Advanced Guide Innovation vs. Investment Tool (Scorecard ...futurethink.com/wp-content/uploads/2017/03/ag_inn_inv_matrix.pdf · THE SCORECARD. 5 Innovation vs. Investment Scorecard

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Advanced Guide Innovation vs. Investment Tool (Scorecard and Matrix)

Advanced GuideInnovation vs. Investment Tool (Scorecard and Matrix)


What’s Inside…

INTRODUCTION. Make Idea Evaluation More Objective and Balance Your Innovation Portfolio 2

Innovation vs. Investment: Scorecard + Matrix. Get to Know the Basics 3

Within the Larger Process Context. Incorporating the Scorecard and Matrix into Your Idea Evaluation Process 4

THE SCORECARD. 5

Innovation vs. Investment Scorecard. How to Arrive at Scores for Each Dimension of the Matrix 6

Instructions. How to Customize and Use the Scorecard 8

Using a Scorecard Guideline. Get Evaluators on the Same Page 11

THE MATRIX. 13

The Innovation vs. Investment Matrix. What Do the Quadrants Mean? 14

How to Use the Matrix. Tips and Techniques 15

See the accompanying Excel file. (innovation_investment_scorecard.xls)

See the accompanying PowerPoint file. (innovation_investment_matrix.ppt)



IntroductionMake Idea Evaluation More Objective and Balance Your Innovation Portfolio

• A 2013 survey from The Boston Consulting Group concluded that “The best architecture—and not the best product—wins in the long run.”1 Creating a balanced innovation portfolio that aligns with your company’s objectives will help you better innovate and grow for the long term.

• A 2013 survey from Bain shows two-thirds of companies made innovation one of their top three priorities. However, just one in five said they were strong at “breakthrough” innovation.2 Companies recognize the need to balance incremental improvements with breakthrough discoveries, but often do not know how to do it.

• A 2012 Booz & Company research study showed that being highly effective at idea conversion is more important to financial success than being highly skilled at generating ideas3.

1 The Boston Consulting Group, “The Most Innovative Companies 2013” (2013)2 Bain, “Taking the Measure of Your Innovation Performance “ (2013)3 Booz & Company, “Making Ideas Work“ (2012)

The reality is, your organization has a limited pool of money with which to invest in innovation. The question is: which ones do you decide to fund? First of all, you need to be able to evaluate ideas in a fair, objective manner, not on whim or instinct. Second, you need to ensure that you’re optimizing your risk across a basket of innovation projects. This means that you’re balancing your investments between large-and small-scale projects to get the best bang for your buck. The Innovation vs. Investment scorecard and matrix will help you achieve both objectives.

Focus on the best ideas and weed out the rest. Too many companies say “yes” to everything and spread their investments over too many projects. They become reluctant to drop projects and rely on gut and instinct. With this tool, you have an objective basis to stop investing in ideas that don’t hold up to a certain standard.

Stop innovating in extremes. The leading innovators take big risks with game-changing innovations, and safe bets with incremental improvements. You cannot afford to think about innovation as just “one, big idea” and put your business at risk. The other extreme—taking on small, minor projects and hoping for a big bang—is also not fruitful. The key is to blend these approaches by balancing your portfolio. This tool is a critical element in your innovation ar-senal that ensures you’re not putting all your eggs in one basket.

Define what makes a good idea. This tool will force your organization to define the criteria that make an idea worthy of further investment. When these tools are shared with everyone, it will make your innovation efforts more transparent and purposeful. People who are generating ideas or working on innovation projects will have a clear understanding to shape their thinking. They’ll also know why their ideas get rejected or approved.



Innovation vs. Investment: Scorecard + MatrixGet to Know the Basics

Innovation vs. Investment Scorecard

Innovation Score 0

Project Lead: Investment Score 0

I Ratio #DIV/0!

