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Creating Value from Innovation
Don Creswell
Co-founder SmartOrg Inc.
Marcus Evans PDI Conference
Philadelphia, PA
13 – 14 September 2012
© 2000-2012 SmartOrg. | Confidential and Proprietary. 1
SmartOrg services and software help companies optimize the economic value of R&D, NPD and Innovation
Portfolio Navigator® Software
Services
Confidential and Proprietary 2
Evaluate and track
sources of value, risk
and upside.
Focus on critical
issues. Aggregate and
compare
• Training & Coaching
• Management Consulting
• Pilots & Implementation
• Customization
Lessons from organizations like these
3
Life science Aerospace Technology Other
Confidential and Proprietary
From ideation to a scalable business
4
Formulate Ideate Incubate Accelerate
Reformulate
Committed Innovators with
actionable insight
Aligned Learning
Plan
Proven Opportunity
Scalable Business
We like to think it’s like this…
© 2000-2012 SmartOrg. | Confidential and Proprietary. 5
But it’s often like this!
© 2000-2012 SmartOrg. | Confidential and Proprietary. 6
Niccolò Machiavelli on Innovation
© 2000-2012 SmartOrg. | Confidential and Proprietary. 7
“It ought to be remembered that
there is nothing more difficult to
take in hand, more perilous to
conduct, or more uncertain in its
success, than to take the lead in
the introduction of a new order of
things.
Niccolò Machiavelli on Innovation
© 2000-2012 SmartOrg. | Confidential and Proprietary. 8
“Because the innovator has for
enemies all those who have done
well under the old conditions,
and lukewarm defenders in those
who may do well under the new.”
Innovation is risky business.
Even in the best companies 70% to 80% of new
products fail to meet profit/revenue goals —
many fail altogether!
Even the biggest fail!
© 2000-2012 SmartOrg. | Confidential and Proprietary.
http://www.youtube.com/watch?v=gZTVX21jPtc&feature=player_embedded
10
“Out of 251 Google projects or add-ons since 1999, 90 have been canceled. Out of 22 major product launches, eight have been huge flops”
There is no crystal ball.
Portfolios spread the risk
© 2000-2012 SmartOrg. | Confidential and Proprietary. 12
Innovation Portfolio enables balancing risk vs. reward
Incremental innovation: easy to do but low value.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 13
This is where we hope innovation will lead.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 14
The world is more like this.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 15
You don’t want these guys.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 16
Value-based business models reveal the impact of uncertainty on project value.
Development uncertainty
Commercial uncertainty
Portfolio: collection of projects evaluated “on a level playing field”
What is the status of your portfolio?
Innovative
Projects
Inc
rem
en
tal
Pro
jec
ts
Too few Too many
Too
few
Too
many
Number of
good projects
60% of executives in survey of 50 companies say they have too few innovative projects.
Futurist
Starving
Glut Nearsighted
Innovative
Inc
rem
en
tal
Too few Too many
To
o
few
Too
many
Number of
good projects
2%
32%
10%
56%
88%
58%
Results from survey of 50
companies
Selecting an innovative product to develop and commercialize
© 2000-2012 SmartOrg. | Confidential and Proprietary. 23
The Innovation Team proposes a new product
© 2000-2012 SmartOrg. | Confidential and Proprietary. 24
A brilliant new innovation! The Solar Kettle
• Boils in seconds • Uses no electric power • Strong appeal to Green Movement
Team is excited — boss isn’t convinced!
© 2000-2012 SmartOrg. | Confidential and Proprietary. 25
“Convince me why we should invest in this product.”
© SAP 2009 / Page 26
Scoring indicates the project may be worth the investment.
Tea Kettle
“I need more information to make a decision.”
© 2000-2012 SmartOrg. | Confidential and Proprietary. 27
• The scores are tempting….but • We have a lot of other
initiatives; I can’t fund them all. Is this worth the investment?
• How does the kettle fit our NPD portfolio?
• We’re going into a new market and there are commercial uncertainties; I need more analysis.
Team assesses inputs to evaluation model.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 28
What is the probability of development success?
© 2000-2012 SmartOrg. | Confidential and Proprietary. 29
Can We Do It?
What are the chances we can successfully develop, produce and market the tea kettle?
Team assesses commercial uncertainties — “what we do and do not know”
© 2000-2012 SmartOrg. | Confidential and Proprietary. 30
Should We Do It?
