Where Are All the Breakthrough New Products?
Where Are All the Breakthrough New Products?
Using Portfolio Management to Boost Innovation
Dr. Robert G. Cooper, 2013
Research-Technology Management • September—October 2013
|
25
Most businesses’ development portfolios have far too many
projects, and often the wrong ones, according to a major
APQC study (
Cooper 2012a
;
Cooper 2005
). A comparison of
the breakdown of development portfolios in the 1990s ver-
sus the 2000s reveals a huge increase in product develop-
ment projects that are really renovations—incremental
improvements—and a decrease in true innovations (
Figure 1
).
The fact is over the last 15 years, portfolios have drifted from
moderately balanced to extremely unbalanced, with far too
many small projects and few major or breakthrough initia-
tives. There is a real shortage of the type of breakthrough
initiatives that drove many of these same companies to great-
ness in the last century. A good part of the problem is the
climate and culture within these organizations, namely a
preoccupation with short-term fi
nancial results, refl
ected in
the way senior people are incentivized and a general risk
aversion. But a major part of the challenge also lies with
portfolio management—how executives make their R&D in-
vestment decisions.
The last 20 years have seen the rise of a number of fi
nan-
cial approaches intended to lend more rigor to go/kill deci-
sions, including net present value (NPV), the productivity
index, payback period, and economic value–added (EVA)
methods. These are fi
ne for evaluating traditional, “known”
projects. However, an overreliance on these approaches will
tend to favor incremental projects whose fi
nancial forecasts
are reasonably reliable; further, applying such methods to
bolder initiatives will tend to kill all but the sure bets. These
popular methods thus produce an abundance of small, low-
hanging–fruit projects that will have little impact on the busi-
ness. Bottom line: If the goal is a higher proportion of bigger,
bolder initiatives in the development portfolio, then stop re-
lying on traditional fi
nancial approaches to help make port-
folio choices!
Robert G. Cooper
is president of the Product Development Institute. He is
a professor emeritus in McMaster University’s DeGroote School of Business,
ISBM Distinguished Research Fellow at Penn State University
’
s Smeal Col-
lege of Business Administration, and a Crawford Fellow of the Product De-
velopment and Management Association. A thought leader in the fi
eld of
product innovation management and developer of the Stage-Gate new
product development process, he has won two IRI Maurice Holland awards
and has published over 120 articles and seven books. He received his PhD
in business administration from the University of Western Ontario and Bach-
elors and Masters degrees in chemical engineering from McGill University.
robertcooper@cogeco.ca
DOI: 10.5437/08956308X5605123
INVITED ARTICLE
Where Are All the Breakthrough New Products?
Using Portfolio Management to Boost Innovation
Ensuring that high-risk projects receive their fair share of the resources requires a different approach to portfolio managemen
t
and different analytical tools.
Robert G.
Cooper
OVERVIEW:
There is a real shortage of breakthrough initiatives in businesses’ development portfolios. A major challenge in
developing these high-risk projects is portfolio management—how executives make R&D investment decisions. Financial
approaches, such as net present value and the productivity index, are traditionally recommended to lend rigor to go/kill
decisions. An overreliance on fi
nancial tools favors incremental projects whose fi
nancial forecasts are reliable, however,
producing an abundance of small, low-hanging–fruit projects and a failure to allocate resources to strategic projects. Differ-
ent toolsets must be used to assess high-risk breakthrough initiatives, including strategic buckets, expected commercial
value, and spiral development processes. All of these must be supported by a climate and culture that provide the appetite
to take on risky projects.
KEYWORDS:
Breakthrough innovation
,
Portfolio management
,
Options
,
Strategic buckets
,
Expected commercial value
26
|
Research-Technology Management Where Are All the Breakthrough New Products?
