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Evaluating Innovation Readiness
A case study
JOSEFIN ROSÉN
Evaluating Innovation Readiness - A Case Study
Josefin Rose n
Master of Science Thesis TRITA-ITM-EX 2018:578 KTH Industrial Engineering and Management
Machine Design SE-100 44 STOCKHOLM
Utva rdera innovationers mognadsgrad - En fallstudie
Josefin Rose n
Examensarbete TRITA-ITM-EX 2018:578 KTH Industriell Teknik och management
Maskinkonstruktion SE-100 44 STOCKHOLM
Master of Science Thesis TRITA-ITM-EX 2018:578
Evaluating Innovation Readiness - A Case Study Josefin Rosén
Approved 2018-June-18
Examiner Sofia Ritzén
Supervisor
Mats Magnusson
Commissioner Contact person
Abstract
To remain competitive and create a sustainable business, Original Equipment Manufacturers (OEMs) need to develop both incremental and radical innovation.
What many companies struggle with is to evaluate the potential of innovation initiatives. The development of products and innovations has over the years changed from a traditional technocentric view into a more human-centered view with the user’s desirability in focus. Also, the increased global competition and interest in business model innovation are forcing companies to verify the viability of the offering to their customers. While Technology Readiness Level (TRL) is an established tool for evaluating the technology, there are no holistic methods which also evaluates the readiness of the users and business.
The purpose of this thesis was to review available theory and methods used for evaluating the potential and readiness of innovation initiatives and to develop a holistic methodology to link the business, user, and technology related innovation activities. The innovation readiness is a combination of business, user, and technology readiness. The study started with a literature study where existing methods were presented from the three aspects; business, user, and technology. Since many critical decisions are made in the front-end of the innovation, the focus in the study has been to identify methods in the early stages of the process. This thesis was performed in collaboration with Company X, a global equipment manufacturer which also was the main object in this study. The findings from a case study performed at Company X were verified by comparing the identified methods and processes used at five external companies. Data was gathered by conducting semi- structured interviews both at Company X and the external companies and finding were compared in a cross-case analysis. In general, the methods used at the OEMs are quite similar, and all manage to balance the three aspects; business, user, and technology.
Based on the findings from the study of the companies and the literature review, a methodology framework is suggested which presents existing evaluating methods from the three aspects business, user, and technology.
Keywords: Innovation readiness, Innovation processes, Design Thinking, The Innovators Method, User-Centered Design, Technology Readiness Level (TRL)
Sammanfattning
För att förbli konkurrenskraftiga och för att skapa en hållbar affärsmodell behöver OEM:s utveckla både inkrementell och radikal innovation. Vad många företag arbetar hårt med är att utvärdera potentialen i innovationsinitiativ. Utvecklingen av produkter och innovationer har genom åren förändrats från en traditionell utveckling med tekniken i centrum till en mer användare-centrerad vy med fokus på användarens intresse av produkten. Dessutom har den ökade globala konkurrensen och intresset för affärsmodellinnovation har ökat intresset hos företagen att verifiera lönsamheten i deras erbjudanden till sina kunder. Medan TRL är ett etablerat verktyg för utvärdering av teknik finns det inga holistiska metoder som även utvärderar användarnas och företagets mognadsgrad och beredskapsnivå.
Syftet med detta var att se över tillgänglig teori och metoder för att utvärdera potentialen och mognadsgraden av innovationsinitiativ och att utveckla en holistisk metod för att länka innovations aktiviteter relaterade till affär, användare och teknik.
Mognadsgraden av innovation består av en kombination av affärens, användarens och teknikens mognadsgrad. Studien inleddes med en litteraturstudie där befintliga metoder presenterades från de tre aspekterna affär, användare och teknik. Fokus i studien har varit att identifiera metoder i de tidiga stadierna av processen då många kritiska beslut tas i början av innovationsprocessen. Detta examensarbete utfördes i samarbete med Företag X som är en global utrustningstillverkare och som även var huvudobjektet i denna studie. En fallstudie utfördes på Företag X och resultaten från studien verifierades genom att jämföra det med de identifierade metoder och processer som används på fem externa företag. Data samlades in genom att genomföra halvstrukturerade intervjuer både hos Företag X och de externa företagen och resultatet jämfördes i en tvärgående analys. Generellt sätt är metoderna som används hos OEM-tillverkarna ganska lika och alla lyckas balansera de tre aspekterna affär, användare och teknik.
Examensarbete MMK TRITA-ITM-EX 2018:578
Utvärdera innovationers mognadsgrad - En fallstudie
Josefin Rosén
Godkänt
2018-juni-18
Examinator
Sofia Ritzén
Handledare
Mats Magnusson
Uppdragsgivare Kontaktperson
Baserat på resultaten från studien av företagen och litteraturundersökningen föreslås en metod som presenterar befintliga utvärderingsmetoder från de tre aspekterna affärer, användare och teknik.
Nyckelord: Mognadsgrad av innovation, Innovationsprocesser, Design Thinking, Innovators Method, Användar-fokuserad Design, Technology Readiness Level (TRL)
Acknowledgments
Many people have played an important role to realize this thesis and I wish to acknowledge them here to show my gratitude. Firstly, I would like to give a special thanks to my co-researchers and friends, Carl-Magnus Lunner and Emelie Worrmann, for all your support and collaboration in this thesis. Thank you for all the great times and the fika-breaks that has given me the energy to keep working.
This thesis would not have been possible without the support and guidance of my supervisor at Company X. Thank you for giving me this amazing opportunity of being a part of your work and the warm welcome to the company.
Thank you also, Prof. Mats Magnusson, my academic supervisor at KTH, for all your support and guidance during this study.
Last, but not least, thanks to all the interviewees from Company X and the external organizations for sharing their time and experiences with me during this study.
