Innovation vale management an introduction 2013 slide share

Inpaqt Confidential and Proprietary

How to create, develop and capture new business value?

Business Innovation Value Management

November 2013


Object 3

Contents

Understanding the complexity

§Business Innovation Framework

§Approach – Process Visualization

§Lifecycle of Innovation

§Service Offerings to Accelerate Innovation

§Appendices

• Service Offerings

• References

• About ....

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Operating Model Innovation

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Our understanding of the difficulties to ensure the Value creation, development and capturing for Innovation in a complex and uncertain environment

KEY QUESTIONS

How we can double the Value of the existing Innovation Portfolio?

CHALLENGESITUATION ?

§ The key characteristics of Innovation are high level of uncertainty in technology and markets, complex decision making for innovation program leaders and the board members.

§ Traditional business case approach for future value calculation doesn’t support the decision makers.

§ Once a business case is approved in the start of the innovation program, it isn’t used in the next steps of the innovation process to take the complex decisions needed.

§ The majority of the Innovation Program delay in time compared to the original Business Case

§ Portfolio Management

§ Speed of Innovation & Program Management.

§ Innovation Business Case, Management, Tooling & Training

§

§ Decision makers for Innovation Programs and Portfolio urge for better decision supporting tools on program and portfolio level.

§ Once a Innovation Program is started a need for a more dynamic Track & Trace tool regarding the performance of the program is required. The lack of Speed of Innovation the one of the most critical business case “killers”.

§ Due to the complexity of the decision making process and portfolio management, building internal competences is vital for sustainable success.

How to develop and implement an Innovation Decision Making Approach to double the Business Value of the existing Innovation Portfolio?

• How to define and use clear criteria for decision making process on Program and Portfolio level?How to develop a Innovation Business Case reflecting the right decision making process?How to manage the high sensitive value criteria successfully?

•

KEY SERVICESBusiness Innovation Value Management


I. Growth StrategyIdentifies where to allocate

organizational resources for future return on investments. Development of strategic scenarios to provide direction for the long-term growth strategy.

II. New Business ModelsA business model describes the

rationale of how an organization creates, delivers, and captures value. We help to develop effective, game-changing business models.

III. SOM InnovationDefines how an organization aligns

its assets and capabilities to deliver the future value proposition. Detailed design of the required changes to the current organization.

IV. Innovation Value ManagementTo maximize the outcome of your

innovation efforts, proper innovation management is imperative; i.e. portfolio mgt, Speed of Innovation & Program mgt, Co-development & Partnership mgt, Innovation BC mgt

DESIGN THE FUTURE VALUE PROPOSITION

DESIGN HOW TO CAPITALIZE

ON IT

DESIGN HOW TO DELIVER IT

TEST HOW TO MANAGE THE

FUTURE VALUE

Innovation Value Management is the financial reflection of our business innovation framework (designing & testing of Value Hypothesis) in terms of Future Value: NPV, IRR and Payback Time.

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Source: Adapted from Damien Newman – Central Inc,

Approach – Process Visualization of Entrepreneurial Innovation

Entrepreneurial Innovation means coping with uncertainty in all dimensions and therefor many iterations in redesign of the four dimensions

THE FUTURE VALUE PROPOSITION

HOW TO CAPITALIZE

ON IT

HOW TO DELIVER IT

HOW TO MANAGE THE FUTURE VALUE

UNCERTAINTY / RISKS /

PATTERNS /INSIGHTS

CLARITY / FOCUS

New

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Innovation Value Management

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Innovation

Innovation Value

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Growth Strategy New Busioess Models

Operating M

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InnovationInnovation Value

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Growth Strategy

New Busioess

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New Busioess

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Source: Adapted from Damien Newman – Central Inc,

Approach – Process Visualization of Managerial Innovation

Managerial innovation means that less dimensions requires redesign along the way and the process of innovation becomes more manageable and standardized at the end of the process

THE FUTURE VALUE PROPOSITION

HOW TO CAPITALIZE

ON IT

HOW TO DELIVER IT

HOW TO MANAGE THE FUTURE VALUE

UNCERTAINTY / RISKS /

PATTERNS /INSIGHTS

CLARITY / FOCUS

New

Busioess

Models


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Growth Strategy

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Source: Adapted from Damien Newman – Central Inc.

