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Process 2: Deciding on Innovation Strategies

Deciding on the appropriate innovation strategy depends on the organization's specific situation, including its purpose, culture, desired competitive position, and its people. Therefore, guidance is provided on choice of strategy, taking all these factors into consideration, as outlined in step 1. For each of these innovation strategies, top management need also to assess certain aspects of the competitor's business, as outlined in Step 2.

Step 1: The Innovation Strategy. Exhibit 12.3 presents a summary of the innovation strategies and the organization's specifications that they are best suited to.

Step 2: Competitive Intelligence. An essential part of the strategic planning exercise is com­petitive intelligence, wherein top management is made aware of the competitive landscape to assess the actions that certain competitors may take. Exhibit 12.4 outlines the aspects of a com­petitor's business that need be assessed under each of the innovation strategies.

Process 3: Innovation Portfolio Mix

An innovation portfolio should contain innovation projects of varying levels of innovativeness. It is important to adopt a classification of innovation proj ects that reflects the different levels of risk involved.

Step 1: Create a Classification. Under the CICM model, classification of low, medium, and high level of innovativeness is provided as follows:

Low. Incremental improvements to products or processes including changes that result in cost reduction

Medium. Major revisions to existing products or processes, and line/brand extensions (new products)

INNOVATION	COMPETITIVE			PEOPLE &
STRATEGY	STRATEGY11	VISION	PURPOSE	CULTURE	VALUES
Customer-	Differentiation	Number one	Customer	Open to	Customer-,
driven	cost-	choice for	satisfaction	customer	user- and
	or focus	partnership with customers	prime goal		oriented
Employee-	Cost	Provide the	Outsmart	Cost control	Efficiency-
driven	leadership	best price for	competition	oriented,	oriented -
inward		value	by being	employee	doing things
Employee-	Differentiation	Be the most	Our	Employee	Creative,
innovation		in industry	assets;	play mixed	talent and
			Unleash innovation power of employees	with work	leave them alone
Technology-	Differentiation	Win the	Technology	Aware of	Highly
		race in a	happen. File	moves, patent-	talented
		certain field	as many patents as possible	oriented

"Reference is made to Porter's generic competitive strategies here.

EXHIBIT 12.3    Innovation Strategies Impact

• High. New-to-the-firm products or processes, platform or next-generation products, and breakthrough products

Step 2: Diversify the Portfolio Mix. The portfolio mix depends on the strategy of the organiza­tion, but in all situations it should be balanced between low-, medium-, and high-level innovation projects. The low-high classification also refers to the risks involved and the projected returns. Maintaining a balanced portfolio is essential in managing the risk and resource allocation. Time frames differ for these projects with varying levels of innovativeness, and thus having a balanced portfolio means the organization can have consecutive market launches. One of the methods developed to aid management in that role is strategic bucketing, wherein projects are distributed under identified strategic areas or strategic "buckets (see also about asset management)."

Step 3: Allocate Resources. Under strategic bucketing, top management translates the innova-tion/NPD strategies by creating strategic buckets that relate to development of new products in tar­geted markets, as illustrated in Exhibit 12.5. Each strategic bucket relates to a level of innovation, and is allocated a set amount of financial resources that reflect their needs and respective strategic

REQUIREMENTS/ INNOVATION STRATEGY	BUSINESS INTELLIGENCE TYPE
Customer-driven innovation	Competitive intelligence, market research (trends, market share, etc.), customer's profile, competitor's customer service
Employee-driven inward innovation	Competitive intelligence, industry analysis, benchmarking, best practices
Employee-driven outward innovation	Competitive intelligence, alliance intelligence, competitor profile (product mix, prices, etc.), project-based
Technology-driven innovation	Technical intelligence, competitor's profile, patent intelligence

EXHIBIT 12.4    Competitive Assessment

importance. Within each strategic bucket, financial resource allocation and reallocation are flexi­ble depending on the performance of the project, changing market conditions, or adjustments to strategic directions. It is important to keep some resources and development capacity uncommit­ted to deal with unexpected opportunities or threats. An example of resource allocation among strategic buckets: 20 percent product improvements, 30 percent line extensions, 15 percent next generation/platform projects, and 25 percent breakthroughs (adding to 90%), where 10 percent of resources are set aside for unforeseen circumstances. The prioritization and continuous assessment of projects takes place under each of the strategic buckets.

Step 4: Identify the NPD Stages and Gates. Effective management of the innovation portfolio involves management at two levels: the organizational/business-unit level and the project level. At the former level, a central unit/team should oversee the creation of the innovation portfolio, balanc­ing among its strategic buckets and broadly allocating financial and human resources. The team should also set rules to govern the stage-gate NPD process including project selection, evaluation

 

STRATEGIC BUCKET	PRODUCT MARKET A PROJECTED COST: $7.9M	PRODUCT MARKET B PROJECTED COST: $11.8M	PRODUCT MARKET C PROJECTED COST: $9.8M	PRODUCT MARKET D PROJECTED COST: $5.9M
Level of innovativeness	Low: Product improvements	Medium: Line extensions	High: Breakthrough products	High: Platform products
	Project 1 - 0.5M	Project 3	Project 6	Project 8
	Project 2 - 1.1 M	Project 4	Project 10	Project 13
	Project 7 - 3.2M	Project 5
	Project 15 - 2.5M	Project 9
	Gap - 0.6M	Project 11
		Project 12
Resource allocation	20%	30%	25%	15%

*Project numbers refer to the order in which the projects are intended to be launched onto the market.

EXHIBIT 12.5    Resource Allocation and Strategic Buckets*

and prioritization criteria. At the project level, the management of each business unit or NPD department should oversee the NPD process, ensure that the projects do not proceed to the next stage before satisfying the set criteria at the respective gate, reallocate resources to respond to strate­gic or competitive needs, weed out less probable projects, and generally act as the gate keepers. The following steps should be implemented:

1.      A central unit made up of senior executives from the various business units and repre­sentatives of functional departments should manage the innovation portfolio. The unit should meet to determine the areas of innovation and how resources will be allocated among the strategic buckets. The unit should also define in broad guidelines the selec­tion criteria to be applied by various business units to select and prioritize projects within each of the strategic buckets, as well as the various outcomes expected at various stages of the NPD process, hence define the NPD stages and gates. Though the stage-gate method should be administered at the operational level by the proj ect team, the cen­tral unit should operate as a process owner wherein support and training are provided to the various business units and teams.

2.      The stages and gates used to manage the NPD process should be identified. They should at least include the following, as illustrated in Exhibit 12.3:

 

•   Market/customer screens for the idea generation stage

•   Market and technical feasibility gate for concept development stage

•   Go to develop gate after business case stage

•   Go to testing gate after development stage

•   Go to launch gate after testing stage

3.   A product development master file should be created to show the stages of progress of
all innovation projects at any one time and the team members and financial resources
allocated to the various projects. Business plans, feasibility studies, and other studies
prepared in relation to the various projects should be kept as part of the knowledge base
for further reference and learning.

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