Josefin Rosén Stockholm, June 2018
Abbreviations
BMC Business Model Canvas FEI Front End Innovation
FMCG Fast-Moving Consumer Goods IoT Internet of Things
IRR Internal Rate of Return MVP Minimum Viable Product
NASA National Aeronautics and Space Administration NPD New Product Development
NPPD New Product and Process Development NPS Net Promoter Score
NPV Net Present Value
OEM Original Equipment Manufacturing PCP Product Creation Process
PoC Proof of Concept
QFD Quality Function Deployment RPV Resource-processes-values TRL Technology Readiness Level VR Virtual Reality
Table of Content
ABSTRACT... VII
SAMMANFATTNING ... IX ACKNOWLEDGMENTS ... XI
ABBREVIATIONS ... XII
TABLE OF CONTENT ... XIII
1 INTRODUCTION ... 1
1.1 BACKGROUND ... 1
1.2 PURPOSE ... 2
1.3 DELIMITATIONS ... 2
1.4 DISPOSITION ... 2
2 EXPOSITION OF THEORY ... 3
2.1 DEFINING INNOVATION AND READINESS ... 3
2.2 INNOVATION PROCESSES ... 4
2.3 FRONT-END OF INNOVATION ... 5
2.4 TECHNOLOGY READINESS EVALUATION ... 8
3 OVERVIEW OF METHODS FOR EVALUATING INNOVATION ... 11
3.1 OPPORTUNITY IDENTIFICATION ... 11
3.2 OPPORTUNITY ANALYSIS ... 12
3.3 IDEA GENESIS AND IDEA SELECTION ... 16
3.4 CONCEPT AND TECHNOLOGY DEVELOPMENT ... 20
3.5 NEW PRODUCT AND PROCESS DEVELOPMENT ... 21
3.6 SUMMARY OF EVALUATION METHODS ... 23
3.7 RESEARCH QUESTIONS ... 24
4 METHODS USED ... 25
4.1 RESEARCH SETTING ... 25
4.2 RESEARCH DESIGN ... 26
4.3 DATA COLLECTION ... 28
4.4 DATA ANALYSIS ... 29
4.5 METHOD DISCUSSION ... 30
4.6 INVESTIGATION FRAMEWORK ... 31
5 RESULTS & ANALYSIS ... 33
5.1 COMPANY X ... 33
5.2 EXTERNAL COMPANIES ... 43
5.3 CROSS CASE ANALYSIS ... 51
6 DISCUSSION & CONCLUSIONS ... 55
6.1 MAIN FINDINGS ... 55
6.2 PRACTICAL IMPLICATIONS ... 57
6.3 THEORETICAL IMPLICATIONS ... 59
6.4 FURTHER RESEARCH ... 60
7 REFERENCES ... 61 8 APPENDIX ... I
APPENDIX A-LIST OF INTERVIEWEES ...I APPENDIX B-INTERVIEW GUIDE INTERNAL ... III APPENDIX C-INTERVIEW GUIDE EXTERNAL ... VII
1 Introduction
In this chapter, the study is introduced, starting with a background of the field of study which results in the purpose of the study. This is followed by the delimitations of the study, and lastly, a disposition of the report is presented.
1.1 Background
Innovation is a key element in the creation of sustainable business, companies must improve on their core product to maintain their existing customers and simultaneously develop new products to attract new customers (Furr & Dyer, 2014, pp. 62-64). Original Equipment Manufacturers (OEMs) must continuously develop both radical and incremental innovations and successfully implement them in the firm (O'Reilly &
Tushman, 2004; Adams, et al., 2006). However, evaluating the potential of innovation is difficult. This is recognized by Company X, who therefore commissioned this thesis.
The assignment was to investigate how to evaluate the readiness of innovation efforts, but also how ready the users are to adopt the innovation, and how ready the company is to deliver the business required to support the innovation. OEMs have traditionally been focusing on creating high-quality products and the customers have simply bought them. Today, Company X and many other OEMs are moving from a technology push towards a market pull and user-centered product development (Brem & Voigt, 2009).
Businesses are continuously being measured to assess their progress. To visualize an accomplishment, it is useful to make it quantifiable by using performance indicators (Richtnér, et al., 2017). Capital rationing, the division of monetary resources to different innovation efforts, is a must in all companies since it is impossible to pursue every idea.
Measurements such as Net Present Value (NPV) and Internal Rate of Return (IRR) can be used to calculate the business potential of an idea and to prioritize between different ideas (Schilling, 2017, p. 133). Such forecasts are suitable in a stable and static environment (Ries, 2011, p. 29). However, it can be difficult to apply to innovations since no previous experience exist (Ries, 2011, p. 48). Traditional managerial evaluation tools are difficult to apply in these circumstances because of the inherent uncertainty, economic forecasts are often nothing more than guesses (Koen, et al., 2001).
Measurement is a great way to bring focus to an issue, “what gets measured gets done”
(Richtnér, et al., 2017). Measuring innovations is a complex matter and an issue for many firms (Adams, et al., 2006). This does not mean that innovation cannot be evaluated in uncertain situations, but, it is important to know which metrics are relevant.
The tangible aspect, the technology itself is often measurable, and a popular tool to measure its progression is Technology Readiness Levels (TRLs). It is a well-established disciplined, independent framework which is used for both decision making and to
However, a firm cannot only rely on measuring technology, but there are several other aspects to consider. Technical feasibility, business viability, and user desirability are the three overlapping criteria for potential success (Brown, 2009, p. 18). Since TRL has proven to be such a valuable tool, a corresponding tool or methodology for business and user could ease communication, handover and managerial decision making.
1.2 Purpose
The purpose of this thesis was to review available theory and methods used in the front-end of innovation for evaluating the potential of innovation initiatives. The purpose was also to develop a holistic methodology to link the business, user, and technology-related activities to each other.
1.3 Delimitations
This case study was conducted by a master student at KTH, Royal Institute of Technology during a period of 20 weeks. Information that can identify the companies, respondents in this study, and new initiatives were removed due to confidentiality and to be able to have a more open dialog with the respondents. The focus in this thesis has been to identify methods for evaluating the user and business readiness since TRL is an established tool for evaluating the readiness of technology.
1.4 Disposition
Chapter 2 – Exposition of Theory – This chapter presents the theoretical basis of this report and introduces basic principles used in the following chapters.
Chapter 3 – Overview of Methods for Evaluating Innovation – The chapter covers research on existing evaluation methodologies for business, user, and technology, presented by the framework suggested by Koen, et al. (2001) The identified methods are presented in a summary of evaluation methods, and finally, the research questions of this study are presented.
Chapter 4 – Methods Used - The methods used when conducting this study are presented here in this chapter.
