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Payback - The Cash Curve and the 4S Factors
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04/12/23
Innovation –Processes &ToolsA Two-Day Workshop
Session 2B: Making Innovation Work
04/12/23
Program Overview
1. 9.30 – 9.40 Introduction 2. 9.40 - 11.00 NABC Group Exercise 3. 11.00 - 11.15 Tea Break 4. 11.15 - 12.30 Group Presentations5. 12.30 - 1.30 Lunch Break6. 1.30 - 3.00 Making Innovation Work7. 3.00 - 3.30 Case Study Air Deccan8. 3.30 - 4.30 Payback - Introduction 9. 4.30 - 4.45 Tea Break 10. 4.45 - 5.30 Design for Today – Toyota11. 5.30 Close of Day 1
04/12/23
Framework for the Practice of Innovation
Day 2
Manpower10 FacesFrooti Case
MindspaceE-Choupal
4Ms: Methods, Money, Manpower, Mindspace
Day 1
Methods5 Disciplines7 Rules
MoneyPayback
04/12/23
The 5 Disciplines of Innovation
The Definition of Innovation
A relentless focus on the
creation and delivery of
new customer value to the marketplace
within a framework of business viability
04/12/23
• How much should you invest in an innovative product or
service?
• How fast should you push it to market?
• How quickly can you get to optimal value?
• How much additional investment should you pour into
sustaining and building the product or service?
Making Innovation Work
Payback, or the profitability of investment, is the
only decisive indicator for success in innovation
04/12/23
Making Innovation Work
Measuring Payback with the Cash Curve
The most effective tool to measure payback on innovation
is the cash curve
04/12/23
Making Innovation Work
Source: Payback: Reaping the Rewards of Innovation (James P. Andrew and Harold L. Sirkin,
Four S Factors have a direct impact on Cash Payback
04/12/23
Making Innovation Work
Tata Motors - New Product Introduction (NPI) Process
• Structured process for speed - faster product innovation
• Brings in greater discipline in the start-up stage
• NPI has helped Tata Motors create a new segment in Tata Ace –
India’s first mini-truck
04/12/23
Pha
ses
•Market analysis
•Competitor assessment
•Explore Prod. Options
•Product planning
Act
iviti
es
(Indi
cativ
e)
Gat
eway
D
eliv
erab
les
(Par
tial)
•Concept alternatives•QFD•Styling themes•Packaging•Manf. Feasibility•Cost targeting
•Performance & Weight analysis•Style & Spec’dev’mt. & Freeze•Vehicle & Aggregate plans•Product costing•Financial analys
•Design analysis & simulation•Alpha proto tests•Aggregate tests•Crash tests•Manf. Planning•Detail costing
•Full design validation •Beta proto tests•Production tooling•Vendor parts dev.•Install & comm. Facilities
•Quality Proving & Process validation•P0 & PP Builds•Vendor parts approval•Homologation
•9BOX & supporting docs
DR1 Sign-offs•Product Profile & tech targets•Recommended style theme•Prelim. Cost / wt targets•Prelim. Biz case
DR2 Sign-offs•Product spec & Features list•Vehicle Test Plan•Style & packaging sign off•Time & res. plan•Full Biz. case
DR3 Sign-offs•Design release•Long lead tooling signed off•Component reliability plan•Biz. Case validation
DR4 Sign-offs•Critical issues brochure•Vehicle test requirements met•Control plans signoff
DR5 Sign-offs•Launch volumes•QP build completion•Vendor partsfully approved
•Ramp up plan
•Ramp-up•PL Build
Product Strategy & Planning
Phase
Concept Evaluation
Phase
Concept Development
Phase
Product Design and
development Phase
Design Validation &
ProductionisationPhase
Pre-Production
Phase
Ramp-up Phase
Gat
eway
s
DR0DR0
Product Strategy Review
Product Strategy Review
Concept Selection
Concept Selection
Concept and Project
Approval
Concept and Project
Approval
Design Release
Design Release
Project Review
Project Review
Production Release
Production Release
Tata Motors Vehicle NPI Process – Conceptual Overview
DR1DR1 DR2DR2 DR3DR3 DR4DR4 DR5DR5 LLPIPI
Pro
ject
In
itiat
ion
Laun
ch
04/12/23
Making Innovation Work
Source: Payback: Reaping the Rewards of Innovation (James P. Andrew and Harold L. Sirkin,
Prelaunch $ 5 Billion expense swallowed Cash to sink Iridium
04/12/23
Making Innovation Work
Source: Payback: Reaping the Rewards of Innovation (James P. Andrew and Harold L. Sirkin,
Microsoft had difficulty scaling the Xbox volumes to get Payback
04/12/23
Making Innovation Work
Source: Payback: Reaping the Rewards of Innovation (James P. Andrew and Harold L. Sirkin,
Linde uses the cash curve to time the launch of new products
04/12/23
Making Innovation Work
3 Types of Risks in Innovation
• Executional. Can the company actually develop, produce, distribute, and support the new product or service as scheduled?
