Investment” represents the the amount of investments the company makes to create a new technology, and “impact” represents the overall negative or positive results of the new technology.
Unfortunately, clearly defining ROI in this form is nearly possible. Most often we only see the real numbers and returns at the end of the process. At the beginning, investments are roughly estimated and the future impact is almost a wild guess.

To simplify the estimation process Jay Paap transformed the ROI formula. He noticed that Investment is linked to Impact based on whether or not the innovation is useful to the customer. Customers will pay money only for something that is useful and has value to them. The innovation must create a positive change for the customer--it has to positively impact his or her performance and quality of life.

With this information, Jay took the ROI formula and changed it to the following:

In his new formula, “Productivity” stands for the extent to which an investment in a technology will yield a measurable change in the performance of a process, product, or service, and “Leverage” stands for the extent to which an improvement in a performance will be perceived as having value by the customer.

By performing the above calculation we can more easily see what kind of overall impact our innovation will result in. Also, because Leverage and Productivity are not strictly financial characteristics they are easier to assess.

Because Productivity is a characteristic of a Technology, and Leverage is a characteristic of a Need, Jay represented both characteristics on the following S-curves:

Finally, Jay showed how the right level of investments in Productivity and the correct amount of performance improvement in Leverage will lead to the highest level of impact:

Good investment in productivity leads to good technology performance, which leads to a high impact with customers. With good investment, a healthy level of Productivity can be reached that will result in a high level of Leverage, which, following the reformed calculation above, gives a good Return of Investments.

By checking our innovation process with this formula at the correct gate, we can tell if our clearly defined idea will be successful and have a strong impact on customers.

These are very interesting and helpful models. Hopefully, understanding and practicing them will help you push your ideas forward, make them happen, and maybe even be rich someday. Whenever a new idea appears in your head, just look for the needs of customers, estimate the productivity and leverage of the innovation process, and be prepared to present your idea to your managers or investors. 

It can be done!

Most of the above information can be found in the award winning paper, “Predicting the “Unpredictable”. Anticipating Disruptive Innovation”, written by Jay Paap and Ralph Katz.

1 comment:

  1. Late last year I took a class to become a certified SCRUM Master. During this course, the instructor spent a fair amount of time discussing business value extracted from products. After studying multiple companies and products, it was concluded that about 60% of the value came from about 20% of the total features. These typically being core features/functionality. It was found that 30% of the business value came from the next 20% of the total features (support features). What amazed me that only 10% of the value came from the last 60% of features (bells and whistles).
    I was reminded of this after reading the concept of Gates and how they can not only affect innovation, but also development.