WHITE PAPER Innovation Management Turning good ideas into successful products Dr. Roland Drewinski, Michael Wendenburg energizing great minds 2 All brand names, trademarks, product names, abbreviations thereof and logos are the property of their respective companies and are protected as such. All third-party protected brand names and trademarks are subject in all respects to the regulations of the relevant registration law and the rights of possession of the respective registered owner. The mere appearance of names without designation as proprietary shall not be construed as meaning that trademarks are not protected by the rights of third parties. © CONTACT Software GmbH. All rights reserved. Changes may have come into effect after copy deadline for this document. All information supplied without guarantee. Document ID D059473 3 Contents 1 Introduction 4 2 Innovation as a factor in competition 6 3 Innovation typology 8 4 What does innovation management mean? 10 5 The challenges facing companies 13 6 Innovation strategies 15 7 Establishing a culture of innovation 17 8 Knowledge management is a source of innovation 19 9 Systematic ideas management 21 10 End-to-End innovation process 24 11 Conclusion 27 12 References 29 4 Introduction 1 Introduction An innovation is more than just an invention, which is often the result of a single person‘s inspiration. Austrian economist Joseph Schumpeter described it as the implementation of a new technical or organizational idea, which means that innovativeness is more than just the creative ideas themselves. It is equally important to realize these ideas in the form of successful products. Creativity and a systematic approach are the two sides of the coin that is innovation. Innovation is a team sport involving many disciplines. Any outstanding idea is doomed to failure if, at the end of the process, the price is wrong or the wrong sales channels are chosen. In the global marketplace, the time available for a company to gain an edge with an innovation is becoming ever shorter. To achieve sustained success, the development of innovations must become an ongoing process. This demands long-term planning, because, unlike inventions, innovations can actually be planned, provided that the right tools and methods are used. This white paper explains the significance of innovation management and describes the contribution that PLM solutions can make to providing optimum support for the innovation process from recording and assessing the ideas right through to successful implementation. „ Innovation happens when a new idea is realized as a marketable product.” Professor Hans-Jörg Bullinger, former President of the Fraunhofer Gesellschaft, Munich 5 6 Innovation as a factor in competition 2 Innovation as a factor in competition In high-wage countries, where wealth is based on services rather than raw materials, it is innovation that drives national economies. It is the crucial element that allows companies to compete in global markets. The OECD evaluates a wide range of statistical indicators in order to compare the innovative capacity of different industrial nations. Important indicators include expenditure for research and development as a percentage of GDP and the number of researchers per thousand population[1]. The United States may lead the world in terms of innovation, but a study from the Massachusetts Institute of Technology (MIT) reveals significant weaknesses[2]. Thus, many innovative ideas from American startup companies never make it to series production, because young companies are not supported in the transition to mass production. Another problem is that medium-sized US companies are unable to access external resources when developing new products and opening up new markets. But, as Elisabeth Reynolds, Executive Director at MIT stresses in an interview with the German trade magazine Produktion, high-performance, highly integrated supplier networks are crucial for productivity, and the United States could 7 learn a lot from Germany, including how to support and promote medium-sized companies. Expenditure on innovation has recovered well in the wake of the years of crisis. Companies in key sectors such as the automotive industry, electrical and mechanical engineering or the power supply industry are again significantly boosting investment in product and process innovations. The reason is obvious. They want to and have to improve their competitiveness in the global markets. Globalization has triggered what amounts to an innovation race. Innovation cycles are getting shorter and the pressure for companies to innovate is increasing. Sectors such as the electronics and computer industries in particular are seeing the time between new products coming to market dropping to as little as a few months. At the same time, the risk of failure is high. Experts reckon that despite extensive market research, 60 to 80 percent of all products launched on the market fail, with most mistakes being made as early as the concept phase. This means that, in order to minimize risk, companies cannot rely on a single innovation; rather, they need a complete portfolio of them, and this requires systematic management. Illustration 1 OECD member states: Gross domestic expenditure and employee numbers in the field of R&D (chart: German federal report on research and innovation 2014) 8 Innovation typologie 3 Let’s get digital Innovation typology Not all innovations are the same. Generally, a distinction is made between product or service innovations and process innovations, in other words innovations that, for instance, allow the products to be manufactured more cost efficiently. Product innovations can apply to any of the attributes of a product that can be marketed successfully, from new functions or the design of the product right up to ergonomic or environmental improvements. Process innovations frequently accompany organizational innovations within the company, for instance a change to the way in which work is organized. A fourth type of innovation relates to business models. Examples of these include the IKEA sales model or Apple‘s introduction of the iPod in conjunction with the Internet shop iTunes. In many sectors, the potential for innovation is increasingly shifting away from the product and towards services or a combination of both, a trend which is often associated with new business models. Companies