A related cause for the dearth of breakthrough projects is
the failure to set aside strategic resources to fuel these major
initiatives. As one executive declared in a workshop on stra-
tegic portfolio management, “We have a long list of smaller
projects that we have to do. By the time we’re through these,
there’s simply nothing left over for the longer term, bigger
projects.” Resources are scarce in most fi
rms, and there is an
unending list of small “renovation” projects requiring atten-
tion. After the portfolio allocation exercise, resources are al-
ready overcommitted, leaving few or no resources available
for the breakthroughs—and so they get put on hold.
Portfolio Solutions
Solutions to these portfolio challenges do exist, and a num-
ber of fi
rms have begun implementing such solutions. The
recognition that there is indeed a problem—that there are
too many minor projects in the portfolio consuming virtually
all the resources and a real dearth of major, long-term and
high-impact initiatives—must come fi
rst. A solid portfolio re-
view is a good place to begin; a current-state assessment of
the breakdown of projects, where the resources are going,
and where the results (sales and profi
ts) are being generated,
can provide insight (
Figure 2
). With this data in hand, the
management team can set a goal to shift the portfolio to a
higher proportion of bigger, bolder development initiatives.
Simply setting the goal is not enough, however; these
goals must be supported by resource allocations. Resources
are often not available for larger projects simply because they
are totally consumed by too many small projects. One solu-
tion is an organizational one, namely to fence off people who
work 100 percent on major developments or breakthroughs.
Indeed, a major APQC study revealed that 51.7 percent of
top performers in innovation have a dedicated innovation
group (
Cooper 2012a
).
A second solution is a portfolio approach known as “stra-
tegic buckets.” Here, management makes a strategic decision
to set aside resources for different types of projects, including
breakthroughs. This approach is based on the simple premise
that strategy becomes real when you start spending money
on it—so make the spending decisions! Here’s how it works:
Various categories or “buckets” of projects are defi
ned, from
maintenance projects, such as cost reductions and product
FIGURE 1
.
Percent of projects by type in the typical development portfolio, then and now
Simply setting the goal is not enough;
goals must be supported by resource
allocations.
Where Are All the Breakthrough New Products? September—October 2013
|
27
updates, through to breakthrough innovations (
Figure 3
).
Next, the business’s leadership team makes deliberate deci-
sions about what proportion of R&D resources goes to each
bucket, setting aside resource buckets for major initiatives
versus incremental projects versus sales force requests, and
so on. The distribution of resources is dictated by the busi-
ness’s strategy. Active and proposed development projects
are next categorized by bucket and rank-ordered within each
bucket until there are no more resources in that bucket. Each
bucket has its own ranking criteria. Over time, the method
ensures that resources are reserved for innovative projects; it
shapes the development portfolio so that it mirrors the stra-
tegic priorities of the business; and it protects resources for
higher risk, innovative projects, because they are not re-
quired to compete with more predictable, smaller ones for
resources.
What if there are not enough “good” potential projects in
any one bucket to use up the allocated resources—for ex-
ample, not enough breakthrough projects? The short-term
solution is strategic allocations, cutting back resources for
that one bucket that has no immediate need for resources.
The longer-term, and more appropriate, response is to ac-
knowledge that the strategic resource allocations—the bucket
allocations—are correct but that more effort must be made to
fi
nd “good” projects for the defi
cient bucket. Thus, a more
aggressive ideation and search program should be initiated.
BASF’s Crop Protection Division implemented strategic
buckets to overcome the problem of “too many little projects
and not enough high-value ones,” as the fi
rm’s CTO told me.
Five types of projects were defi
ned for the business unit:
•
Research projects (fundamental science)
•
Truly new products (innovation projects)
•
Defensive projects (projects designed to protect market
share)
•
Offensive projects (projects designed to increase market
share)
•
Global projects (products targeted at world markets, as
opposed to regional/domestic projects)
The last three categories are life-cycle management projects,
sustaining innovations undertaken to maintain and expand
sales of a product after its introduction to market, through all
the stages of its product life cycle. At BASF the business unit
management team makes strategic decisions in advance
about where resources go. In this way, the right balance of
projects is maintained, including a higher proportion of in-
novative developments. Because allocation decisions are
made by the team, it is more diffi
cult for individual managers
to “game the system” or distort allocations to match their
own priorities.