Chapter 5 – Results & Analysis – This chapter consists of the findings from the performed case study at Company X and presents the result of interviews with external companies. The findings from Company X are validated by performing a cross-case analysis with the external companies.
Chapter 6 – Discussion & Conclusions – This chapter presents the main findings by answering the research questions defined in earlier chapters. Then practical and theoretical implementations
2 Exposition of Theory
This chapter presents literature which defines innovation and the different phases of an innovation process. The following part of the chapter introduces the concept innovation process and front-end innovation together with presenting existing methods for managing the innovation process. Finally, the technology readiness level is introduced.
2.1 Defining Innovation and Readiness
There are many definitions and types of innovations. The author has chosen to present some of them here. The following definitions will be used further in the report.
• Innovation can be defined as a novel creation that produces value (Nagji & Tuff, 2012), or the practical implementation of an idea into a new device or process (Schilling, 2017, p. 19).
• The difference between incremental innovation and radical innovation is the degree of novelty and changes in existing solutions and products. In incremental innovation, relatively small changes have been made to a current product while large changes or completely new products have been made in radical innovation (Schilling, 2017, pp. 47-48).
• Sustaining technologies are a type of continuous innovation which improves the performance of already established products without requiring any change of behavior to use the technology (Moore, 2001, pp. 7-8). The changes can be both discontinuous and radical or incremental (Christensen, 1997, p. xix).
• Disruptive technologies are often described as innovations with initially worse product performance but with new value propositions and thereby creating a new market (Christensen, 1997, p. xix).
• Readiness is according to Oxford Living Dictionaries “the state of being fully prepared for something” or “willingness to do something” (Oxford Dictionaries, 2018).
Parasuraman defines the readiness as “people’s propensity to embrace and use new technologies for accomplishing goals in home life and at work” (2000).
Innovation is an important part of companies’ way to compete and has grown more important since the recent globalization and the fast-evolving technology development.
These are two of many challenges OEMs are facing today (Schilling, 2017, p. 1).
Companies need to confront these changes in their market and technology to remain competitive, successful, and survive (Christensen, 1997, p. xiii; Chesbrough, 2006, p.
xxvi). Many established organizations find the disruptive technology unattractive and do not see the potential of this because of the misfit with the company’s current business and the needs and wishes of their mainstream customers. There is a risk however that other companies then create the innovation instead. Once the innovation becomes established, the performance of technology can quickly increase within the attributes mainstream customers’ value and take over the market (Bower &
Christensen, 1995). Disruptive technologies can be difficult for companies to manage but they are essential because they open new markets and eventually take over (Christensen, 1997, p. 232). They are a critical source of sustaining growth (Ries, 2011, p.
31).
2.2 Innovation Processes
The innovation process is constructed to transform a product from opportunity identification, or idea, to launch and can be divided into three parts according to Koen, et al., illustrated in Figure 2.1. The first part is called Front End of Innovation (FEI) and consists of a circular model called New Concept Development (NCD), suggested by Koen et al. (2001). The second part is the New Product and Process Development (NPPD) and in many companies, this step does consist of an established stage-gate model to ease the process of creating new products (Cooper, 2008). And finally, the products are prepared for sales in the commercialization step (Koen, et al., 2001; Florén
& Frishammar, 2012).
Research shows that decisions and activities in the front end of innovation often have a large impact on the success of the innovation and therefore the following chapter will describe this part of the innovation process in greater detail (Florén & Frishammar, 2012).
Figure 2.1: The innovation process, adapted from Koen, et al (2001).
The innovation and product development process can also be illustrated as a funnel to visualize how a large number of ideas are narrowed down into a few ideas. The remaining ideas are the ones that best fit the company’s needs (Cooper & Edgett, 2009, p. 117), similar to the New Product and Process Development part in Figure 2.1. Ideas can be classified as true positives, true negatives, false positives or false negatives, which indicates if they are “good ideas” or “bad ideas” (Christensen, et al., 2018). For example, false negatives are ideas which at first didn’t seem promising because of the
with false positives. Conversely, false negatives can, e.g. be handled by exposing the idea to others to measure the potential of an idea, out-licensing the idea to other companies, or develop a spin-off of the company and develop it further externally (Chesbrough, 2004). The funnel can be both an open and closed model. The difference between the two models is that the open model is using external companies, customers, startups, etc. in all stages of the process, including ideation, development, and commercialization, while the closed only uses input from externals in the first phase (Cooper & Edgett, 2009, pp. 117-119). The risk of other companies using the open knowledge can be outweighed by the benefit of having a faster development to reach new markets and new offerings faster (Chesbrough, 2006, p. 57). This funnel is illustrated in Figure 2.2 and is a part of the innovation portfolio which connects ideation activities with the project portfolio where concepts are developed into products, often through a stage-gate model (Mathews, 2010; Cooper, et al., 2000). The focus in open innovation is the two aspects business and technology but there are versions of open innovation which involves the users more in the process, using methods such as crowd- sourcing (Baldwin & von Hippel, 2011).
Figure 2.2: Closed Innovation funnel model, adapted from Cooper and Edgett (2009, p. 118).
2.3 Front-End of Innovation
The first part of an innovation process is often referred to as the FEI or the fuzzy front end and is defined as all activities that are done before the formal NPPD process begins (Markham, 2013; Koen, et al., 2001). FEI activities consist of creating ideas which are developed into concepts and then evaluated to decide whether they should continue to the NPPD (Florén & Frishammar, 2012). While the NPPD in larger organizations today
Launched to Market
Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Front-end of process
Development
Commercialization Internally
Generated Idea
Externally Generated
Idea
often is structured using a stage-gate process, the front-end activities are often unstructured and have a high level of complexity and uncertainty. At the same time, these activities often have a large impact on the rest of the innovation process and reasons why innovation projects fail can often be traced back to the front-end (Florén &
Frishammar, 2012).
Koen et al. (2001) introduce a framework to provide clarity to this phase. The framework consists of five key elements of FEI, including opportunity identification, opportunity analysis, idea genesis, idea selection, and concept and technology development and is illustrated in Figure 2.3. In addition to this, there is an engine which drives the five elements and external influencing factors which consist of Organizational Capabilities, Business Strategy, the Outside World (distribution channels, customers, competitors, etc.), and the Enabling Science (readiness of the technology). The engine consists of the two factors leadership and culture, which has been identified as critical factors in the development of new products (Koen, et al., 2001). Even though the framework is abstract, it is one of the most popular new concept development models (Brem & Voigt, 2009) and provides a common language and view of the FEI (Koen, et al., 2001). The framework will be used to introduce the existing methods to handle the fuzziness of this phase in the innovation process.