• Technical. Will the product or service work or perform as
intended or promised?
• Market. Will the product or service be accepted by customers in the amounts, at the prices, and within the time, desired?
Source: Payback: Reaping the Rewards of Innovation (James P. Andrew and Harold L. Sirkin,
04/12/23
Making Innovation Work
Source: Payback: Reaping the Rewards of Innovation (James P. Andrew and Harold L. Sirkin,
The cash curve identifies the size and relations between 3 risks
04/12/23
Making Innovation Work
Source: Payback: Reaping the Rewards of Innovation (James P. Andrew and Harold L. Sirkin,
Ideal! Low start-up cost, high speed and scale, low support cost
04/12/23
Indica Cash Curve
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
Years
Cu
mu
lati
ve C
ash
(R
s. C
rore
s)
1993 1998 2003
2011
Launch
Breakeven
04/12/23
Making Innovation Work
Group Exercise based on spreadsheet
Cash Curves for:
ACE
World Truck
Nano
04/12/23
ACE Cach Curve
-600
-400
-200
0
200
400
600
800
1000
1200
1400
Year
Cu
mu
lati
ve C
ash
- R
s. C
rore
s
2001 20052013
Breakeven
Launch
04/12/23
World Truck Cash Curve
-1000
-800
-600
-400
-200
0
200
400
600
800
1000
Year
Cu
mu
lati
ve C
ash
(R
s. C
rore
s)
2003 2008 2011
2015
Breakeven
Launch
04/12/23
Nano Cash Curve
-1200
-1000
-800
-600
-400
-200
0
200
400
600
Years
Cu
mu
lati
ve C
ash
(R
s. C
rore
s) 200920042016
2012
Launch
Breakeven
04/12/23
Making Innovation Work
In the Peacock and Elephant Projects, using the Payback Cash Curve, discuss the following:
• Can the team complete the development of the product on time in order to get it into production at the targeted date?
• Will the product really meet the customer-derived spec?
• Will our production process be able to get the hoped-for yield?
• Can we produce as many units as we think we can? • How much capital investment will be required - and how might that fluctuate?
• When will we sell the first unit?
• How many units will customers buy? At what price?
• When are we going to go cash positive?
• In short, does this invention look as if it can generate cash payback? If so, when and how?
04/12/23
Making Innovation Work
Design for Today
Innovation is about designing solutions for customer problems.
Can you see when and why such designs might deliver outstanding customer value?
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Flyovers
Making Innovation Work
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Flyovers
Making Innovation Work
Today’s Problems,
yesterday’s solutions
Yoga
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Flyovers
Making Innovation Work
Today’s Problems,
yesterday’s solutions
Yoga
Today’s Problems,
today’s solutions
Antibiotics
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Flyovers
Making Innovation Work
Today’s Problems,
yesterday’s solutions
Yoga
Today’s Problems,
today’s solutions
Antibiotics
Today’s Problems,
tomorrow’s solutions
Hybrid Car
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Flyovers
Making Innovation Work
Today’s Problems,
yesterday’s solutions
Yoga
Today’s Problems,
today’s solutions
Antibiotics
Today’s Problems,
tomorrow’s solutions
Hybrid Car
Tomorrow’s Problems,
tomorrow’s solutions
Solar Car
Which block represents innovation? And why?