Dimensions other than project types can be used to guide
allocation. For example, resource splits can also be made by
market sector, geography, technology type, and product cat-
egory or product line. But if the goal is more breakthrough
new products, then a strategic buckets exercise with one
bucket being breakthrough initiatives is key.
FIGURE 2
.
A sample current-state assessment showing an overabundance of tactical projects
28
|
Research-Technology Management Where Are All the Breakthrough New Products?
How does one determine the appropriate distribution of
resources across project types? No magic answer exists here,
anymore than there is a single optimal split among stocks,
bonds, and bank deposits in an individual’s personal invest-
ment portfolio. But the decision must be made. Failure to
make a strategic decision here will result in a split based on a
series of ad hoc tactical decisions made as the need arises. As
the CTO of a major U.S. conglomerate declared, noting that
his fi
rm was one of the fi
rst to opt for the strategic buckets
method, “The default option is always wrong!”
In deciding the optimal split for your company, start with
the current breakdown of resources, as determined by your
current-state assessment. Merely knowing the current re-
source split—something that is not always visible in many
businesses—will suggest what the split should be, for exam-
ple, that certain categories should have increased resource
allocations and others should be decreased. The direction is
perhaps as important as the absolute spending amount. As
the CTO of Emerson Electric said, “Our business unit execu-
tives are pretty bright—if they see these splits, they should
have a good idea of what the spending split ought to be!”
Emerson Eclectic has also implemented strategic buckets;
there, the practice is “a core concept of Emerson’s portfolio
management process.”
Scoring Models for Early Go/Kill Decisions
Another solution, somewhat more tactical, is to use a scoring
model method of project evaluation for early-stage portfolio
reviews or gates. Smart companies, such as Procter & Gamble,
ITT Industries, W. L. Gore, 3M, and BASF, have developed
scorecards for gatekeepers to use in rating and ranking proj-
ects at gate meetings. The goal is to protect more venturesome
projects in the early days—to get them partway through the
“valley of death”—until the project team has something
tangible to show management and customers.
A second goal of these methods is to reduce the overreli-
ance on fi
nancial models in the case of breakthrough initia-
tives, where so little is known with certainty, especially in the
early stages. Scorecards place more emphasis on nonfi
nancial
factors, the theory being that certain projects have a winning
profi
le, and that profi
ling projects via a scorecard provides a
much better predictor of eventual success than do fi
nancial
projections. Research evidence also suggests this is true; in a
study by
Cooper and Edgett (2006)
, scorecards were rated by
managers to be more effective and more effi
cient than fi
nan-
cial tools for early-stage project selection.
Scorecards are carefully crafted to assess each project on a
list of factors that are known predictors of success for innova-
tive development projects. Research-based scoring criteria
for evaluating major initiatives include:
•
Does the project align with the business and innovation
strategy? And is it strategically important to do?
•
Is there competitive advantage—for example, a unique
superior product with a compelling value proposition for
the customer? Will the product deliver real benefi
ts to
the user?
•
How attractive is the market, in terms of market size and
potential, growth, margins earned, and the competitive
situation?
•
Will this project leverage core competencies in market-
ing, technology, and manufacturing?
•
Is the project technically feasible, taking into account the
size of the technical gap, technical complexity, and tech-
nical uncertainty?
•
What’s the potential for reward? Is the project worth the
risk?
Projects are rated on these factors, typically on 0–10 or 1–5
scales, by the gatekeepers at the gate meeting, and scores are
immediately displayed for discussion. Both the scoring process
and the discussion around scores assist managers in making
the go/kill decisions at early gates; project scores are also used
to help prioritize projects at quarterly portfolio reviews.
Options Approach to the Investment Decision
Some managers don’t understand that, at the early stages of
a venturesome project, they are not making an all-or-nothing
go/kill decision. Rather, they are making a relatively small
FIGURE 3
.
Example of R&D resource allocation into defi
ned buckets
Some managers don’t understand that,
at the early stages of a venturesome
project, they are not making an all-or-
nothing go/kill decision.