Figure 2.3: The New Concept Development Model modified version of Koen, et al. (2001) The successful development of new products and services is not only dependent on finding new ideas and creating them through the NPD model. There are often constraints in the early stage of every design process which designers must consider.
importance of creating a balance between these constraints and to establish these criteria early in the process to be able to iterate to find the best solution (Ries, 2011, p.
20). Feasibility refers to establishing whether something is functionally possible to do in the near future, in other words, if the technology is ready and possible to pursue with or not. The viability is the likelihood of something to become a part of a sustainable business model, therefore will the term business be used instead. Desirability is the people’s willingness to have and buy something, in other words, how ready the user is for the innovation (Brown, 2009, p. 18). If all three aspects are taken into consideration and balance between them is achieved, the idea should according to Brown become a successful innovation. Therefore, these three aspects will be taken into consideration when presenting existing methods for evaluating innovation initiatives. The three aspects: technology, user, and business are illustrated in Figure 2.4.
There are many methods for managing innovation processes and evaluation of the three aspects: business, user, and technology readiness separately. One attempt at creating a more general innovation process is the Innovator’s method by Furr and Dyer (2014).
The Innovator’s method is a holistic model which combines several existing product development processes into one, illustrated in Figure 2.5. The Innovator’s method begins with generating insight of the customer’s needs, then deeply investigates the customers’ problems to be able to generate different solutions through rapid prototyping, and finally aligning the solution with a business model and scale up the solution (Ries, 2011, p. 10). The innovator’s method will be used in the thesis to explain and structure the presentation of all existing methods together with the framework introduced by Koen, et al. (2001).
Figure 2.4 The Overlapping Criteria for Successful Ideas and the three aspects; business, user, technology, adapted from Brown (2009, p. 19)
User
Business
TechnologyFigure 2.5: The Innovators' Method, adapted from Furr and Dyer (2014, p. 11).
2.4 Technology Readiness Evaluation
Working with new technology and innovation processes can be complex, and there is no holistic framework which covers all necessary activities in the innovation process.
Neither there is a general method which communicates the status and progress when developing the innovation. At the same time, people have a tendency of wanting to quantify and measure progress, and Adams et al. (2006) state that the ability to measure innovation processes is an important tool to ease the transformation of ideas into real products. One initiative which is used today to communicate the progress and to eliminate some of the uncertainties related to new technologies is Technology Readiness Level (TRL). The first origins of the concept of TRL can be found in the year 1969 where the need to assess the matureness of new technologies used in space systems were addressed. In the mid-1970s the concept of technology readiness was developed by Stan Sadin at the Office of Aeronautics and Space Technology at the National Aeronautics and Space Administration (NASA). In addition to this, Mankins (1995) presented a white paper in 1995 with definitions and criteria for each level of the nine-level TRL scale. TRL is today an established framework which is used in several industries (Banke, 2010) and the purpose of the original seven-level scale was to ease the evaluation and comparison of matureness in different technologies. The TRL scale has since then been expanded with two more levels, and some researchers argue that an additional level should be added to consider how successful the technology is after long-time use (Straub, 2015). The nine-level scale is presented in Figure 2.6.
Insight Problem Solution Business
Model Scale It
Creativity & Ideation Open Innovation
Design Thinking
Agile Methods Lean Start-Up
Business Model Canvas
The Innovators Method
Figure 2.6: Illustration of the Technology Readiness Levels scale, adapted from Mankins (2009).
The TRL framework is structured as follows (Mankins, 2009):
TRL 1. Basic principles observed and reported – Observations and reports of basic principles have been made. The findings are translated into more applied research and development.
TRL 2. Technology concept and/or application formulated – Practical applications for the observed basic physical principals have been identified or invented.
TRL 3. Analytical and experimental critical functions and/or characteristic proof-of-concept – Studies and experiments in the laboratory or appropriate context have been made which validates the applications or concepts formed in TRL 2.
TRL 4. Component and/or breadboard validation in a laboratory environment – Validation that the technical elements can be integrated together and achieve the desired performance, at a component and/or breadboard level has been made.
TRL 5. Component and/or breadboard validation in a relevant environment – The different components of the concept have been tested individually in a realistic environment.
TRL 6 System/subsystem model or prototype demonstration in a relevant environment – A test in a relevant environment has been made with model or prototype of the concept
TRL 7. System prototype demonstration in the planned operational environment – A prototype has been tested in the environment in which the final product will
System Test, Deployment & Ops System/Subsystem Deployment Technology Demonstration Technology Development Research to Prove Feasibility Basic Discipline Research
Technology Readiness Levels
TRL 9 TRL 8 TRL 7 TRL 6 TRL 5 TRL 4 TRL 3 TRL 2 TRL 1
An actual system proved through a successful system and/or mission operation
Actual system completed and qualified through test &
demonstration in the operational environment System prototype demonstration in the planned operational environment
System/subsystem model or prototype demonstration in a relevant environment
Component and/or breadboard validation in a relevant environment
Component and/or breadboard validation in laboratory environment
Analytical and experimental critical function and/or characteristic proof-of-concept
Technology concept and/or application formulated Basic principles observed and reported
operate in. In the original NASA framework, this consisted of testing the technology in space.
TRL 8. Actual system completed and “qualified” through test and demonstration in operational environment – The final product has been built according to the specifications of the final product and has been tested in the operational environment with all other systems it will interact with.
TRL 9. An actual system proved through a successful system and/or mission operation – The technology development has been completed at this level, and the final product is performing as intended in the real-world environment.
TRL is used in several organizations as a tool to assess and communicate the matureness of a technology. It has been a successful way to define the status of a technology in different organizations (Mankins, 2009). However, TRL is not a complete tool that covers all areas in a product development process. The TRL scale does for example not address the risks and uncertainties related to new technology development or the degree of difficulty of the research and development (Mankins, 2009). Nor does TRL consider the readiness of the user or business to deliver the solution. Because the TRL is an established tool for evaluating technological opportunities, this thesis will be focusing on methods for evaluating the readiness for the business and user.
