Justifying Projects When ROI is Unpredictable

“How do we justify truly innovative projects when hard numbers are lacking?”

By definition, truly innovative projects will have few, if any, 'hard numbers.’ You might hit it big – or not. But like the lottery, you have to play to win. The challenge is securing resources and having a realistic plan to hang in there until it makes sense not to.  

According to technology and innovation expert Jay Paap, president of Paap Associates, a common mistake companies make is to minimize risk by waiting until unknowns are resolved. Unfortunately, the consequence is missing the window of opportunity while competitors step in.  

There is a better way! 

Manage exposure versus risk

Paap advises product developers to manage exposure to risk rather than worry about risk itself. Exposure, Paap explains, refers to loss of investment (time, money), loss of reputation, and loss of opportunity. Exposure can be managed, even if uncertainty can not.  

Exposure to lost investment can be managed by partnering, spinoffs, and willingness to kill projects when needed. Exposure to lost reputation can be managed by shifting the definition of success. Exposure to missed opportunities can be managed by moving quickly without knowing all the answers.

The main idea is to refocus on exposure – this enables organizations to invest in projects with great potential benefit even when there are significant unknowns.

Project reviews and rational decision-making 

Once this new context has been established, the next stage is reframing project reviews. Innovative project reviews should focus on the opportunity versus 'the plan.'   Track what you learn about the market, technology, and options (versus ‘targets’) and re-define success as making good decisions  (continue, speed-up, slow down, redirect, kill, spin-off) rather than meeting on-time or budget goals.

As for choosing which opportunities to pursue, Paap offers the following keys to rational decision-making in the absence of hard numbers: 

• Ask the right questions.
• Seek the best data possible, which may or may not be quantifiable.
• Involve a broad cross section of organization – for quality and commitment.
• Use formal frameworks to guide collection, storage, analysis, and sharing – be systematic in collection.
• Use 'informed judgment' to make the decision – be intuitive.
  

4 questions to ask - identifying opportunities with landscape maps

He describes how to use landscape maps to identify opportunities. These maps help link together market and technology factors for current and future products and services by asking:

1. What product or service characteristics affect purchase/usage decisions – what do your customers value and why?
2. How can technology be used to provide or improve these characteristics – what is the role of technology?
3. How mature are the needs and technologies – is there leverage?
4. Profile the competitors’ capabilities – can you gain an advantage?

NOMMAR - a 6-step rational and risk-sensitive approach to choosing opportunities

The overall approach Paap recommends to evaluating projects – without the numbers -- is a six-step approach he calls "NOMMAR":

For each of these steps, he outlines the inputs and data sources to use: 

N: Customer Need.  Look at needs versus wants/requests – customer vs. product -- as well as current and future customers and needs.  Data sources and tools: Customer insight: (VOC, MOC, visits, planning, etc), unobtrusive methods (internet, trade shows, ethnography, etc), problem research / context analysis, 'Lead user,' technology forecasting.

O: Technology Options. Take stock of existing technologies – your firm or industry, and other industries. Also explore emerging technologies designed as replacements and organizations with similar problems. The key is to focus on problem/need not expected solution. Think broadly. Data sources and tools: standard CTI resources (patents, literature, VCs, grants, etc); Technology Scouting; 'Customer Focused Technology Planning.'®    

M: Potential Market. Check past innovation adoptions/analogs and customer interactions. Be sure to realistically assess resistance. Data sources and tools: Potential customers, related markets and leading industries.  If incremental, use quantitative tools like conjoint analysis and value/benefit assessment relative to alternatives.

M:  Business Model. Models are 'rules of game' – independent of players. Look at past adoption trends for innovation and analogs of approaches used in other industries. Look at both numbers and logic – "I could see this being big." Data sources and tools: Customer interactions, analogs, imagination.

A:  Realistic Approach. Fit with three Rs: resources, risk, resistance. Consider all development options: traditional, corporate venturing/OI; internal ventures, partnering, acquisition, licensing, spinouts. Data sources and tools: Roadmapping of technical requirements; risk management (alliances, opportunity focused gates, spin-outs and licensing, etc.). Do a mini-business plan only, before relevance review.

R: Relevance.  Fit with strategy, fit with image. The key is to look at both what an opportunity does and what it prevents you from doing. Data Sources and tools: Strategic vision, clear portfolio management and balancing guidelines.

Bottom Line

Paap reminds us that “innovation cannot be ordered, but orderly processes can increase the level of innovation.”   Often the best opportunities are the least quantifiable. While risk may seem higher without numbers, this should not be a deterrent when it comes to innovation. The key is to think of risk exposure rather than the unknowns, and to ask the right questions (NOMMAR). By applying this framework to new ideas, your decisions will be sound. 

For further insight:

Jay Paap’s acclaimed two-day course Product & Technology Roadmapping for Future Growth coming up October 25-26, 2017 (at MIT Conference Center in Cambridge, MA) will delve more deeply into NOMMAR and other techniques to evaluate and choose opportunities.  Participants receive templates, examples, and individualized action steps as well as access to Jay for implementation questions after the class has ended. Seats are limited; to secure yours sign up online or call 781-892-8080. 