Score(1 LOW–5 HIGH) Weight Factor Total Notes/Comments

1 20 0

2 25 0

3 25 0

4 30 0

100 0 Total Investment Score


1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0

100 0 Total Innovation Score

Decision (Select one option): GO: Proceed

to next stage

STOP: File idea in pipeline

HOLD: Review again at next meeting

Next Steps:

Scored By:Signature:Date:

Level of customer need met by this idea (importance of need, and how satisfactorily the idea meets the need)

Level of market attractiveness (potential size of the pie)

Level to which brand positioning is supported/expanded

Investment Criteria

Time needed to develop idea to be ready for market launch

Total Weight Factor = 100

Innovation Criteria

Level of staffing required to implement the idea

Degree of complexity (operations, technology) to implement

Level of capital investment required for implementation (development and deployment costs)

Level of sustainable competitive advantage (XX years after launch)

Potential for PR, cross-industry and customer "buzz"


Level of competitive uniqueness and differentiation (immediately after launch)

Scores At-A-Glance

Idea #:

Idea Name:

Date Submitted:

Potential additional revenue in XX years

© 2005–11. Future Think LLC. 380 Lexington Ave, Suite 1743, New York, NY 10168. www.futurethink.comInnovation vs. Investment

Innovation

Investment0

500

500

This tool will help you evaluate ideas that you’re considering for development across two critical dimensions. The goal for your organization is to look at both of these dimensions simultaneously when you evaluate ideas, and make go/no-go decisions:

1. Innovation: What is the potential business and financial reward if your organization brings the idea successfully to the marketplace?

2. Investment: What are the business and financial risks that your organization is taking on if you decide to put money behind the idea?

ABOUT THE TOOL

The tool comes in two parts. In the first part, we’ll discuss the scorecard. For each idea you evaluate, the scorecard will help you assign a score for both the innovation and investment dimensions. These scores will help you objectively compare ideas based on a common standard.

The second part of the tool is the matrix. After you’ve arrived at the Innovation and investment scores, you’ll plot the idea on the matrix. Typically, ideas under evaluation are plotted on the matrix along with your existing development pipeline. Your team will use the results to determine whether the projects in question help distribute your risk evenly, keep you on track with your innovation goals, or shift your portfolio too heavily in one area of focus.



Within the Larger Process ContextIncorporating the Scorecard and Matrix into Your Idea Evaluation Process

raw ideas

projects

investment increasesnumber of ideas decreases

Use the tool across your innovation process. This tool can be used both early and later in your process.

Kill the raw ideas early. Early in your process, you’ll be able to make quick go/no-go decisions on ideas before you’ve invested too much time and money in them. A portfolio matrix can tell you if it’s worth the additional investment necessary to take the idea forward.

Evaluate works-in-progress. Later on in your process, projects have already had some analysis and investments put behind them. A portfolio matrix can help you see the value of all your ideas relative to each other, and guide you to make go/no-go decisions before you make more “serious” decisions (for example, making more investments, assigning greater resources, going to market).



THE SCORECARDIf your organization is currently receiving and evaluating ideas in different forms, shapes, and sizes, this scorecard will help you objectively evaluate them. You’ll be able to compare apples to apples and separate good ideas from mediocre ones.


Innovation Score 0


I Ratio #DIV/0!


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:





Investment Criteria



Innovation Criteria








Scores At-A-Glance

Idea #:

Idea Name:

Date Submitted:


© 2005–11. Future Think LLC. 380 Lexington Ave, Suite 1743, New York, NY 10168. www.futurethink.com



Innovation vs. Investment ScorecardHow to Arrive at Scores for Each Dimension of the Matrix

An innovative organization takes a balanced look at every idea it decides to implement. It takes an optimistic view of an idea to see the potential opportunity that it could offer. It also acknowledges that every idea comes with a certain amount of risk. This scorecard will help you objectively assess the amount of opportunity (innovation) and risk (investment) for each idea you consider, so you can see the trade-off that you’re making.


Innovation Score 0


I Ratio #DIV/0!


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:





Investment Criteria



Innovation Criteria








Scores At-A-Glance

Idea #:

Idea Name:

Date Submitted:



Use the accompanying Excel file to customize the scorecard for your organization. (innovation_invest-ment_scorecard.xls) Here, we discuss tips on how to use it more effectively.




Innovation Score 0


I Ratio #DIV/0!


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:





Investment Criteria



Innovation Criteria








Scores At-A-Glance

Idea #:

Idea Name:

Date Submitted:



Innovation vs. Investment ScorecardHow to Arrive at Scores for Each Dimension of the Matrix

The scorecard helps you analyze innovation and investment with clearly defined criteria. The scorecard breaks down both of these abstract dimensions into measurable criteria. Selecting these criteria will be critical for your organization. It not only shapes how you’ll evaluate innovation, but it also tells your employees what defines a good idea and what doesn’t.

The scorecard we’ve included uses a few standard criteria for each dimension. You’ll notice that these criteria offer a more holistic perspective on innovation and investment because they take into consideration both financial and business aspects. You can fine-tune, add, or delete criteria that are relevant for your organization.