3 Overview of Methods for Evaluating Innovation
Here follows an overview of the existing methods for evaluating innovation, presented by using the model of the front end of innovation proposed by Koen et al., with the three aspects business, user, and technology from Design Thinking.
3.1 Opportunity Identification
The first and often critical part of the FEI is according to Koen, et al. (2001) to identify new business and technology opportunities (Florén & Frishammar, 2012). The opportunities can be both a minor change to the existing products or radical ideas with an entirely new direction for the company. Ideas can emerge from anywhere and anyone can create a new product. The challenge is to find those ideas that provide a value for the customer and something others are willing to pay for. An innovation which does not solve any problem is useless, therefore is the first step to gather knowledge about problems that are worth solving, also referred to as gathering insights (Furr & Dyer, 2014, p. 70).
It is suggested that insights often start as a surprise or something unusual which then inspires the inventor to find an opportunity (Furr & Dyer, 2014, pp. 29-31). Insights can be trigger by; questioning existing solutions, observing users when existing products are being used, networking with users and experimenting with new solutions. The purpose of these activities is to inspire associational thinking which is “the ability to connect seemingly unrelated information or ideas and put them together in new ways” (Furr & Dyer, 2014, pp. 71-73). Studies show that companies who spend more time using these four discovery behaviors to discover customer insights were more innovative successful compared with companies that spent less time on these behaviors (Furr & Dyer, 2014, p.
73). By questioning current solutions, analogs and complements to existing solutions new associations can be triggered, and unmet needs and problems can be identified (Furr & Dyer, 2014, pp. 72, 114). Needs and problems can also be discovered by observing what customers do and do not do, and listen to what they say and do not say.
The goal of the observations is to create empathy for the intended user to be able to transform the observations into insights and then into products (Brown, 2009, p. 43).
The traditional methods of asking the customers what they want is rarely an effective way to find insights and groundbreaking new inventions since customers and user are not always aware of their problems and needs (Ries, 2011, p. 49). Henry Ford’s famous quote “If I had asked my customers what they wanted, they would have said a faster horse’” is illustrating this issue of customers’ ability to only see potential incremental improvements on existing solutions (Brown, 2009, p. 40). On the other hand, when customers are aware of their unmet needs, they are motivated to find solutions to fulfill these, which can be used to find opportunities (von Hippel, 2001; Schilling, 2017, p. 24).
The key to develop successful products is, therefore, to understand the customer and user needs (Freeman, 1991), disregarding whether they are aware of them themselves.
Understanding the customer is also a core principle in lean manufacturing where the Japanese expression genchi gembutsu is frequently used. The expression can be translated to “go and see for yourself”, meaning that the issue must be seen to be able to understand it (Ries, 2011, p. 86). Voice of the Customer is a technique which stresses the importance of understanding customer needs to create valuable solutions (Cooper &
Edgett, 2009, p. 88). The voice of the customer is a part of the Quality Function Deployment (QFD) where inter-functional teams use customer input in the product development to make strategic and operational decisions. (Griffin & Hauser, 1993). The desirability among the users and the viability for the business is considered, but not the technological feasibility.
Another way to find inspiration and opportunities is to allow external input in the innovation process. Interacting with people outside the organization and in social networks can have a positive effect on the creation of new ideas and concepts (Björk &
Magnusson, 2009; Burt, 2004; Freeman, 1991). Open Innovation is when companies are involving externals in the innovation process and this includes all kind of collaborative or partnering activities in a development process. Open innovation can be used to expand the company’s product portfolio, combine it with existing technology to create new values, or a way to speed up the development process (Cooper & Edgett, 2009, pp.
115-116). The risk of investing in uncertain solutions can be reduced by using out- sourcing, open sourcing, licensing, crowd-sourcing, etc. (Furr & Dyer, 2014, p. 163) Involving external sources in the innovation process will increase the number of possible solutions, it will also increase the complexity of evaluating the ideas (Chesbrough, 2004).
3.2 Opportunity Analysis
Once an opportunity has been identified additional information should be gathered to be able to make a correct assessment of the potential of the opportunity and to formulate it into a specific idea (Koen, et al., 2001). First, the identified opportunity can be analyzed by asking four questions, used in Lean Startup (Ries, 2011, p. 64):
1. Does customer recognize that they have the problem you are trying to solve?
2. If there was a solution, would they buy it?
3. Would they buy it from us?
4. Can we build a solution for that problem?
The four questions analyze the opportunity partly from the three aspects user, business, and technology but are more of a checklist and overview of the situation rather than a deep analysis of the opportunity (Ries, 2011, p. 64). The questions can nevertheless be
investigated further. Methods for analyzing the three aspects further is presented in this chapter.
User
Product development and innovation are far more complex than just identifying opportunities and building products. Companies spend huge amounts of money on understanding what customers want and yet, almost all the tens of thousands of new consumer products that are launched every year fail (Christensen, et al., 2005). Research recommends companies to reconsider how to bring the solution to the customers to solve this issue. Ries (2011, p. 64) states that many product developers tend to start building solutions before establishing whether the customers have the problem or want the solution and Furr and Dyer suggests that this should be dealt with by starting with identifying the job-to-be-done once the opportunity has been discovered (2014, p. 87).
As marketing professor Theodore Levitt once said: “People don’t want to buy a quarter- inch drill. They want a quarter-inch hole!”. The customers want a solution to solve their problem but are not necessarily interested in the solution itself (Christensen, et al., 2005). Therefore, a deep understanding of the problem and need of the customers should be established before any solutions are built. The purpose of the step is to identify the functional, social and emotional elements of the work-to-be-done (Furr &
Dyer, 2014, pp. 32-33).
Secondly, a deep understanding of the customers should be developed. There are several methods to accomplish this, all with a variety of quality and effectiveness.
Traditional methods, such as marketing studies, news articles, surveys, and focus group interviews are often not enough to establish the job-to-be-done and customer problems (Furr & Dyer, 2014, pp. 91-92). Instead, customers pains and problems should be identified through iterations together with customers. Pain-storming is an iterative method used to identify the customers’ pain when using existing solutions to perform the job and identify emotions by testing hypothesis of solutions to solve the pain. Other methods to understand the job-to-be-done involves stepping into the shoes of the customers, in Design Thinking is this called empathy (Brown, 2009, p. 49). Research can learn a lot from becoming the customer and try to solve the job with existing solutions themselves. Inventing customer profiles and envisioning possible customers can also be helpful for identifying causes to customers’ problems (Furr & Dyer, 2014, pp. 92-99).