Where Are All the Breakthrough New Products? September—October 2013
|
29
investment to undertake a preliminary investigation—providing
the resources to test the waters. Thus, the initial investment
decisions do not need the rigor of later-stage decisions. Think
of the idea-to-launch process as buying a series of options on
the project, rather than buying the whole project outright.
Buying options is one way to mitigate risk. That’s why many
fi
rms use a gated approach that breaks the project into stages,
with each stage being more costly than the previous one
(
Cooper 2011
). Gates precede each stage; at each successive
gate, the data are more reliable, but the investment is also
greater. This gating, or options, approach helps to manage
the risk of breakthrough development projects.
At ITT Industries, managers were demanding rigorous
analyses even at very early gates in their stage-and-gate pro-
cess. Project teams arrived at gate meetings with full NPV and
payback calculations, constructed with far more apparent
rigor than was required for such an early decision. But major
projects, which often involved more innovative concepts,
technologies, and markets, were plagued by uncertain data,
making these fi
nancial analyses suspect. As a result, these
projects suffered at the early gates; management lacked the
confi
dence to move forward.
Two points are relevant here: First, even though the proj-
ect might be a potentially large one, the fi
rst stages are not
expensive. Realizing that such an approach was killing all but
the sure bets, ITT’s management team dictated that the fi
rst
few gates should be relatively gentle, with qualitative rather
than fi
nancial criteria. As one frustrated executive told me,
“We’re not betting the farm here—we’re making a relatively
small decision to spend a little money, have a look-see, after
which we’ll make another decision to continue.” Second, even
though project teams had been presenting NPVs and detailed
fi
nancial analyses very early on, the sophistication of the analy-
sis
far exceeded the quality of the data; the data upon which
the NPVs were based were largely speculative and often wrong—
certainly not reliable enough to drive a valid decision.
At some point in the investment process, certainly before
moving into the expensive development stage, fi
nancial
analysis must be used as part of the business case. One of the
problems with traditional NPV and related fi
nancial tech-
niques is that they are standard capital budgeting techniques.
That is, they assume an all-or-nothing decision: Should we
build the new factory or not? Only the expected cash fl
ows
are considered, and the fl
exibility to alter strategy or direction
in view of new circumstances or information is ignored.
But product development is not an all-or-nothing decision;
as noted above, it should be a series of options decisions—
invest in a preliminary investigation; check the results; and
either kill the project or, if the results are positive, move
ahead to a more detailed phase. The assumptions in an NPV
calculation are inconsistent with this step-wise approach.
A more realistic fi
nancial model in the context of product
development is expected commercial value (ECV), which
looks at risks and probabilities, but most important, takes
the investment a step at a time via a decision tree approach
(see “The Expected Commercial Value Method,” p.
XXX
).
Real options analysis is another method that deals with
step-wise investment decisions under uncertainty; Monte
Carlo simulations handle investment decisions with multi-
ple probabilistic outcomes.
1
(See Cooper 2011, 242–245.)
As an example, consider a risky major project with a po-
tential payoff of $50 million (based on the present value of a
stream of future earnings). The all-in development and com-
mercialization costs are $7 million, for an apparent NPV of
$43 million. The project can be broken up into four phases,
each with its own probability of success. The overall probabil-
ity of success is 0.147 (arrived at by multiplying the chain of
probabilities together), which is unacceptable. Suddenly, the
NPV is not so attractive: the probability-adjusted NPV is only
$350,000, barely more than zero on a $7 million investment.
Kill the project!
Using the ECV approach, however, one sees that the proj-
ect is actually worth $5.2 million at its beginning, when the
only decision is to spend a mere $300,000, and the project’s
value jumps to $19.4 million by the time the $3 million go-
to-development decision must be made. The ECV presents a
much more realistic view of the situation and will portray
risky and larger projects in a fairer and thus more favorable
light.
Get Confi
rmation of the Data
. . .
