“One size does not fit all.” R&D leaders who evaluate performance and success criteria for innovative projects by using the same metrics as they would for a line extension will either miss a great opportunity or find themselves at the helm of a failed project. The R&D leader who is comfortable with more relaxed criteria or who develops a unique set of criteria for a break-through project will be better positioned to evaluate the potential for success.
In my first post I described companies with the innovation version of “Deadman Walking”… apparently successful companies with floundering R&D groups and disappointing R&D portfolios. This post is the third in a series on aspects of R&D Leadership essential for an innovation crescendo and discusses how to measure the value of an innovative project in a new product portfolio.
Corporate growth targets and the under-valuation of product ideas may be barriers to innovation crescendo1.
Most companies are preoccupied with meeting growth targets, especially short term growth targets. These short term growth targets can result in a bias where short term projects are favored over longer term projects even if the longer term projects have a considerably larger upside. Companies end up in a place where R&D/Marketing must prove both that the value of a proposed product concept is large enough and additionally that they can meet an internal time-bound hurdle before R&D resources can be allocated against the project. While these metrics may be a good idea for a line extension or a global-expansion project, they may not make as much sense for a completely new innovative product which may create a new market segment.
By concentrating on traditional metrics to evaluate the potential size of a new innovative project or the time it takes to get to market, it is unlikely there will be sufficient detail to get a green light at the initial concept stage because there will always be unknowns and uncertainties which can’t be measured. We can all recall Apple products that may not have seen the light of day if Steve Jobs had to meet the same hurdles. We all know that he would famously “tinker” with the design of products right up until the last minute, in many cases delaying launches until it was “right”. The continued focus on the traditional metrics for evaluating projects means that many good ideas don’t see the light of day or if they do, they are later cancelled because they fall into the “too hard” bucket when an unexpected result turns up, or the end product may be so compromised that it fails in the market.
Unattractive sales or financial projections, often based on flawed assumptions, kill innovation exploration, on-going consumer research or technology feasibility and can result in fruitful leads being dropped or major opportunities being missed. In other words many companies give up on a good idea too early. Once dropped, an innovative project becomes internally “unpopular” and will, almost certainly, never be resurrected because it has now been “tainted” with negative history. Examples of potential missed ideas that many people would have thought were too small at the time include: bottled water (why would people buy bottled water when they could go to a faucet and get free water), $5 cups of coffee (Starbucks) and 3M’s Post-It Notes. Some of the biggest innovation ideas seem small initially, but eventually become huge and drive growth far greater than expected.
In summary, “big idea” innovation projects have to be treated differently than run of the mill line extension or product improvement projects. Traditional metrics, such as projected sales are going to be inaccurate and are not as useful for evaluating innovation projects. These projects will need to be chosen more for strategic reasons. It is the R&D Leader’s job not to let these innovation opportunities slip away and convince senior executives that sometimes these seemingly small or risky ideas are worth pursuing. In extreme examples, a skunk project might have to be initiated, sometimes in a remote location, to prove feasibility of the innovation project before buy in of other senior management can occur.
1. For more thoughts on this topic I recommend Edward D. Hess and Jeanne Liedtka, The Physics of Business Growth (Stanford University Press, 2012)
© Dennis Nelson 2012