Advice interviews is a method where potential customers with similar jobs-to-be-done are interviewed about an identified problem to confirm it and then receive feedback on an early prototype or solution (Furr & Dyer, 2014, p. 100). This is a useful way to test the hypothesis at an early stage in the process. One test which can be used to verify if the identified problem is worth solving is to perform cold-call tests. In this test the identified problem is described briefly in an email, website or by phone. The cold-call tests then measured the interest among users by measuring how many respondents call back and show interest in the product. In the description, the customers can, for example, be encouraged to call back or make an active call to action to give input on a theoretical prototype or purchase the solution (Furr & Dyer, 2014, pp. 102-104). These
Business
Even though it can be tempting for companies to engage in all the new and exciting technologies and business opportunities, companies must consider the viability of the idea and if they are ready for the opportunity or not. Competitive analysis is used to determine the company’s capabilities in pursuing in new products (Bacon, et al., 1995).
Organizations encountering changes in their industry need to determine if they have the capabilities to confront the changes and if the opportunity will fit the existing business (Brown, 2009, p. 21).
Both the external and internal forces affecting the company needs to be taken in consideration to evaluate the potential of new initiatives and to become successful (Grant, 2016, p. 10; Schilling, 2017, p. 111). First, an internal analysis should be performed to define what the company is capable of pursuing. Christensen suggests that a company’s capabilities are limited by the three factors resources, processes and values. These three factors are combined into a framework called resource-processes- values (RPV). These three aspects are especially important when dealing with disruptive technologies (1997, pp. 166-168). The company needs processes to transform the resources into something valuable and to match it to an opportunity (Grant, 2016, p.
114). How decisions and priorities should be made is determined by the company’s strategy and values. If the organization’s capabilities are not suited for a new task or lack any of the three factors, capabilities can be obtained in different ways. For example, by acquiring other organizations with appropriate prosses and values, changing the current organization’s values and processes, or by creating a separate independent organization with new capabilities (1997, pp. 171-172).
Another way to analyze the capabilities of a company is by performing a Strength Weaknesses Opportunities and Threats (SWOT) analysis. SWOT analysis consists of identifying internal strengths and weaknesses in a company and external opportunities and threats in the surrounding environment. SWOT analysis can be used to make strategic planning decision and planning future actions (Leigh, 2010, p. 115). The SWOT analysis has grown popular over the years, much because research shows that successful strategy can be achieved by having a fit between external influencing factors and the internal capabilities. There are however some flaws and limitations in the SWOT analysis, for example, unclear definitions and lack of prioritizing (Hill & Westbrook, 1997; Leigh, 2010, p. 122).
There are several external factors which influence the business viability and the environment of a company, which needs to be taken into consideration when evaluating opportunities. The company needs to evaluate if it has the most suitable structure of the organization to develop the identified solution. The size of the organization and degree of centralization are a few factors which can influence the innovation in an organization (Schilling, 2017, pp. 213-217). Startups, which often lack resources, are often more capable of entering disruptive and emerging markets than large companies because of their cost structures and values, which enables them to
evaluate the external environment of the company is Porter’s five forces of competition.
It is a tool which evaluates how profitable the industry is based on five external forces of competitive pressure (Grant, 2016, p. 68). The five forces are Threats of New Entrants, Bargaining Power of Buyers, Threat of Substitute Products or Services, Bargaining Power of Suppliers, and Rivalry Among Existing Competitors (Porter, 2008). The Porter’s five forces are illustrated in Figure 3.1. The five forces have been frequently used over the years and Porter’s work became a central part in the strategic management and business strategy when it was first released in 1979. However, time has changed since then, and suggestions have been made to develop the framework further to create a more flexible version of Porter’s five forces (Grundy, 2006). The fit between the ideas and the business strategy should be analyzed once a company knows its capabilities and strategy. A business strategy is defined as the link between the company and the surrounding environment and a plan to deal with opportunities and threats from the environment (Grant, 2016, p. 10; Chesbrough & Rosenbloom, 2002). The strategy determines how resources and capabilities should be allocated to meet the goals and how the company should be organized (Grant, 2016, p. 10).
When the company’s readiness to act on the opportunity has been established, the company should define what value the job-to-be-done delivers to the customer and how the company should bring the solution to the market, in other words, a first draft of the business model should be defined. A business model is a description and overall strategy of how organizations will capture, deliver and create value for the customers
Threat of New Entrants
Bargaining Power of
Buyers
Threat of Substitute Products or
Service Bargaining
Power of Suppliers
Rivalry Among Existing Competitors
Figure 3.1 The Five Forces That Shape Industry Competition, adapted from Porter (2008)
model can be created by identifying value creation, market segment, value chain, cost structure, value network, and competitive strategy. The business model is a means to map the characteristics and potential of the technological inputs, such as feasibility and performance, and transform it into an economic output, such as value, price, and profit, through customers and market. The business model is selecting and filtering through technologies and packaging them into an offer for the chosen customer segment.
(Chesbrough & Rosenbloom, 2002).
An issue which many larger organizations struggle with is the lack of data and information when investing and developing business models for disruptive technologies. The disruptive technologies might create markets which do not yet exist and therefore may be difficult to analyze. Companies with fixed investment processes which requires estimations of market sizes and financial returns etc. can be struggling to estimate completely new and disruptive technologies (Christensen, 1997, p. 233).
There are however ways to start building a business model, even in early stages of the innovation process. An NABC model can be used to clarify the value proposition to the customers, which according to Furr and Dyer is one of the most important parts of the business model (2014, p. 143). The NABC (Carlson, 2006, pp. 88-90) is short for Need, Approach, Benefit per cost and Competition and consists of:
• Need – identifies the customer’s and market’s needs that should be solved.
• Approach – how the needs should be met.
• Benefit per cost – how much value the solution is giving per cost.
• Competition – knowing the surrounding environment of the company and compare the benefit per cost with other companies.
The business model should be iteratively developed until a solution for the customers has been selected (Furr & Dyer, 2014, p. 143) and after that verified before bringing the solution to the market.