Fast
Dealing with the high technical and market uncertainties in-
herent in these larger, bolder, and riskier projects presents a
major challenge to some senior management teams. The tra-
ditional development process requires that all the homework
be done up-front, and that answers to most of the key ques-
tions, including the product defi
nition, are found in the busi-
ness case
before
development begins. But reliable data and
“all the answers” are usually not available for a major, high-
uncertainty innovation in the early stages. For some man-
agement teams, this presents too high a risk, and they simply
back out of the project.
What some companies have done is to modify their tradi-
tional gating system and make it much more agile, adaptive,
and entrepreneurial in order to handle bolder, riskier break-
through projects (
Cooper 2011
). Smart companies have
built a series of build-test-feedback-revise iterations into
their development process to deal with uncertain market
1
Real options analysis (ROA) methods are mathematically complex and
may not be for everyone. Monte Carlo simulation generally does not treat
the investment in a step-wise fashion, but it does consider multiple
possible fi
nal outcomes.
Smart companies have built a series of
build-test-feedback-revise iterations
into their development process to deal
with uncertain market requirements and
technical solutions.
30
|
Research-Technology Management Where Are All the Breakthrough New Products?
requirements and technical solutions. These spirals or itera-
tions begin early with a virtual prototype that is shown to
customers for feedback. These spirals continue into develop-
ment, moving from “protocept” rapid prototype (something
more than a concept but less than an early prototype) to
working model and so on (
Figure 4
).
HP has utilized a traditional and linear phase-review pro-
cess for years, mostly for traditional product development.
But the fi
rm has recently implemented two variations that
make use of spiraling iterations (
MacCormack et al. 2012
).
One version, called their “agile” process, is for products aimed
at rapidly growing but changing markets. The process rapidly
evolves the product’s design to meet changing customer
needs and technical choices. This evolutionary gating process
features frequent design-build-test iterations, much like the
spiral development pattern described above. The goal is to
probe via multiple prototypes to understand the value propo-
sition for different customers and to gain insights into the
technical solution.
A second version is designed for new products for embry-
onic markets—a new market or new technology. This process
is a lightweight stage-and-gate system with fl
uid product de-
sign objectives that permit experimentation. It features rapid
exchange of information with potential customers to identify
the customer’s value proposition. The goal is to quickly and
cheaply confi
rm the product’s design and market acceptance.
Spiral development is based on the premise that “custom-
ers don’t know what they want until they see it.” The over-
riding imperative is to get something in front of the customer,
early and often. This was one of Steve Jobs’s principles, and
it helped make Apple products so appealing and successful
(
Isaacson 2011
). With an iterative, spiraled process, not only
is the design confi
rmed but valuable data on purchase intent
and likely market acceptance are obtained, data that are vital
to a reliable fi
nancial analysis.
Surviving the Valley of Death
The “valley of death” is the period between when an idea is
born and when the concept is approved as a funded develop-
ment project. Many great ideas start out with huge enthusi-
asm, but time passes, and the facts become known, and
suddenly, the project does not look quite so great after all.
Over time, all projects get warts! So the initial enthusiasm
wanes, and too often the project is dropped before it even
gets into development—another victim of the valley of death.
The message is this: Don’t overscreen and don’t kill too
early! Progressive fi
rms recognize that the best concepts are
often the most fragile ones—the easiest to kill. Protecting
early-stage projects is thus vital to ensure that the break-
through project gets through the valley of death.
There are several ways to provide the protection projects
need at the earliest stages. One approach is to provide a
The Expected Commercial Value Method
The expected commercial value (ECV) of a project is determined through a decision-tree approach that accommodates a step-wise
investment model. This structure approximates the decision process in a risky venture, such as a breakthrough innovation projec
t.
This fl
exibility allows ECV to treat risky investments more fairly—and generally more favorably—than such yes-no methods as NPV.