Life Cycle of Innovation

Managing the complexity and uncertainty means understanding the lifecycle of Innovation and knowing which risks and uncertainties are sensitive for Future Value

§ In an ideal scenario, an idea quickly transforms into a new product, without excessively high investments. New products are successfully introduced into the market, which, in turn, reach break-even fast.

§ Key financial ratio’s to measure success of Innovation are NPV, IIR and Payback Time

§ Key drivers for NPV are Time to Market (TTM), Investments, Income growth and Risk/Interest

§ The innovation cycle faces technical risks and market uncertainties

§ Main causes for loosing Value: taking too much time to perfect products instead of good enough, not having a launching customer, lack of IP protection, lacking solid market insights, not involving (e.g.) customers, suppliers or other third parties, due to matters taking longer, higher investments are required which push back the break-even point. Also the growth curve is likely to slope down due to missing market momentum.

§ Key Insight you need is: Which risks, uncertainties are most sensitive to impact the Future Value

§

Ideal Life Cycle of Innovation Reality is often different

Accu

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IDEAL SCENARIO

MARKET INTRODUCTION

BREAK EVENTechnical

Risks

Time

Market

Uncertainties


Service Offerings to accelerate Innovation Value Managem ent

Successfully managing the Future Value requires to build up the right capabilities our having access to services offering the requested functionalities

Services

Innovation BC Training 101

Full Outsourced Full Self Capable

Innovation Program Management Acceleration

IMS License & tool readiness Current Portfolio

CertificationFacilitating user community

Speed of Innovation - Consulting

Speed of Innovation - Building the capability

Innovation Portfolio “Value Doubler”

Portfolio Future Value Assessment

One Innovation Program NPV Acceleration

Innovation Portfolio - Building the capability

Outcome

Portfolio

Management

Speed of Innovation & Progr. Mgt.

Innovation Business Case

PROGRAM FUTURE VALUE

CERTAINTY INCREASE

FUTURE VALUE MANAGEMENT

CAPABILITY

PORTFOLIO FUTURE VALUE

CERTAINTY INCREASE


Service Offering Details


Innovation Business Case Training 101How build and manage business case in Innovation Dynamics?

Business Case Training 101

Objectives

§ Understand the Lifecycle of Innovation§ Understand and execute building a base line business

case using the tool ©IMS§ Develop different business case scenario’s for your own

project§ Simulate for each scenario improvement on NPV, IRR

and Payback Time

Output

§ Actual Business Case for your own Innovation Project§ Different business case scenario’s§ NPV-Reports for each executed simulation§ Capability to use ©IMS at initial level§

Method

§ Day 1: getting started with the base line BC:ü Client Case Introduction

ü BC introduction - base line

ü New case creation walkthrough base on prepared case information

ü Get used working with the tool ©IMS

ü Speed of Innovation – Introduction

ü Q&A

§ Day 2: advanced BC understanding:ü Collective Case Introduction

ü Sensitivity Analysis – introduction

ü Execute sensitivity analysis - Group work

ü Acceleration of the BC – Report out

ü Portfolio Management – Introduction

ü Q&A

ü Day 3: advanced Portfolio Management (OPTIONAL)


In order to analyze different business case scenario’s the Sensitivity Analysis based on Monte Carlo Simulation method can be applied in complex and uncertain environment

What is it How to apply it

§ The Innovation Business Case Method is based upon Discounted Cash Flow (DCF) models, which help managers ask the right questions when judging projects and make better-founded decisions in complex and high uncertainty environment. We feel that a manager’s toolbox is not complete without this model and should be used throughout the life cycle of a product.

§ Free cash flow will fluctuate in the course of the project due to technical risks and market uncertainties. There are a number of possible scenarios, each with its own specific net present value and likelihood of occurring.

§ All these scenarios ought to be worked out and set against the likelihood that they may occur. This will be done using a Monte Carlo simulation. The various outcomes are presented as a distribution of NPV

§•

§ In de Innovation Lifecycle many options can create value, but they usually also cost money. Decision diagrams are a good way to estimate the value of an option. When they are set against the costs of obtaining flexibility, gathering information and implementing the decision, one can see whether or not the option will in fact create value.

§ We feel that the ability to think in terms of options is an important skill and an essential element of innovative entrepreneurship.