Decisions, Decisions: Which products to develop? What resources to invest? 3 key steps to strategic roadmapping

Product innovation is rarely a no-brainer. No company can afford to try every new idea or technology that comes along. Customer needs are always changing, hard data is often lacking, and timing is critical. Yet growth requires risk -- and action before opportunities slip away.

The question is, which risk(s) are most worth taking and how do you justify the investment? 

Many companies have found answers through product and technology roadmapping. When done correctly, roadmapping helps product developers make better decisions and forge more effective development strategies.  

According to Dr. Jay Paap, one of the world’s foremost innovation experts, it all starts with information. His Customer Focused Technology Planning® (CFTP) framework, used successfully by many top companies, is based on the collection and distillation of information. Organizations need to find out what customers value, what competitors are doing, and what technologies are out there – now and in the future. Too often companies aren’t sure what to ask and which information is truly relevant. 

So we asked Jay for a quick ‘how-to’ on gathering the right information to build a solid roadmap. Here are his answers:

1. What specific information should you gather?  

 Jay: The four main information-gathering questions to ask are:

• What is really driving customer behavior? Use traditional approaches like market research and VOC, but also others like forecasting, problem research, lead user, leverage or Kano analysis, or ethnography.   
• What are the technology options – current and future? Have a scouting mindset to find others with similar problems, inventory other industries, monitor what’s going on in government and university labs and the entrepreneurial community.
• What is the competitive environment? What others are doing or hope to do. How you can time your activities strategically. Who potential partners or competitors might be. What resources you need and where/whom to acquire them from.
• What is your company’s strategy? Gather internal information about goals, constraints, resources, values, and risk tolerance.

2: Who owns this information and how do you use it to make the right decisions?

Jay: The information can be anywhere.  We typically go to Marketing for customer information, R&D for technology information, Strategy for trends and competitors, etc. While these groups may be in the best position to manage these flows, what really drives innovation is the involvement of all major functions in the processing of the information into usable inputs into planning. To make informed decisions, everyone needs to have the same vocabulary. Assessment becomes cross-functional. When people share raw information, it keeps them honest and purposeful. When information is abstracted or summarized; the richness is gone and innovative insights often get short-circuited. The process involves piecing together customer information, competitive intelligence, technology information, and assessing opportunities in terms of your strategy. Innovation planning typically involves 15-20 people taking two days to share information, create landscape maps summarizing the key factors affecting innovation, and then jointly developing ideas for innovative products and services. The activity can be eye-opening. Marketing and engineering frequently gain a completely new appreciation and understanding.

3: How do you know which customer needs are the right ones to focus on? Customers rarely identify or articulate the ones that ultimately change the game.

Jay: There are six different techniques I use for identifying customer needs, and only one involves asking the customer what they want!  Dick Davis at Whirlpool, for example, anticipated the customer demand for wash-and-wear cycles not through VOC type techniques, but by looking at environmental factors affecting what customers would want, specifically, the emergence of new fabrics requiring new ways of washing.  The idea is to gather information on the customer as well as from the customer.  Also gather competitive intelligence on external trends and new technologies. Innovation happens when you can anticipate customer needs even before customers know them.

For a brief overview of the CFTP framework and how it works, click here.

If your organization is looking for hands-on guidance, Jay Paap’s acclaimed two-day course Product & Technology Roadmapping for Future Growth is recommended – participants receive matrices, templates, examples, and action steps as well as access to Jay for implementation questions after the class has ended.  The next (and only) scheduled session is October 25-26, 2017 at MIT Conference Center in Cambridge, MA. Seats are limited; to secure yours sign up online or call 781-892-8080.

Ask the Agile Stage-Gate Expert: What is the role of process manager?

Ask the Stage-Gate Expert - Dr. Cooper Answers Your Top Questions

Are speed to market, fast-changing customer needs, and insufficient resources a challenge in your organization? If so, an Agile Stage Gate approach could help. This approach works for physical products and is faster and more flexible than traditional stage-gate. Plus, it can fit within your current set up – no need to buy or overhaul anything. However, implementation is not a slam-dunk, and many of you have asked us what to do. So we turned to Dr. Robert Cooper, the world's leading authority on Agile Stage Gate, for answers. Here are two of the most common questions we have received -- watch this page for more to come.  And please feel free to email your questions for Dr. Cooper to alex@roundtable.com; we’ll send you his reply.

Question #1:  Are there still gates in an Agile system? What is their role?