The decision-tree structure estimates value at each stage of the project’s development. In the four-stage decision process abov
e,
starting on the left, $300,000 is invested in a preliminary investigation with 50-50 odds of success. If the investigation does
not
yield desired results, the project is killed and no further investment is made. If the result of the preliminary investigation
is posi-
tive, $700,000 is invested in a detailed investigation with a 60 percent chance of success. The process continues through the n
ext
two stages, with both investment and odds of success increasing at each stage, for a total investment—if the project proceeds
to commercialization—of $7 million. The “payoff” if successful is the present value of future earnings after launch, namely $50
million. Working back from the ECV of $35 million at the beginning of commercialization ($50M x .7), the ECV at the beginning o
f
the project is a respectable $5.2 million.
By contrast, with an overall probability of success of .147, the probability-adjusted NPV is just $350,000—too low to justify t
he
risk and investment (probability-adjusted NPV = .147 x 43M – 7M x .853 = $350K). The probability-adjusted NPV thus paints a ver
y
negative picture, while the ECV, the more correct approach, is much more positive.
Where Are All the Breakthrough New Products? September—October 2013
|
31
lengthy phase, for example six months, in which the project
team can operate without go/kill evaluations, after which the
team must deliver something that can be demonstrated to
stakeholders (customers and management). This method is
patterned after the time-boxed sprints that occur in agile de-
velopment, a process used primarily in software develop-
ment, except here the sprints are six months, not six weeks.
After six months, management can invest in another six-
month time-boxed sprint, cancel the project, or move it into
their traditional product development process.
A major electronics fi
rm in Austria, considered to be that
country’s most innovative company, has adopted this sprint-
ing approach for its physical product development. Similarly,
3M’s “projects on the side” system protects embryonic proj-
ects from an overly rigorous business analysis done too early.
This is a well-known method in which scientists are allowed
to spend 15 percent of their time working on the projects of
their dreams without formal approvals. After some months
or even years, the scientist (often a team of scientists) may
have something to show management and customers and
also some data to present. Then, the project is ready to enter
3M’s traditional stage-and-gate system.
Technology development projects also challenge tradi-
tional stage-and-gate systems. While product developments
result in a specifi
c product ready for the market, technology
or technology platform developments create a technical capa-
bility from which multiple new products can be developed—
for example, a new catalyst technology in the chemical
business that can enable a new family of polymers. Forcing
such a project through a traditional gating system will often
damage it. Thus many fi
rms, such as 3M, BASF, and Exxon
Chemical, have installed modifi
ed systems to handle tech-
nology development projects. These systems rely on stra-
tegic go/kill criteria and require far less fi
nancial data to
justify a decision to proceed. (For an outline of such pro-
cesses, see
Ajamian and Koen 2002
;
Cohen, Kamienski, and
Espino 1998
; and
Cooper 2006
.)
The overall message is that one process does not fi
t all proj-
ects. Companies must tailor their processes to the type of proj-
ect; that is, they need to use different development processes
for different types of projects. A traditional development pro-
cess is ill suited for projects that are not traditional, such as
most breakthrough initiatives. The process selected must ac-
commodate the particular challenges of these kinds of projects.
For example, both of the modifi
ed HP processes allow projects
to proceed at the beginning without much of the information
required by the company’s traditional phase-review process;
the iterations or spirals provide the information on the fl
y.
FIGURE 4
.
Spiral development process with iterative feedback cycles
32
|
Research-Technology Management Where Are All the Breakthrough New Products?
The Right Climate and Culture, the Right Metrics
Implement all of the portfolio management techniques out-
lined here, or adopt new idea-to-launch methodologies that
promote innovation, but at the end of the day, it all boils
down to climate and culture. Is your business prepared to
make tough choices and invest in risky major projects? In-
deed, having the right climate and culture for innovation, an
appetite to invest in innovative and more risky projects, and
the right leadership from the top is the number one factor
that distinguishes top innovation companies, according to
extensive studies of innovation results (
Cooper 2012b
).
Culture and climate is a much broader topic than portfolio
management, but it is also integral to successful portfolio
management. Those businesses that create a positive climate
for innovation, support innovation at every opportunity, re-
ward and recognize innovators and successful development
teams, and welcome and reward ideas from all employees,
do much better at product innovation (
Cooper 2012b
). Simi-
larly, having the right senior leadership to drive and support
the innovation effort with words as well as through actions is
vital to success.