3.3 Idea Genesis and Idea Selection
The identified and analyzed opportunities should now be developed into concrete ideas and solutions for the job-to-be-done (Koen, et al., 2001; Furr & Dyer, 2014). The purpose and goal of this step are to formulate and developed a complete description of the idea or product concept (Koen, et al., 2001). This often involves many iterations, verifications and input from customers, cross-functional teams and other organizations to establish that the best solution is chosen. Brown refers to this step as ideation, which is defined as the process where insights are transformed into ideas (2009, p. 64).
User
Brown suggests that this ideation process should consist of both a convergent and divergent thinking phase to generate a wide spread of ideas and then select the ideas
Figure 3.2: The Design Thinking Diamond, adapted from Brown (2009, p. 67)
Design Thinking is a product development method that emphasizes the importance of customer knowledge (Brown, 2009, pp. 66-67) and consists both of a divergent and convergent phase of many iterations together with customers and users. In the divergent phase, as many ideas as possible are generated. Idea jams and brainstorming are examples of useful tools for creating new ideas (Brown, 2009, p. 79; Ries, 2011, p.
248). By searching broadly for solutions many options and combinations of the solutions can be created, this often leads to more novel, disruptive and successful solutions (Furr & Dyer, 2014, p. 113; Brown, 2009, p. 67). Once a range of solutions has been generated, the most promising ideas should be selected and then tested with customers (Furr & Dyer, 2014, p. 116; Brown, 2009, p. 68).
The idea selection is often a critical phase in many companies and difficult to manage due to the many uncertainties and unknown variables. Methods and tools are needed to facilitate the selection of the idea with the most business value (Koen, et al., 2001). To select most promising ideas, they are analyzed by performing research such as interviews and reviewing the feasibility of the ideas (Brown, 2009, pp. 68-69). Furr and Dyer suggest a three-step process to select ideas that should be tested with users (2014, pp. 117-118). Firstly, all developed solutions are given a theme or characteristic which represents the solution, for example, ease of use or high performance. One solution from each theme is then presented to customers to observe their response. Secondly, the presented solutions are placed and ranked on a one-dimensional spectrum which could, for example, be game changing or technical complexity. The solutions at the ends of the spectrum are then selected and this is to broaden the testing of the solutions. The third and final step is to formulate leap-of-faith assumptions into questions and prioritize the assumptions after what is most critical to validate for a solution to succeed. The prototypes can be used to validate the assumptions once the critical assumptions have been identified. The innovation process is now moving into a new convergent phase where many prototypes are being tested to later be iteratively refined and improved in a divergent phase until a final prototype has been created (Brown, 2009, p. 67; Furr &
Dyer, 2014, p. 125).
Create Choices
Make
Choices
Prototypes
The final solution must be desired by the users and chosen over other existing products and services to be successful (Lodish, et al., 2001, p. 18), the only way to find out what customers thinks about the solution and if they would choose the solution is to show it to them. Prototypes can be used to try, refine, improve, and develop several different ideas and verify if they fulfill the user needs, both functionally and emotionally (Brown, 2009, pp. 106-107). Furr and Dyer suggest that four different types of prototypes should be created to find the best solution; theoretical prototypes, virtual prototypes, minimum viable prototypes and minimum awesome prototypes. Theoretical prototypes could be used to ask questions to customers to get their feedback and adjust the solution without spending much resources, while the virtual prototypes are more tangible, for example, sketches, off-the-shelf-components prototypes or simple illustrations of the solution (Furr & Dyer, 2014, p. 118). It is important that the prototypes are done rapidly and only enough to provide a quick validation of a hypothesis with many customers to determine the potential of the solution (Furr & Dyer, 2014, pp. 33-34). If the prototype appears to be too developed and polished, the customer will think it is a final product and be less likely to provide feedback (Furr & Dyer, 2014, p. 123). The most valid way to perform these early-stage prototypes is to meet the respondents in person in their workplace or home (Lodish, et al., 2001, p. 28). If a customer then were to ask how he or she could buy the solution after only seeing early prototypes, it is this a good indication that prototype is received well among the users (Lodish, et al., 2001, p. 24). During the tests with users, the focus should be on the most critical assumptions and hypothesis to speed up the prototype process (Furr & Dyer, 2014, p. 124). Dry tests can also be used evaluating the demand on a product or service (Lodish, et al., 2001, p. 30) and wow tests can be used to measure how excited the customers are about the solution (Furr &
Dyer, 2014, p. 132). Idea or concept screening can be used to evaluate many ideas cost- effetively by asking respondents to rank ideas, either in order or separately (Lodish, et al., 2001, p. 32).
A minimum viable product (MVP) is defined as a product with the minimum features to be a stand-alone product while still solving the core problem (Furr & Dyer, 2014, p.
124). The main purpose of an MVP is to learn from it and to test hypotheses (Ries, 2011, p. 94). One example is a smoke test, which also is a marketing technique, which can be used to measure customers interest in a product. By offering pre-orders of a product that has not been built yet, companies can receive feedback on an idea without spending almost any resources on the product (Ries, 2011, p. 118). Learnings from the MVP and smoke tests are valuable in the process of understanding the customers and what features are desirable, and which are not. There is always a risk of customers being dishonest during the tests and “being nice” to the interviewer by answering what they think the interviewer wants to hear. This can be avoided by comparing the new product with an existing product and comparing the intention of purchase between the two different products (Lodish, et al., 2001, p. 25).
awesome product that inspires emotion for example by solving the job-to-be-done in a surprising way or solving it better than other products (Furr & Dyer, 2014, pp. 128-129).
Business
In the idea selection phase, the business aspect should also be considered. Bacon et al.
(1995) stressed that the overall strategy of the innovation projects at a company must be aligned with the business strategy, resources and objectives of the company to succeed.
The projects can be used to leverage the company’s core competencies and help it reach the strategic intent (Schilling, 2017, p. 6) and it is therefore important to choose projects wisely. The key is to evaluate the fit between the business strategy and the ideas and make decisions based on the result.