Dr. Cooper:  Yes, gates play a vital role in Agile-Stage-Gate. They are not only a quality check-point, they are a resource commitment decision. They allow senior management to periodically review the project, kill weak projects and reallocate resources to better initiatives. Most importantly, they ensure enough resources are committed to complete approved projects in an accelerated fashion.  Gates still have essentially the same Go/Kill criteria as in the traditional gating model – financial criteria such as NPV or scorecards to rate the attractiveness of projects – since investment decisions must still be made. However, the deliverables for each gate are usually leaner, less granular and more flexible than in the classic gating model. Deliverables are also more tangible, such as product designs or rapid prototypes, rather than long reports or slide presentations

Finally, gates allow senior management to track the progress and on-time performance of the project: when to deliver the product on the longer-term horizon scale remains defined and a key part of Agile-Stage-Gate. 

Question #2: How can an Agile strategy help manage complexity? (Projects that are uncertain, ill-defined and ambiguous with many tenuous assumptions)  

Dr. Cooper: Most firms’ new product processes emphasize extensive front-end homework to define the product and justify the project before development gets underway. Robust up-front homework and VoC work early in the project are key to new product success (Cooper, 2013), but not all projects are clearly definable. Some highly uncertain projects – those in new markets and using new technologies – will be near impossible to nail down. No amount of VoC work, technical assessment or market analysis will validate all the assumptions prior to the Development stage. Understanding what the customer values and what will work technically only comes about through experimentation.

The rapid sprint-iterations in Agile-Stage-Gate encourage experimentation and testing – build something, test it with the customer and in the lab, and then revise.  In this way, key assumptions are validated and major uncertainties dealt with, but in real time and as the project moves along. Understanding product requirements and envisioning a technical solution does not occur before Development. Instead Agile-Stage-Gate is done as part of the Development and Testing stages of the project – learning on the fly. The new Agile-Stage-Gate hybrid model handles highly complex, ambiguous, ill-defined projects well, and in fact, sees its greatest benefits there.

For further insight: Dr. Cooper's latest book, featuring Agile-Stage-Gate, Adaptive & Accelerated New-Product Development, was just released and may be ordered here.

Dr. Robert Cooper on Going Agile

Watch the recording of Dr. Cooper's preview of the Going Agile workshop.

Strategic Planning for products and technology - how roadmaps ensure innovation and corporate growth

Does your organization have a clear innovation strategy that is understood and supported at all levels? Do you know where to focus R&D resources?  Where the market is headed, what your best opportunities are, and what disruptions are possible?

If you want to gain more control over your innovation future, one of the most powerful strategic planning tools is roadmapping -- in particular landscape maps and route maps.

Landscape maps link together market and technology factors, business drivers, capabilities and competitors. Route maps tell you what to do. Dr. Jay Paap has developed a proprietary framework around these maps and has helped many leading companies implement -- with significant results.

For a brief overview and visual picture of Landscape, Route Maps and Dr. Paap's framework, click here.

Leading Transformative Innovation – Gaining Speed, Agility and Higher Margins

An exclusive interview with Jean E. Spence

Most firms today have had to change their game to compete.  The economy, industry fragmentation, increasing cost of goods, consumer price-shopping, the Internet, globalization – the list of reasons goes on.  While everyone talks about innovation, the reality is that pressure is even higher to improve profit margins and productivity.  As a result, many organizations have been restructuring to boost ROI.  Often this means cuts, which can actually inhibit the creativity required to fuel growth.

Under such circumstances, how do you lead people to do their best?  Especially when you lead R&D – which is often viewed as a cost center, yet expected to innovate new products and technologies.

To find out, we talked with Jean Spence. Jean was a senior leader at Kraft Foods’ restructuring, three-year turnaround, and Organizing for Growth (OFG) initiative.  She then went on to lead innovation and collaboration initiatives at Mondelez International, the remaining company after the Kraft Foods spinoff. Jean was a key member of the executive team that spearheaded both the people and product side of Kraft’s major transformation.  If anybody could speak to the implementation challenges and success factors, it is Jean.

Here is what she shared >

Healthcare Product Innovation and The Internet of Things – Opportunities, Challenges and Future Directions

Management Roundtable recently co-facilitated a virtual Think Tank on digital innovation for healthcare, Leveraging the Internet of Things to Improve Patient Outcomes, in partnership with Convetit and Benefunder. 

Smart Connected Products Meet Lean Start-up: GE’s Imagination Really is at Work!

While General Electric has been around forever, the company certainly doesn’t rest on its laurels.One of GE’s most impressive new innovations is its FirstBuild Microfactory in Louisville, Kentucky. The idea is to rapidly prototype next-generation home appliances and market test them before scaling up. Using 3D printing and related technologies while offering an incubator of sorts to inventors, entrepreneurs and students, FirstBuild combines the best of ‘Lean Start-Up’ with IoT. The result? Some winners, some failures – but all pretty darn smart.

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Can millennials help predict the future of corporate innovation? Management Roundtable and MindSumo launch a challenge to find out

We often hear our customers talk about crowdsourcing to find the ‘next big thing,’ so when we were offered the opportunity to tap the minds of bright college students, how could we say no?  

Unlike many challenges, however, the one we just launched in partnership with MindSumo is not to come up with new product ideas (though that would have been good, too). We set a somewhat loftier goal -- to predict the future of corporate innovation.  

Read more >