Metrics are intended to measure success, but frequently
they shape the innovation climate in counterproductive
ways. “Change the metrics!” was the plea from a 3M senior
person at a workshop on bold innovation held at a recent in-
novation conference. He was bemoaning that fact that 3M,
and so many fi
rms that followed 3M’s lead, is married to its
new product vitality index (NPVI) as the key performance
metric. By focusing on “percentage of sales by new products
launched in the last fi
ve years” as the critical measure of suc-
cess, the company may actually be discouraging true in-
nova
tion. Such a metric promotes a lot of small product
developments—renovations, not innovations—and creates
much unnecessary churn in the product line, encouraging
business units to replace older products with new ones just to
make the numbers. The consensus of senior people attending
was that while percentage of sales from new products is a
useful metric, other metrics should also be considered, such
as percentage of sales from signifi
cant new products or true
innovations.
Grundfos, considered by many to be Denmark’s most in-
novative company, offers an example of how culture can
drive innovation. The company produces innovations con-
sistently, even though it’s in a mature industry (pumps).
Grundfos strongly promotes new-product development at
every opportunity—in its annual report, which devotes
more pages to product innovation than to fi
nances; in the
showcase of new products that occupies its headquarters
front lobby; with the campaign of posters emphasizing in-
novation hung throughout the premises; and in the open-
concept offi
ce that allows teams of employees to coalesce.
The company motto, “Be. Think. Innovate,” is everywhere,
even on company vehicles.
Emerson Electric also foregrounds innovation with a “wall
of fame” in their St. Louis headquarters building that honors
project teams and innovation leaders in a highly visible way.
Similarly, it publishes
Innovations Magazine
, which showcases
Emerson innovations and innovators. And visitors to Hilti’s
R&D building at their Lichtenstein headquarters are over-
whelmed by a massive display of new products in the front
lobby; this is clearly a company obsessed with innovation.
3M’s “projects on the side” program also works to build a
culture of innovation, one that consistently produces break-
throughs. Insiders report that most of 3M’s breakthroughs
over the last decades have come via this route. Google has a
similar policy: “The bright Googlers get 20 percent time in
which they
’
re free to pursue projects of their choice. Some
immensely popular projects from the Googleplex like Orkut,
Google News, Google Suggest and even AdSense were con-
ceptualized and developed by Google engineers during their
‘20% Time’” (
Agarwal 2007
). This works for smaller fi
rms
too; the digital agency Rockfi
sh in Rogers, Arkansas, openly
encourages its employees to create entrepreneurial projects
on the side (
Stillman 2012
). The effort regularly returns prof-
itable, creative ideas to the company, enabling it to more ef-
fectively respond to client needs.
Breakthrough Innovation—Final Thoughts
There are no simple solutions in the quest for bold new prod-
ucts. But the search is vital to the growth and prosperity of
your company, so do persevere. Portfolio management offers
some solutions:
•
Employ strategic buckets to set aside resources for big,
risky projects.
•
Use scoring models for early gate decisions rather than
relying on fi
nancial models, which often lead to the
wrong decisions at these stages.
•
Adopt a step-wise approach to investment decisions to
mitigate risk, and use the right fi
nancial models (options
models), such as ECV.
•
Seek fast confi
rmation of data via spiral or iterative de-
velopment to provide robust data for early-stage fi
nan-
cial calculations and to get the product design right.
•
Utilize novel idea-to-launch processes to get risky proj-
ects through the valley of death.
The full solution lies beyond portfolio management, how-
ever. Fostering the right climate and culture and using the
right performance metrics to promote bolder investments is
one direction companies must take. And developing a prod-
uct innovation strategy for your business is yet another im-
portant endeavor; a strategy that identifi
es the right strategic
arenas for your business will ultimately be your engine of
growth.
References
Agarwal
,
A.
2007
.