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Flyovers
Making Innovation Work
Today’s Problems,
yesterday’s solutions
Yoga
Today’s Problems,
today’s solutions
Antibiotics
Incremental Innovation(Improving yesterday’s
solutions)
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Making Innovation Work
Today’s Problems,
yesterday’s solutions
Today’s Problems,
today’s solutions
Today’s Problems,
tomorrow’s solutions
Tomorrow’s Problems,
tomorrow’s solutions
Solar Car
Which block represents innovation? And why?
Prototypes(Testing tomorrow’s
solutions)
04/12/23
Yesterday’s Problems,
today’s solutions
Changing Market and Customer Requirements
Making Innovation Work
Today’s Problems,
yesterday’s solutions
Today’s Problems,
today’s solutions
Today’s Problems,
tomorrow’s solutions
Hybrid Car
Tomorrow’s Problems,
tomorrow’s solutions
Which block represents innovation? And why?
Innovation
04/12/23
Changing Market and Customer Requirements
Making Innovation Work
Today’s Problems,
tomorrow’s solutions
Hybrid CarToyota Prius
04/12/23
Making Innovation Work
Key Learnings
Source: Making Innovation Work (Davila, Epstein, Shelton)
04/12/23
Framework for the Practice of Innovation
Day 2
Manpower10 FacesFrooti Case
MindspaceE-Choupal
4Ms: Methods, Money, Manpower, Mindspace
Day 1
Methods5 Disciplines7 Rules
MoneyPayback
04/12/23
Making Innovation Work
7 Innovation Rules of good management
1. Exert strong leadership on the innovation strategy and portfolio decisions. (Tata Motors – led by Ratan Tata’s leadership)
2. Integrate innovation into the company’s basic business mentality. (Tata Motors – numerous innovation initiatives and programs)
3. Align the amount and type of innovation to the company’s business. (Tata Motors – Nano and World Truck focused on vehicles as a business)
4. Manage the natural tension between creativity and value capture. (Tata Motors – innovation carefully evaluated by committees)
5. Neutralize organizational antibodies.
6. Recognize that innovation is a network that includes people and knowledge -- both inside and outside the organization. (Tata Motors – intranet – Internet – Social Networking - LinkedIn forums)
7. Create the right metrics and rewards for innovation.
Source: Making Innovation Work (Davila, Epstein, Shelton)
04/12/23
The 5 Disciplines of Innovation
The Definition of Innovation
A relentless focus on the
creation and delivery of
new customer value to the marketplace
within a framework of business viability
04/12/23
Making Innovation Work
Design for Today
Innovation is about designing tomorrow’s solutions
for today’s problems.
Payback
Payback, or the profitability of investment, is the
only decisive indicator for success in innovation
04/12/23
SCAMPER – Tool for Innovation
04/12/23
Making Innovation Work
References
1. Making Innovation Work: How to Manage It, Measure It, and Profit from It
by Tony Davila, Marc J. Epstein, Robert Shelton
2. Payback: Reaping the Rewards of Innovation
by James P. Andrew and Harold L. Sirkin
3. The Elegant Solution: Toyota's Formula for Mastering Innovation
by Matthew May
04/12/23
Making Innovation Work
Glossary
1. ERC - Engineering Research Centre
2. NPI - New Product Introduction 3. TMETC – Tata Motors European Technical Center [UK, 2005]
04/12/23
Program Overview
1. 9.30 – 9.40 Introduction 2. 9.40 - 11.00 NABC Group Exercise 3. 11.00 - 11.15 Tea Break 4. 11.15 - 12.30 Group Presentations5. 12.30 - 1.30 Lunch Break6. 1.30 - 3.00 Making Innovation Work7. 3.00 - 3.30 Case Study Air Deccan8. 3.30 - 4.30 Payback - Introduction 9. 4.30 - 4.45 Tea Break 10. 4.45 - 5.30 Design for Today – Toyota11. 5.30 Close of Day 1
04/12/23
Framework for the Practice of Innovation
Day 2
Manpower10 FacesFrooti Case
MindspaceMental Models
4Ms: Methods, Money, Manpower, Mindspace
Day 1
Methods5 Disciplines7 Rules
MoneyPayback