Starting%20an%20Innovation%20Process

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Starting an Innovation Process
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Life of any business is finite. For companies to
endure, the drive for efficiency must be combined
with excellence in entrepreneurship. Through the
process of innovation, new businesses must emerge
before the old ones decay
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Importance of Innovation

• New business opportunities are emerging due to
• Globalization
• Ageing population in developed countries
• Emergence of middle class in India China
• Dynamic environment affects old and new
  businesses alike
• New opportunities emerge So does new
  competition
• To succeed, one must have Strategic Innovation

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What is Strategic Innovation

• Strategic Innovation involves exploring the
  unknown to create new knowledge and new business
  possibilities
• Strategic Innovation proceeds with strategic
  experiments to test the viability of new business
  ideas
• Strategic Innovation breaks with the past
  practice in at least one of three area
• Value chain design
• Conceptualization of customer value
• Identification of potential customers

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How Firms Institute Innovation Process

• Innovation process happens to be a trial Error
  process
• Design an experiment
• Predict outcomes based on hypothesis
• Measure Outcomes
• Compare Outcomes to predictions
• Learn from the conclusions

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Why Trial Error Process?

• In ideal world, scientific experiments meet 5
  criteria
• Results are unambiguous
• Experiments are isolated from outside influence
• Results are available quickly
• Experiments are inexpensive
• Experiments are repeatable

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Why Trial Error Process?

• In business world such ideal conditions does not
  exist.
• Results are ambiguous, experiments are expensive
  influenced by external elements
• Makes learning from strategic experiments
  difficult
• Therefore Executives develop an Experiment and
  Learn Attitude
• Planning cycle provides the business context
• And Learning requires conscious efforts

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Change the Conventional Planning Mind-Set

• Historically Planning cycle is meant to implement
  a proven strategy by ensuring accountability
  under the presumption of reliable predictability
• Planning cycle for strategic experiments should
  be designed to explore the future strategies by
  learning given the unpleasant reality of reliable
  unpredictability

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Changing Mind-Sets

• In a mature business, there is a reasonable
  predictability of the outcomes, hence needs
  accountability of management performance
• When future is unknown, the foremost planning
  objectives must be learning and not
  accountability. Managers must be accountable but
  on subjective basis
• How fast are they learning responding to the
  new information?

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Alterations to Conventional Planning Process

• Change No.1 Level of Detail
• Change No.2 Communication of Expectations
• Change No.3 Nature of Predictions
• Change No.4 Frequency of Strategic Reviews
• Change No.5 Perspective of Time
• Change No.6 Measuring Systems

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Change No.1 Level of Detail

• Comparison between outcomes and prediction can
  isolate resolve problems if the focus is on a
  small number of unknowns
• When there are too many unknowns, focus on
  critical unknowns that can make or break the
  business
• Most Critical Market unknown
• Most Critical Technology unknown
• Most Critical Cost unknown

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Change No.2 Communication of Expectations

• In Strategic Experiments, Focus on the theory
  used to generate predictions and the theorys
  underlying assumptions
• The assumptions Theory must be communicated to
  everyone involved and described in the planning
  cycle
• For Management team to learn, theory must be
  recorded, shared and later revisited
• Good Communication technique for capturing the
  essence of theory is cause effect relationship
  diagrams

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The Influence diagram must convey how major
category of spending effects revenue. If
possible, each bubble in the diagram must
represent something measurable A framework to
gather data which confirms or contradicts
Cause-and-Effect Relationship is then established
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Influence Diagram

• Influence diagram can capture the basic
  hypothesis about the relationship and the theory
• The diagram can also show how major increases in
  budgets on critical unknowns can impact revenues
• Customer satisfaction
• Marketing Budgets

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Change No.3 Nature of Predictions

• Instead of making specific numerical predictions
  for specific dates, Predict trends
• In Strategic Experiment, single point prediction
  is certain to be wrong
• In Dynamic business conditions, it makes sense to
  focus on trends.
• The rate of change as a performance measure is
  more important than a numerical target

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Change No.4 Frequency of Strategic Reviews

• Instead of reviewing outcomes annually to
  reevaluate fundamental assumptions, review
  monthly or as frequently as necessitated by new
  information
• Learning is the goal of strategic experiments.
  Frequent reviews increase learning opportunities,
  take corrective actions, avoid mistakes and
  lowers costs

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Change No.5 Perspective of Time

• Instead of reviewing only current period
  outcomes, consider the history of strategic
  experiment in its entirety and look at the trends
  over time
• New data must be augmented with historical data
  to generate new trend graphs with rates of change
  readily visible and reviewed

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Change No.6 Measuring Systems

• Key measurements for a strategic experiment
  should focus on lead indicators. Financial
  Non-financials can add value but focus on lead
  indicators
• Business dynamics in a strategic experiment,
  critical unknowns and underlying assumptions are
  subjective in nature. Measurements based on
  numerical targets are not suitable

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For many Influence diagrams is better than a
long verbal Description. It allows people to
focus on critical unknowns
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Closing Thoughts

• When facing an emerging industry, without a
  proven business model, Uncertainties will be so
  large that the basic relationship between
  activities and outcomes are not clear. In these
  contexts Strategic Innovation makes or breaks a
  firm.
• Successful strategic innovation requires
  experimentation, Management willing to learn from
  experimentation and rapidly adapting to new
  realities as new information is revealed