Investment criteria (financial and business risk)

1. Time needed to develop idea for market launch

2. Level of capital investment required for implementation (development and deployment costs)

3. Level of staffing required to implement the idea

4. Degree of complexity (operations, technology)

Innovation criteria (financial and business reward)

1. Potential additional revenue in XX years

2. Level to which brand positioning is supported

3. Level of customer need met by this idea (importance of need, and how fully the idea meets the need)

4. Level of market attractiveness (potential size of pie)

5. Level of competitive uniqueness and differentiation (immediately after launch)

6. Potential for PR, cross-industry and customer “buzz”

7. Level of sustainable competitive advantage (XX years after launch)




Innovation Score 0


I Ratio #DIV/0!


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:





Investment Criteria



Innovation Criteria








Scores At-A-Glance

Idea #:

Idea Name:

Date Submitted:



InstructionsHow to Customize and Use the Scorecard

1. Frame your criteria carefully. Your criteria should be descriptive enough so that they do not raise any questions among your evaluators. For example, capital investment will certainly be one of your risk criteria. In the scorecard, we’ve described it as “Level of capital investment required for implementation (development and deployment costs).”

2. Use weight factors. Weight factors help to fine-tune your scorecard and indicate some criteria as “more important” than others:

> Distribute 100 index points across the criteria. The more important a criterion, the more weight it should receive. For example, if “Brand Fit” is more important than “Strategic Alignment,” you should assign it a higher weight factor.

> Calculate a weighted score. The weighted score for each question = Weight Factor x Score. This formula is built into the Excel worksheet.

> Round off your weight factors. Weight factors need not be exact. For example, a weight factor of 23 vs. 28 doesn’t make a significant difference in the final score. So, assign them in units of five or 10. Just remember that the weight factors reflect the relative importance of each criterion.

> Weights or no weights? If you’re just beginning your innovation efforts, consider omitting weight factors in your scorecard. You can add it at a later time as your evaluation program evolves and your team gets a better understanding of innovation.




Innovation Score 0


I Ratio #DIV/0!


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:





Investment Criteria



Innovation Criteria








Scores At-A-Glance

Idea #:

Idea Name:

Date Submitted:



Instructions (continued)How to Customize and Use the Scorecard

3. Get a results summary. The table at the top of the worksheet provides a quick summary of the results of the scorecard. It also calculates an “I Ratio.” This number is the ratio of your innovation score to investment score; it is comparable to a “Return on Innovation.” It offers a quick guideline to the quality of an idea:

Ratio < 1: The investment outweighs the innovation. Are you sure you want to implement the idea?

Ratio > 1: This is an easier decision to make, where the innovation clearly outweighs the investment.

4. Track the idea. Each idea in your pipeline should get a unique tracking number (generated by an idea pipeline). This number will also be used as a legend on your matrix.

5. Indicate who’s in charge. If an idea has a specific owner, indicate that resource on the scorecard.

6. Use the scorecard guideline. To ensure that your organization has a common understanding for scoring, use the “scorecard guideline” worksheet in the Excel file. It explains what a score of 3 vs. 5 means. This should be distributed to all evaluators. Look at page 12 for more information on the scorecard guideline.




Innovation Score 0


I Ratio #DIV/0!


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:





Investment Criteria



Innovation Criteria








Scores At-A-Glance

Idea #:

Idea Name:

Date Submitted:



Instructions (continued)How to Customize and Use the Scorecard

7. Encourage notes. Evaluators can document questions and comments when they’re scoring ideas on the scorecard next to each criterion.

8. Make a decision. There are three possible decisions you can make based on your evaluation: > GO: Move project to next phase.> HOLD: Keep project on back-burner until next review

(because it might not be the right time).> STOP: Stop work on project—do not review again.

9. Identify clear next steps. If a project is given a “GO,” a team will need specific direction as to how to take it forward. Document your next steps at the end of the scorecard.