Innovation Business Case – Method: Sensitivity Analysis based on Monte Carlo Simulation

8/24/200323

Several real options are embedded in R&D-projects

• Several real options are embedded in R&D-projects

research and development

LaunchDecision

LaunchDecision

commercialisation

Cash Outflows Cash Inflows

launch

Embedded real options:•option to abandon•option to speed up•option to slow down•option to temporarily stop

Embedded real options:•option to defer launch

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Success of launch:•dog•average•star

Embedded real options:•option to abandon•option to expand•option to contract


IMS Tool License & readiness current PortfolioHow to start with IMS and be ready to manage the current Portfolio?

IMS tool license & readiness current portfolio

Objectives

§ License to operate with ©IMS tool§ Able to install projects in IMS§ Able to execute simulations on project basis§ Install current portfolio of innovation projects§ Execute different scenarios and simulation on portfolio

Output

§ Running IMS tool§ Dynamic Business Case for Innovation Projects§ NPV-Reports for each executed simulation§ Portfolio analysis reports§

Method

§ Quick scan current data model, tool, infrastructure and security. Possible reuse of data and infrastructure.

§ IMS Module planning and road mapping. Decision which modules are relevant and beneficial and in which order.

§ Business Case design and reporting. Supporting decision making process for go/no-go with IMS

§ Configuration and installation planning for each module. Ready to use and roll out scheme

§ User training and coaching§ Train-the-trainer workshops for key-users§ Install knowledge digital platform§ Annual support for optimizing IMS usages


Benefits of the IMS tool

What is it How to apply it

Increasing innovation competencies and skills within an organization requires specific management. For this purpose, INPAQT has developed powerful tools in order to make this management possible. They are combined into a single software package: the Innovation Management Suite (IMS).Consisting of over 100 tools and models, IMS is dived into different management systems covering the following tools in a row:· Foresight & Visioning· Business Modeling· Risk and Uncertainty Analysis· Appreciations· E-learning. Portfolio Management. Road-mapping. Idea management &Stage Gate. Pipeline management•

INPAQT will provide you with an experienced team of managers and professionals to successfully implement innovation management within your organization.We will install and configure the innovation management tools and interconnect them with your other systems.During this process your employees will be continuously involved. They will receive a training to get familiar with new procedures and utility features.After implementation, solid innovation management has thus become a fact.

IMS tool license & readiness current portfolio enables deep insight in portfolio in order to optimize portfolio


Blueprint of Innovation management system as recommended by innovation management experts

Generate Capture Evaluate Develop Launch

Workflow

Dash boarding and reporting

Back office integration and customisation tools

Phases

Features

Support functions

Ideation Road mapping

Social media

Databases

Contests/voting

Evaluation

Idea Portfolio mngt.

Project mngmt.

Collaboration

P2P advice

P2P enrichment

Mind-map PLM/BLM

Decision making

Business case PPMCommunities

Private communities

Innovation value chain

These features are best practices and

recommended by innovation experts such as Clayton Christenson of HBR

and addressed by the Inpaqt’s Innovation

Management Solution

Status alerts

Source: Innovators DNA, HBR, 2008, Capgemini Consulting

Innovation knowledge process

Life Cycle Innovation Management System – LIMS integrates all innovation value chain functions along the whole innovation life cycle

Business modelling


Via an “innovation” portal you enter the landingspage where you can navigate to the different parts of LIMS

LIMS landing (web) page depending on user role based access rights


The dashboards landing page provides different views on the innovation activities from challenges and ideas uptill projects and products on the market.


Each dashboard let you compare the status of the different innovation activities(in graph selections possible)


LIMS supports multi disciplinary teams to work together on an captured idea

In the Ideation phase an idea is captured and worked out into a full project/business plan by a multi-displinary team.


Specific out of the box tools support the team with generation of applications up to defining the business model and refining the value proposition.

Results of brainstorming using mindmapping functionality Value network showing up and downstream parties

Overserved and underserved product/service attributesAlexander Osterwalder’s Business Model Canvas


Our focus in Business Case is on the cost and value drivers, determing the critical uncertainties and risks; support the team to create new options to mitigate the uncertainties and risks.