20% free time—The biggest threat to
Google? [Blog post, May 25.]
Digital Inspiration
.
http://labnol.
blogspot.com/2007/05/20-free-time-biggest-threat-to-
google.html
Ajamian
,
G.
, and
Koen
,
P. A.
2002
.
Technology stage gate: A
structured process for managing high risk, new technology
projects
. In
The PDMA Toolbox for New Product Development
,
ed.
P.
Beliveau
,
A.
Griffi
n
, and
S.
Somermeyer
,
267
–
295
.
New York, NY
:
John Wiley & Sons
.
Where Are All the Breakthrough New Products? September—October 2013
|
33
Cohen
,
L. Y.
,
Kamienski
,
P. W.
, and
Espino
,
R. L.
1998
.
Gate
system focuses industrial basic research
.
Research-Technology
Management
41
(
4
):
34
–
37
.
Cooper
,
R. G.
2005
.
Your NPD portfolio may be harmful to your
business’s health
.
PDMA Visions Magazine
29
(
2
):
22
–
26
.
Cooper
,
R. G.
2006
.
Managing technology development projects—
Different than traditional development projects
.
Research-
Technology Management
49
(
6
):
23
–
31
.
Cooper
,
R. G.
2011
.
Winning at New Products: Creating Value
Through Innovation
.
4th edition
.
New York, NY
:
Basic Books
.
Cooper
,
R. G.
2012a
.
Creating bold innovation in mature markets:
Five vectors for success
.
IESE Insight
, 3rd Quarter, 14: 20–27
.
Cooper
,
R. G.
2012b
.
New products: What separates the win-
ners from the losers and what drives success
. In
PDMA
Handbook
of New Product Development
,
3rd ed
.,
ed.
Kenneth
B.
Kahn
,
3
–
33
.
Hoboken, NJ
:
John Wiley & Sons
.
Cooper
,
R. G.
, and
Edgett
,
S. J.
2006
.
Ten ways to make better
portfolio and project selection decisions
.
PDMA Visions Maga-
zine
30
(
3
):
11
–
15
.
Isaacson
,
W.
2011
.
Steve Jobs
.
New York, NY
:
Simon &
Schuster
.
MacCormack
,
A.
,
Crandall
,
W.
,
Henderson
,
P.
, and
Toft
,
P.
2012
.
Do you need a new product-development strategy?
Research-Technology Management
55
(
1
):
34
–
43
.
Stillman
,
J.
2012
.
Nurture your employees’ side projects. [Blog
post, June 4.]
Start It Up
. Inc. Magazine
.
http://www.inc.
com/jessica-stillman/nurture-your-employees-side-project-
start-ups.html
;D;[efZW^WSV[`YSeeaU[Sf[a`aXadYS`[lSf[a`eiad][`YfaYWfZW
d
faW`ZS`UWfWUZ`a^aY[US^[“ahSf[a`[`[`Vgefdk @Wfiad]i[fZ
fZWiad^VÆeTWef[“ahSf[a`fZagYZf^WSVWdeS`VbdSUf[f[a`Wdef
a
eWW] eZSdW ^WSd`S`VUdWSfW
Only at IRI.
Benefi t from an environment rich in idea exchange.
Benefi t from IRI’s outstanding value:
»
Actionable solutions and R&D best practices
»
A diverse community for collaboration and problem solving
»
Current information developed for and by innovation practitioners
»
The only cross-industry, cross function association in R&D and innovation
2200 Clarendon Blvd., Suite 1102, Arlington, VA 22101
703.647.2580
tel
703.647.2581
fax
membership@iriweb.org
9S[`3UUWeefafZW
5a__g`[fkaX;“ahSf[a`5ZS_b[a`e
BECOME A MEMBER TODAY.
Visit www.iriweb.org or call 703.647.2580.
Share your expertise . . .
Contribute to
RTM
as an author or peer reviewer. Visit us at http://www.iriweb.org/rtm for announcements
of upcoming special issues, author guidelines, and information about volunteering as a peer reviewer.