Using a Scorecard GuidelineGet Evaluators on the Same Page

Innovation vs. Investment Scorecard GuidelinesSCORE 1–2

(LOW)SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 X Months XX Months XXX Months

2 $ $$ $$$

3 $ $$ $$$

4 Low: very easy to implement

Moderately challenging: potential roadblocks exist Significant challenge

SCORE 1–2(LOW)

SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 $ $$ $$$

2 Little to do with current brand positioning

Supports our existing brand positioning

Potentially expands our brand positioning in new territories

3

Addresses an unimportant customer

needMeets the need very

unsatisfactorily

Addresses a moderately important customer needDoes an average job of

meeting the need

Addresses an extremely critical customer need

Meets the need in a holistic and complete manner

4 $ $$ $$$

5 Easy to replicate by competition

Moderately difficult to replicate by competition

Very difficult to replicate by competition

6 Low: will be seen as "business as usual"

Moderate: Will be seen as news within the industry

High: Will create news in general interest and across industries

7Low potential for future

extensions/enhancements to sustain advantage

Moderate potential for future extensions/enhancements to

sustain advantage

High potential for future extensions/enhancements to sustain

advantage

Level of complexity in order to implement

Innovation Criteria

Investment Criteria












A scorecard can make evaluation of ideas more objective; however, the reality is, there’s still a certain level of subjectivity to the scores. Every person on your evaluation team will have a different opinion on what a score of 3 or 5 means. We highly recommend that you use a “Scorecard Guideline”—it will help get everyone on the same page and create more consistency in your scoring.

We’ve included a scorecard guideline in the attached Excel file (innovation_investment_scorecard.xls). Once you’ve designed your scorecard, you’ll want to create accompanying scorecard guidelines and distribute them to all evaluators. On the following page, we highlight how to develop your guidelines.



InstructionsHow to Customize and Use the Scorecard Guideline

1. Define guidelines for all criteria. Be as descriptive you can with each criterion. We’ve included guidelines for each of the eight innovation and investment criteria.

2. Develop a range of scores. You don’t need to define a guideline for each score. Instead, use a low/medium/high score-range for each criterion, and define a guideline for the range. We recommend the following score-range:LOW: Scores 1 to 2MEDIUM: Scores 2 to 4HIGH: Scores 4 to 5

Innovation vs. Investment Scorecard GuidelinesSCORE 1–2

(LOW)SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 X Months XX Months XXX Months

2 $ $$ $$$

3 $ $$ $$$

4 Low: very easy to implement

Moderately challenging: potential roadblocks exist Significant challenge

SCORE 1–2(LOW)

SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 $ $$ $$$

2 Little to do with current brand positioning

Supports our existing brand positioning

Potentially expands our brand positioning in new territories

3

Addresses an unimportant customer

needMeets the need very

unsatisfactorily

Addresses a moderately important customer needDoes an average job of

meeting the need

Addresses an extremely critical customer need

Meets the need in a holistic and complete manner

4 $ $$ $$$

5 Easy to replicate by competition

Moderately difficult to replicate by competition

Very difficult to replicate by competition

6 Low: will be seen as "business as usual"

Moderate: Will be seen as news within the industry

High: Will create news in general interest and across industries

7Low potential for future

extensions/enhancements to sustain advantage

Moderate potential for future extensions/enhancements to

sustain advantage

High potential for future extensions/enhancements to sustain

advantage

Level of complexity in order to implement

Innovation Criteria

Investment Criteria












3. Describe a clear demarcation between ranges. Describe in clear terms the difference between the low, medium, and high ranges. For example, for the “Innovativeness” criterion, the descriptors we recommend are:LOW: Incremental innovationMEDIUM: Substantial innovationHIGH: Revolutionary innovation

4. Qualitative vs. quantitative criteria. Some criteria are qualitative; you should be vivid and descriptive with your guidelines. For other criteria, you can define specific numbers for the guidelines.



THE MATRIX

The second part of the tool is the matrix. After you’ve arrived at the innovation and investment scores, plot the idea on the matrix. Typically, ideas under evaluation are plotted on the matrix along with your existing development pipeline. Your team will use the results to determine whether the projects under discussion help distribute your risk evenly, keep you on track with your innovation goals, or shift your portfolio too heavily in one area of focus.

Innovation vs. Investment

Innovation

Investment0

500

500



The Innovation vs. Investment MatrixWhat Do the Quadrants Mean?

Depending upon the scores you’ve arrived at for each idea, it will map on to a specific point within the matrix. We’ve divided the matrix into four broad areas to help you make better go/no-go decisions.


Innovation

Investment0

500

500

INNOVATORS GROUNDBREAKERS

QUICK-WINS BACK-BURNERS

INNOVATORS These are potentially your “must-do” ideas. They offer higher levels of innovation compared to the amount of investment that goes into them.

QUICK-WINS These ideas have low levels of both innovation and investment. They imply that you’re taking on little risk for an idea that potentially offers little reward. Many of your incremental improvements (new versions, feature add-ons) will fall in this quadrant. Typically, organizations tend to have many ideas in this quadrant.