0 10.000 20.000 30.000 40.000 50.000-10.000

R&D1 -> Phase1 -> [Out of Pocket Costs]

R&D1 -> Phase1 -> [Duration (in quarters)]

C2 Cost-Return AnalysisDemo -> Market1 -> [PricePerUnit]

C2 Cost-Return AnalysisDemo -> ComplementaryMarket1 -> [PricePerUnit]

C2 Cost-Return AnalysisDemo -> Market1 -> [MarketShare Expectation]

Impa

ct

Sensitivity Analysis2 -> Impact On Static NPV (Sensitivity Analysis) (Sensitivity Analysis2)Sensitivity Analysis2 -> Impact On Static NPV (Sensitivity Analysis) (Sensitivity Analysis2)

0

200,000

400,000

600,000

800,000

1,000,000

-200,000

-400,000

-600,0002.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

Stat

ic N

PV

Duration (in quarters) -> Duration (in quarters)|Static NPV (Sensitivity Analysis2)Duration (in quarters) -> Duration (in quarters)|Static NPV (Sensitivity Analysis2)

Duration (in quarters)

-1.000.000

-500.000

0

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1.000.000

Aver

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tota

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umla

ted

NPV

29-10-2015 3-9-2019

Time

Business Case -> Accumulated NPV

Business case Income statement

Tornado diagram with most important cost- and value drivers

Cash curve showing break even point and payback time

The effect of time to market on expected Net present Value


Benefits using our tool

• Our integrated innovation system LIMS covers the whole innovation value chain

• Support of all innovation people involved and on all levels, from the innovation team members, innovation managers up till board level.

• Easy access to actual data assures that board decisions are up to date and based upon verifiable facts and input

• Inpaqt LIMS software assures that innovation activities are in line with your company strategy

• with LIMS from Inpaqt you can easily increases speed of innovation , innovation productivity and flexibility

• Our software is customizable and modular, adjusting it to your innovation process needs and capabilities and thus helping you to improve your innovation process and capabilities over time

• Open and .Net technology to easily connect with other systems and share data

• Fast implementation through Agile/scrum working methods


Example case


Sensitivity analysis BC: Tornado diagram

-200.000 -100.000 0 100.000 200.000 300.000

Impact

Quarter Basis Funnel FEI1 v2 aanpassing def. -> [Discount_Rate_WACC]

Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [TotalUnitsSoldperyear Expectation]

Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [CoGS1 Expectation]

Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [PriceperUnit Expectation]

Sensitivity Analysis30 -> Impact On Static NPV (Sensitivity Analysis)

Average Sales Price

Expected CoGS

Total unit sold/year

Discount rate (WACC)

Cost drivers Value drivers

Sensitivity analysis: Discount rateNPF

-2.000.000

0

2.000.000

4.000.000

6.000.000

8.000.000

10.000.000

12.000.000

Stat

ic N

PV

-25 -5 15 35 55 75 95 115

Discount_Rate_WACC

Discount_Rate_WACC -> Discount_Rate_WACC|Static NPV

IRR

Used DR

Sensitivity analysis: Sales priceNPF

-5.000.000

0

5.000.000

10.000.000

15.000.000

20.000.000

Stat

ic N

PV

62.500 82.500 102.500 122.500 142.500 162.500

PriceperUnit Expectation

PriceperUnit Expectation -> PriceperUnit Expectation|Static NPV

Break even price

Sensitivity analysis: CoGSNPF

-2.000.000

0

2.000.000

4.000.000

6.000.000

8.000.000

Stat

ic N

PV

32.500 42.500 52.500 62.500 72.500

CoGS1 Expectation

CoGS1 Expectation -> CoGS1 Expectation|Static NPV

Break even CoGS

Examples of reports using Innovation Business Case approach


Case “e-bike development

Basic assumption for the case: “e-bike development”


Results of the Analysis using IMS: NPV, payback time, IRR and P&L

Income Statement2013 2014 2015 2016 2017 2018 2019 2020

Revenues 0 0 155.278 1.277.600 2.296.749 2.433.400 2.434.185 2.129.502COGS 0 0 49.689 408.832 734.960 778.688 778.939 681.441Gross Margin 0 0 105.589 868.768 1.561.789 1.654.712 1.655.246 1.448.061Total R&D Cost 314.785 250.415 100.578 2.748 0 0 0 0EBITDA: -314.785 -250.415 5.011 866.021 1.561.789 1.654.712 1.655.246 1.448.061Depreciation/amortization 0 0 0 0 0 0 0 0EBIT -314.785 -250.415 5.011 866.021 1.561.789 1.654.712 1.655.246 1.448.061Tax 0 0 0 216.505 390.447 413.678 413.811 362.015Net Income -314.785 -250.415 5.011 649.516 1.171.342 1.241.034 1.241.434 1.086.046