One tool used for evaluating the strategic fit is the Innovation Ambition Matrix which originates from a product and market matrix introduced by H. Igor Ansoff (Nagji &
Tuff, 2012) and is illustrated in Figure 3.3. Ansoff’s matrix suggests different growth strategies which can be used to determine a new direction of business strategy (Gessinger, 2009, p. 182). Nagji and Tuff’s version of the matrix has a more gradient scale rather than Ansoff’s binary model (Nagji & Tuff, 2012). Each identified idea is placed in one of the three areas core, adjacent or transformational, depending on how novel the idea is to the company’s existing products and market. The resource allocation between the three areas is determined by the company’s strategy and industry. However, research has suggested that the resources allocated to innovation should be divided accordingly; 70% on core activities, 20% on adjacent and 10% on transformational activities (Nagji & Tuff, 2012). The Innovation Ambition Matrix can be used to create a balanced innovation portfolio by showing companies how to allocate resources between growing incentives. It is also a tool to assess the ambition of the company´s overall innovation portfolio. Even though the opportunities can be classified as core, this does it not imply that only core opportunities should be selected to continue in the process. Companies need adjacent and transformational opportunities as well to stay competitive and survive (Christensen, 1997, p. xiii; Chesbrough, 2006, p.
xxvi). Unlike startups, large companies do often have experience in developing and choosing among different opportunities. This experience can be useful when evaluating the fit with the capabilities of the company and the potential for success (Schilling, 2017, p. 214).
3.4 Concept and Technology Development
Business
Once a solution is chosen from the prototypes, the next step is to complete the business model and validate how the solution should reach the market, including to set the right price, and a strategy to reach and influence the customers (Koen, et al., 2001; Furr &
Dyer, 2014, p. 35). It is important that the business model is not completed until the solution is chosen or to settle for a previous business model out of convenience (Furr &
Dyer, 2014, p. 143). New ideas often require new business models and therefore should not use the same market strategy as existing products (Furr & Dyer, 2014, p. 35).
Business Model Canvas (BMC) is an iterative and common tool, used to ease the communication and understanding of the business model and how the company will make money (Osterwalder & Pigneur, 2010, pp. 15-17). The BMC consists of nine building blocks of the business: customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partners and cost structure. It should be developed through iterations and validations with the intended customer.
Furr and Dyer (2014, pp. 144-147) suggest six components that need to be validated before bringing the solution to the customer. These components are Value proposition, Price strategy, Customer acquisition: relationships and activities, Cost structure: activities and
Figure 3.3: The Innovation Ambition Matrix, adapted from Nagji & Tuff, (2012)
User
The value proposition should already have been validated if an MVP and MAP already has been developed. The pricing strategy is referring to how the solution’s price should be set to generate profit and maximize the revenue streams. Sending out surveys to ask customers about the price of a product is not the ideal way of setting a price because buyers tend to be dishonest about their willingness to make a purchase (Furr & Dyer, 2014, p. 147). There are several methods to determine the price of products, including price sensitivity meter tools which use a survey to determine the optimal price point by asking intended customers what they consider to be too expansive and too cheap price of the product. The optimal price is then found by performing a price elasticity of demand by asking randomly selected customers (Lodish, et al., 2001, p. 42). Another way to determine the price is to compare the solution with similar products, performing payment test experiments and observing customers (Furr & Dyer, 2014, p. 148). It is important to avoid asking the same customer of the purchase intention at different price levels since this could be perceived as a negotiation from the customer’s perspective.
Instead, each respondent in the test should be exposed to different prices and then should the answers be compared separately (Lodish, et al., 2001, pp. 27-28). Once the price strategy is set, the customer acquisition should be determined which includes establishing how the target customer should be reached (which channels) and convinced about their need for the solution. A customer consumption chain can be used to understand the customer and develop a customer acquisition strategy. It consists of the five steps: customer awareness, evaluation, purchasing, use and connection (Furr & Dyer, 2014, p. 155). The final two steps consist of determining the cost structure, which includes defining key activities, resources, and assets that are needed to deliver the solution to the customers. Once the key activities and resources have been identified, the cost of them should be estimated. Instead of investing in fixed-cost investments to create the still uncertain solutions, companies should use variable cost investments which do not require a long-term commitment, at least until the business is profitable (Furr & Dyer, 2014, p. 162).
3.5 New Product and Process Development
When the final solution has been chosen and the business model developed through iteration and validation, the next step is to prepare the solution for launch. The innovation does not become a mature product and business by itself and needs to be scaled up once the FEI process is complete, this is the job of the NPPD (Furr & Dyer, 2014, p. 190; Koen, et al., 2001). The NPPD process often consists of a stage-gate model due to its effectiveness and structured way of finalizing products and preparing for launch (Cooper, 2008). According to Furr and Dyer (2014, p. 190), there are three main areas which should be scaled up:
• Market scaling – The process of moving from a MAP to a whole product and creating legitimacy to reach the mainstream customers
• Process scaling – Shift from discovery to execution phase where the solution is finalized through an effective process
• Team scaling – Creating teams that can scale the company and reassign people who do not have those skills
The purpose of scaling the process is to be able to bring the whole product solution to the market (Furr & Dyer, 2014, pp. 190-193). The scaling up of the market is especially important when trying to reach customers early in the process. Some customers need more time to adapt and accept innovation and this is called the Technology Adaptation Life Cycle and is illustrated in Figure 3.4 (Moore, 2001, p. 12). The goal is to “cross the chasm”, which is the gap between the different early adopters and early majority of customers, and reach the majority of customers as soon as possible. This is because once the early majority has been reached, the product is considered to be a success and able to generate profit and growth for the company (Moore, 2001, p. 9). The Innovators and Early adopters adapt more quickly and settle with an MVP or MAP of the solution so long as they are first, the early and late majority want more complete products without errors (Furr & Dyer, 2014, pp. 193-194). Because of the difference between the customers’ willingness to adapt to new technology, different methods are being used to reach each group of customers step-by-step and using each group as a reference to the next (Moore, 2001, p. 10). This is done by testing key assumptions and then try MAP on the early majority to be able to create error-free whole product solutions for the majority customers (Furr & Dyer, 2014, pp. 193-196). Once the scaling of the product has been completed, the processes are standardized to deliver the solution, and the team is assembled can the products finally be launched (Furr & Dyer, 2014, pp. 197, 201).
Technology Adoption Life Cycle
Innovators Early adopters
Early majority Late majority Laggards
MVP
Whole product solution
MAP Product Progression