are no longer selling products. Instead, they are selling services that are supported by products. Unlike the evolutionary development of products, innovations triggered by technology are often disruptive. They question established technologies and can lead to major shakeups in seemingly established markets. But the technical revolution also devours its own children. A perfect example of this can be found in the photography pioneer Kodak, which completely missed the shift to digital photography, even though it was they who invented the digital photograph. Successful companies in particular tend to adopt a strategy of innovating in small steps, which runs the risk of losing touch with new trends. When they cease to enjoy the success they are used to, the result is often a cycle that Accenture calls the „innovation death spiral“[3]. Despite their lack of success, the products soak up considerable financial resources that are then no longer available for truly game-changing innovations. According to Accenture, most companies underestimate the opportunity costs of the innovation spiral, i.e. the lost revenue that results from relying on incremental innovations and investing too little in breakthrough innovations. 60– 80 % of all newly launched products fail. 9 10 What does innovation management mean? 4 Let’s get digital What does innovation management mean? Innovation management also has a strategic dimension. In harmony with the corporate strategy and corporate objectives, it aims to rapidly identify the potential of new technologies, materials and processes as well as including their marketability, and to give the company a competitive edge. This means that all sections of an organization, from research and development through organization, finance and controlling, and right up to marketing are involved in innovation management. In other words, innovation management is concerned not only with strategic product planning, i.e. with identifying potential and products, planning business models and creating product concepts, but also with the operational implementation of such planning. On a strategic level, it is about deciding which new products fit in with the company‘s longer-term perspective, and on an operational level, it is about implementing these innovations as efficiently as possible. To a certain extent, portfolio planning acts to bind these two levels together by identifying the ideal blend of innovation projects while taking into account strategic objectives and the available resources. Systematic ideas management is a cornerstone of innovation management. Short innovation cycles demand a stricter approach to recording, assessing and prioritizing ideas and their implementation in successful products. This includes, for example, not revisiting ideas that have already been assessed and rejected for good reasons. Strategy Identify opportunities and risks and adjust company positioning: What offerings for what markets? 1 On an operational level, innovation management supports a clearly structured innovation process that can be roughly divided into four phases. The innovation objectives are defined on the basis of the strategy. The selection of ideas takes the wealth of ideas that have been recorded and identifies those that have the greatest potential for success in terms of the innovation objectives. These are then implemented and tested during the concept and development phase. The marketing phase covers production and market introduction or, in the case of process innovations, the transition to productive operation. In the case of product innovations, the innovation process and product engineering are so closely related that it makes sense to use the same IT tools to support the processes. Although innovation management primarily impacts on in-house innovation processes, it is increasingly the case that it also takes account of aspects outside the company. Open Innovation is a term used for approaches that are intended to reinforce the innovation potential within a company through the use of external resources. This can be achieved by working together with research organizations, but also by incorporating external experts, customers and suppliers in the innovation process. The objectives of Open Innovation initiatives are, on the one hand, to increase a company‘s capacity to innovate without an associated rise in costs and, on the other, to involve good minds from other fields and Doing things right Roadmap Portfolio Implementation Facilitate the strategy: Plan the areas of innovation on the basis of business cases, preconditions and measures 2 Plan product program and project portfolio Implementation in development projects; ongoing controlling of the innovation objectives 4 3 Ideas: Frontloading in the planning phases Innovation culture and company organization Customers and markets Innovations = successful products Doing the right things 11 Illustration 2 The elements of innovation management 12 What does innovation management mean? organizations who can contribute new ideas based on an independent view from the outside. One of the trailblazers in this field is the consumer goods company Procter & Gamble, which has doubled the number of people involved in innovation by collaborating with suppliers and partners in the Connect+Develop initiative. In sectors that produce goods directly for consumers, even the end users nowadays play an important role as innovators, for instance in the development of apps for smartphones. One specific form of user innovation of this kind is known as „crowd innovation“, where new (software) products are developed collaboratively over the Internet. There are many open source programs that prove that this approach works. But the commercial exploitation of approaches such as these throws up the question of who shares in the collective intellectual property and how a company‘s own expertise can be protected during such collaboration. Let’s get digital 13 The challenges facing companies 5 14 The callenges facing companies There are a number of reasons why companies are realizing that they must adopt a more systematic approach to managing their innovations. Global competition is putting companies under considerable pressure to innovate, and even manufacturers of custom products are not immune from this pressure. They no longer rely solely on responding to new requirements from their