Chance on Negative NPV (%)

0,50

Estimated Annual Revenues

36

Estimated R&D for Next Year

Calculated Risk (between 1 (very low) to 25 (Very high)

*IRR (%)

Payback time (Years)

2.748

7,8

51

Not Def ined

76,89

Choose

Results

Project Description

Project Number

Expected NPV (mil)

Case: “e-bike development”


Sensitivity analysis results using IMS:

-20.000 0 20.000 40.000 60.000

Impact

Business Case (P) -> E-bike market -> [CoGS1 Expectation]

E-bike development -> Phase1 -> [Duration (in quarters)]

E-bike development -> Phase1 -> [MaterialsandServices1]

Business Case (P) -> E-bike market -> [TotalUnitsSoldperyear Expectation]

Business Case (P) -> E-bike market -> [PriceperUnit Expectation]

Sensitivity Analysis4 -> Impact On Static NPV (Sensitivity Analysis)



Boosting Time to Market show significant increase of Value

-4.000.000

-2.000.000

0

2.000.000

4.000.000

Stat

ic N

PV

2 7 12 17 22 27

Duration (in quarters)

Duration (in quarters) -> Duration (in quarters)|Static NPV

Now

Scenarios: Outsource, more resources, concurrent engineering etc


Break even

Increasing speed increases NPV


Can the number sold increased by using other distribution channels?

-3.000.000

-2.000.000

-1.000.000

0

1.000.000

2.000.000

Stat

ic N

PV

-550 -50 450 950 1.450 1.950 2.450

TotalUnitsSoldperyear Expectation

TotalUnitsSoldperyear Expectation -> TotalUnitsSoldperyear Expectation|Static NPV

Break even


Now


-2.000.000

-1.500.000

-1.000.000

-500.000

0

500.000

1.000.000

Stat

ic N

PV

400 900 1.400 1.900

CoGS1 Expectation

CoGS1 Expectation -> CoGS1 Expectation|Static NPV

Break even

Price now


Can the cost price be lowered by deleting overserved product attributes or by lowering costprice using lean principles?

Low

High

Low High

No Noise

Comfortable posture/sittingLow weight

Lighting

Good braking

Well known Brand

Needed storage room Sportive, modern designCompeting price/price range

Range/Action radiusRobust design

Cycling light

Rat

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ttrib

ute

real

izatio

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Impo

rtanc

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Attribute Importance

Bubble size represents costs and or presence of barriers

No actionUnderserved: Qualifier, improve/0ther customer group

Overserved:Lower costs/Other customer group

Differentiator: May deliver customer excitement

Overserved costly attributes that can be deleted and in this way increases the value for money


-3.000.000

-2.000.000

-1.000.000

0

1.000.000

2.000.000

3.000.000

Stat

ic N

PV

625 1.125 1.625 2.125 2.625 3.125 3.625

PriceperUnit Expectation

PriceperUnit Expectation -> PriceperUnit Expectation|Static NPV

Break even

Now


Can the price being rised by better market segmentation or adding functionalities that doesn’t require additional investments?)

Low

High

Low High

No Noise

Comfortable posture/sittingLow weight

Lighting

Good braking

Well known Brand

Needed storage room Sportive, modern designCompeting price/price range

Range/Action radiusRobust design

Cycling light

Rat

io A

ttrib

ute

real

izatio

n vs

Impo

rtanc

e

Attribute Importance

Bubble size represents costs and or presence of barriers

No actionUnderserved: Qualifier, improve/0ther customer group

Overserved:Lower costs/Other customer group

Differentiator: May deliver customer excitement

Underserved cheap attributes that can be improved and in this way increases the value for money

using customer insights and looking at underserverd product attributes (Outcome driven innovation


Inpaqt is the core of a partnership network of top skills & experiences

The team and contact details

31

Felix Janszen, CEO at Inpaqt b.v.M: +31 (0)6 54242341@: [email protected]

Koen Klokgieters, Associate PartnerM: +31 (0)6 46934577@: [email protected]