Uncertain about market size, share, price, margins, ramp-up time, profitability.
Team members (marketing/sales, R&D, finance) assess value ranges
Value-based model calculates results.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 31
Compared to others in portfolio it looks like a challenge to pull off.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 32
Solar Tea Kettle
Probability of Development Success
Compared to others in portfolio it has promising upside potential.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 33
Solar Tea Kettle
Commercial Value Given Success
Tornado identifies three opportunities to improve the product’s value
© 2000-2012 SmartOrg. | Confidential and Proprietary. 34
Project Value Given Development Success
Team focuses on improving information about peak share, margin and market size
© 2000-2012 SmartOrg. | Confidential and Proprietary. 35
The team refines inputs.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 36
Expected commercial value improved from $45 million to $200 million.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 37
Now in second place in the portfolio.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 38
Before
After
It’s a better bet.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 39
VP approves but stresses value of updating the model as development progresses.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 40
“You have made great progress in addressing the critical uncertainties. Let’s move ahead, but keep your eyes on the value meter!”
A real-world example from Inspire Pharma.
© 2000-2012 SmartOrg. | Confidential and Proprietary. 41
Tracking a Project Over
Time
NPV Given Technical Success
Pro
ba
bilit
y o
f Te
ch
nic
al S
uc
ce
ss
Initial
Perception
IP uncertainty
addressed
Improved
Strategy
Bread & Butter Pearls
White Elephants Oysters
Innovation screen
Positive
Phase 1
Positive
Phase 2
Regulatory
Set-back
NPV Given Technical Success
Pro
ba
bilit
y o
f Te
ch
nic
al S
uc
ce
ss
Continue investing to
build value, despite
regulatory set-back
Project proceeds
as planned
Bread & Butter Pearls
White Elephants Oysters
Innovation screen
Initial
Perception
IP uncertainty
addressed
Improved
Strategy
with a setback.
The project path through development
Regulatory set back was this
But not this!
NPV Given Technical Success
Pro
ba
bilit
y o
f Te
ch
nic
al S
uc
ce
ss
Bread & Butter Pearls
White Elephants Oysters
Innovation screen
New Corporate Strategy
New commercial strategy
greatly reduces value, but
still a “bread and butter”
opportunity
Positive
Phase 1
Positive
Phase 2
Regulatory
Set-back
Initial
Perception
IP uncertainty
addressed
Improved
Strategy
Then we changed commercial strategy
NPV Given Technical Success
Pro
ba
bilit
y o
f Te
ch
nic
al S
uc
ce
ss
Bread & Butter Pearls
White Elephants Oysters
Innovation screen
New Corporate Strategy
Patent
Granted
Competitive
Product Approved
Should we proceed in light
of new news?
Positive
Phase 1
Positive
Phase 2
Regulatory
Set-back
Initial
Perception
IP uncertainty
addressed
Improved
Strategy
Patent success but competitor product approved
New Corporate Strategy
Patent
Granted
Competitive
Product Approved
Technical Setback
NPV Given Technical Success
Pro
ba
bilit
y o
f Te
ch
nic
al S
uc
ce
ss
Kill project internally. Can
someone else build value?
Bread & Butter Pearls
White Elephants Oysters
Innovation screen
Positive
Phase 1
Positive
Phase 2
Regulatory
Set-back
Initial
Perception
IP uncertainty
addressed
Improved
Strategy
This blow was decisive
Innovation in motion: Monitoring value of an asset
Ex
pe
cte
d P
roje
ct
Va
lue
($ m
illi
on
s)
Positive
Phase 1
Positive
Phase 2
Regulatory
set-back
New corporate
strategy
Patent
granted
Competitive
product
approved
Technical
set-back
Initial
model
Time
What superior insight does
this analysis provide over
the traditional, business-
case NPV analysis?
What are some lessons
learned?
Principles of good innovation portfolio management
HP Workshop Training Mar 09 v1 – SmartOrg Material 51
To Learn More
© 2000-2012 SmartOrg. | Confidential and Proprietary. 52
Formulation Case Study
• Webinar Replay: www.smartorg.com/formulation-example
Frost & Sullivan Best Practices Guidebook on HP
• Guidebook: www.smartorg.com/hp-bpg
• Other HP examples: www.smartorg.com/hp
Assessing the State of Innovation
• Go to www.smartorg.com and search for “assessing”