clients, but observe the market and their competitors and develop their own innovative proposals in consultation with their customers. One important driver of innovation management is the complexity of the products and the growing role of electronics and software. The majority of innovations in the automotive sector are nowadays to be found in mechatronic systems with a high proportion of electronics and increasing amounts of embedded software. And this trend is also observed in other sectors, albeit with a certain time lag. This means that electronic engineers and software developers are more closely involved in the innovation process than they have been in the past – and these actors introduce their own ideas, which have to be assessed. Much the same applies to fields such as after sales and service, because in many sectors service is an integral part of the product innovations and needs to be managed as such. Another reason why more efficient innovation management is needed is that the innovative capacity of companies is regulated and, to a certain extent, restricted by ever more stringent environmental stipulations, safety regulations and other national and international legislation. Instead of generating and implementing creative ideas, engineers in sectors such as medical engineering spend a large part of their working hours documenting compliance. But the positive side of all this is that statutory requirements have themselves driven many innovations, for instance in powertrain engineering or power engineering. The earlier compliance is taken into account during the innovation process, the easier it is to ensure that the innovations are compliant. Let’s get digital 15 Innovation strategies 6 16 Innovation strategies The innovation process will usually start with a formulation of the innovation strategy that lays down the innovation objectives and serves as a framework for allocating budgets and resources to the objectives. This innovation strategy is derived from the overarching corporate strategy, but must also take into account other factors such as market trends, the market environment and megatrends in technology. When analyzing (alternative) future trends in the context of strategic planning, methods such as scenario methodology are usually used, although we will not be discussing them in detail here. Such techniques are used to identify future opportunities and risks and derive strategic decisions from the insights. Depending on how the company is aligned, it is possible to distinguish between a number of different innovation strategies, which can be combined with each other: ■ Market-oriented strategies focus on what types of products or services are needed and what level of innovation they must contain in order to be successful in specific markets. ■ Competition-oriented strategies first ask what innovations will differentiate a company from its competitors in order to lead these markets with regard to quality and/or cost. ■ Time-oriented strategies supplement competition-oriented strategies by asking when and how often innovations need to be launched on the market in order to achieve a competitive advantage. ■ Technology-oriented strategies rely on differentiation on the basis of certain key technologies and determine those technological fields that a company needs to occupy in order to implement innovations. ■ Cooperation-oriented strategies focus on the complementary skills and resources that are needed in order to carry out the activities associated with innovations. Let’s get digital 17 Establishing a culture of innovation 7 18 „ Establishing a culture of innovation Innovation is 1% ideation, 9% consolidation and 90% implementation.” Kumar Sachidanandam, Cognizant A survey by the Economist Intelligence Unit (EIU) revealed that most companies adopt business strategies in which innovation plays a key role in their business success. Despite this, they are not satisfied with the extent to which they exploit their innovation potential and the speed with which they innovate. The EIU survey comes to the conclusion that it is not sufficient to develop the vision of a culture of innovation, but that there must be a clearly defined owner with budget responsibility for implementing the innovations. Put simply, companies who have a person responsible for innovation in top management are more successful than those in which this responsibility is shouldered by many people. According to the survey, the greatest challenges in the context of innovation lie in changing the corporate culture, accelerating the time-to-market for innovations and realizing ideas in the form of products and services that are mature enough for the market. Most companies shy away from risk when it comes to implementing new ideas. They miss out on the opportunity to exploit the potential of new lines of business because nobody is willing to take responsibility. They prefer to follow tired business strategies rather than develop new business models. In an article on the innovation culture, management consultants Unity point out that even companies who have implemented methods and processes for innovation management are faced with the challenges posed by change. The time it takes to establish such an approach is greater than when tools are introduced, because people need to change their behavior and attitudes. Because standards and values differ, there is no single ideal way of establishing a culture of innovation. Alongside the encouragement and promotion of team spirit and leadership, the selection of suitable staff for managing innovation and embedding it as a conscious part of the or-ganization are important measures for effecting long-term change to the corporate culture. Innovative organizations are characterized by an ability to learn and adapt and are in a constant state of flux. Important aspects of a culture of innovation include trust in the employees on the part of management, personal responsibility, a willingness to learn, the courage to take risks, decisiveness and tolerance of mistakes. Staff must have the space to be creative and must be allowed to make mistakes. At 3M, one of the most innovative companies in the world, developers can, for instance, spend 15% of their time on projects of their choice, which regularly lead to innovations. According to Unity, a culture of innovation requires open communication and the possibility