GROUNDBREAKERS Some of your ideas are the true breakthroughs—they involve a high amount of risk, but the potential reward might be worth all the trouble. In a typical organization, there are a few high-quality ideas that fall in this quadrant.

BACK-BURNERS These are the ideas for which the investments outweigh the innovation. The decision you make with these ideas are either:

Don’t-Do. Shelve these ideas since the amount of investment is not worth the level of innovation.

Should-Do? Sometimes, there might be a compelling reason why you would implement these ideas (e.g., you might consider implementing a project just to gain competitive parity).



Start with a baseline and reach for a goal. No matter which matrix you pick, make certain that you know where your portfolio currently stands. It’s also important to aim for a goal (where you want your portfolio to be). This helps you track if and how you are moving towards a goal.

How to Use the MatrixTips and Techniques

1

CURRENT:

10% 5%

80% 5%

GOAL:

20% 30%

30% 20%

The matrix we’ve shown in this tool will help you conduct an extremely important activity in your organization: balancing your basket of innovation projects to distribute your risk. Here are some useful tips to help you balance your innovation portfolio effectively using this matrix.

Answer “relative” questions. Remember, portfolio-balancing helps you look holistically at your basket of innovation projects. When you’re evaluating new ideas to add to your existing pipeline, it helps to answer some of these relative questions.

> What’s the impact of adding this new idea to our existing portfolio?> Does our portfolio become too concentrated in one area?> Does the addition of this new idea strain resources in a particular area?> Are we under- or over-serving a quadrant by adding this new idea?

2




Innovation

Investment0

500

500

Take advantage of other perspectives. The matrix is a flexible decision-making tool.

Here’s an example of another view that the matrix offers to make better go/no-go decisions. An idea can fall into one of three broad “decision-zones” as shown here.

How to Use the Matrix (continued)Tips and Techniques

4

3

Spread ideas across your matrix. The goal of portfolio balancing is to make sure that you have ideas that are represented across the matrix. This helps you balance breakthrough ideas with incremental ones. With a well-balanced portfolio, you can make smarter decisions about taking on new ideas.

Innovation > Investment: Potential Must-Do’s

Innovation = Investment: Should-We-Do’s?

Innovation < Investment: Potential Don’t-Do’s




6 Innovation vs. Investment

Innovation

Investment0

500

500 0

500

500


Innovation

Investment

Add dimension to your matrix. You can use colors, shapes, and sizes to

distinguish between regions, business divisions, and markets in the matrix. A shape and color-coded matrix can become the language of innovation in your organization. Note: the companies mentioned below use sophisticated software to track their innovation portfolios.

Here are some examples of how organizations add dimension to their portfolio matrices:

> Some organizations use the size of the circles on a matrix to denote the amount of resources that have been spent on a project. They know that the total area of circles in their matrix cannot go beyond a certain threshold.

> 3M uses squares to represent well-defined projects, and ellipses and circles to represent increasingly unclear, uncertain projects.

> P&G uses CAD software to create 3-D representations of its new product portfolio. Diagrams can be rotated in space and depict project features, and details of a project are available by clicking on a project bubble.

> Some companies use timing as a dimension. Red circles indicate “red-hot” projects that are on the verge of launch while blue circles indicate “early” projects.




7 8Innovation vs. Investment

Innovation

Investment0

500

500


Innovation

Investment0

500

500

INNOVATORS GROUNDBREAKERS

QUICK-WINS BACK-BURNERS

Ideas will shift with every evaluation. It’s not enough to plot an idea just once on a

matrix. An idea will certainly build and evolve (and even transform) as a team works on it. You should analyze your pipeline on a regular basis (perhaps quarterly) to see where existing ideas have shifted, and to evaluate new ideas.

Drive idea generation in a proactive way. Since you’ll be evaluating your portfolio

on a continuous basis, it helps you see “holes” in your basket of ideas. This can help you drive idea-generation in specific directions to fill those holes. For example, you may find that your portfolio is skewed too much toward the groundbreakers quadrant, with very few innovators ideas. You can challenge your business teams to generate ideas that provide new possibilities without an extremely intensive investment.



Notes

Documents

Advanced Guide Innovation vs. Investment Tool (Scorecard ...futurethink.com/wp-content/uploads/2017/03/ag_inn_inv_matrix.pdf · THE SCORECARD. 5 Innovation vs. Investment Scorecard