for people to network and exchange knowledge. And, of course, this also applies to interactions with customers and partners in the context of open innovation. In a business context, the interactive Web 2.0 technologies used by social media provide the tools for identifying employees with specific knowledge, irrespective of the department, unit or location they belong to within the organization, and to make use of that knowledge. They thus represent an important tool for establishing an open culture of innovation. Let’s get digital 19 Knowledge management is a source of innovation 8 Knowledge management is a source of innovation 20 Exploiting the knowledge pool available in a company efficiently is equally as important for the innovative capacity of a company as incorporating external sources in the innovation process. The difficulty lies in the fact that the bulk of this knowledge is implicit; it resides in the heads of experienced employees. Interactive Web 2.0 technologies such as forums, blogs or wikis are thus important tools to complement database-driven information sources such as ERP or PLM (Product Lifecycle Management) systems and make available this implicit knowledge. At the same time, increasing staff mobility means that it makes sense to record critical business knowledge possessed by expert specialists in a structured form in order to prevent it from being lost if they leave the company. For manufacturing companies, information from development and manufacturing operations is their most valuable asset, and deserves to be handled with great care. As a rule, they will use PLM solutions to manage and disseminate their product and project data in a structured form. Consequently, these solutions represent an important source of information in the innovation process, particularly in the context of incremental development steps where it is not necessary to completely reinvent the wheel. At the same time, they provide a wide range of tools and functions to support innovation management on the operational level, for instance powerful project management facilities for monitoring schedules, costs and progress in innovation projects. Outcome: Business Benefit Innovation Reuse of existing knowledge makes a major contribution to reducing lead times in development and manufacturing and avoiding errors. In order for this to happen, however, the information must be easy to find and available in a form and format that allows it to be used by as many different employees as possible. But despite the use of PLM, this is not always the case, as was shown in a survey by the Fraunhofer IPK in collaboration with CONTACT Software and the German engineers’ association (VDI) entitled “Collaborative product development and digital tools” [4]. According to this survey, engineers continue to regard obtaining information as a considerable burden. Many complained that the results and empirical knowledge gained from previous projects are difficult to access. They would like to see search functions such as those available with Google in order to retrieve information more easily in the growing pool of digital data. Innovators = Ideation Executors * Implementation Illustration 3 Value creation in the innovation process takes place primarily through systematic evaluation, concretization and ultimately implementation of ideas. Let’s get digital 21 Systematic ideas management 9 22 Systematic ideas management Ideas are the germs of innovation, but not every idea comes to fruition. The more ideas you have, the greater the chance of success. The challenge facing innovation management is thus twofold. On the one hand, to provide an open culture of innovation that ensures an abundant and constant stream of ideas and, on the other, to use efficient tools and methods to extract from this plethora of ideas those which have the greatest potential. Systematic recording of ideas and assessment with regard to feasibility and marketability form the foundation of successful innovation management [5]. There is a wide range of creativity techniques for generating ideas: brain-storming, mind mapping, morphological analysis, workshops, ideas competitions and questionnaires right up to the incorporation of external sources of ideas using social media technology. These serve to generate ideas aimed at solving a specific problem. Alongside such approaches, many companies have set up internal suggestion systems with financial incentives to encourage Recording Concretization Notwithstanding the significance of ideas as “raw materials” for innovation, a systematic approach to ideas management is not yet firmly established in many companies. One aspect that is missing is the integration of the appropriate tools and methods in the IT landscape within which the innovation process takes place, i.e. in the PLM solutions. Generally, companies manage their ideas in Excel sheets or separate ideas management applications without any direct reference to the innovation projects. This makes it extremely difficult to reconstruct the lifecycle of the ideas from generation through to successful implementation. PLM-assisted ideas management is thus the first step on the path towards a systematic innovation process. Evaluation Decision Record idea Check idea is concrete Decision committee Expert Idea manager Author of idea Identification of potential creativity among their staff. Thus, for example, BASF paid three employees a record bonus of 170,000 euros for an improvement to the cooling system in a plant producing solvents. This improvement led to increased revenues of 2.5 million euros for the company. Illustration 4 IT-supported workflow of the idea process Concret? Initiate project Yes No concretize and specify idea Further concretization Analyze idea (evaluate) Decide on idea Feasable? No Yes PEP Systematic ideas management 23 Formal drafting / documentation Selection Concretization Decision Idea profile Rough evaluation Detailed evaluation Cost-effectiveness Scope, do's and don'ts Positioning Success and risk factors Market/customer research Comparative studies Implementation studies Strategic fit: opportunities/risks C R Illustration 5 Systematic idea process: The Innovation Funnel In practice, strategic project planning is usually only loosely coupled to the innovation process. In the field of research and development, a lot remains to be done in this respect. The Heinz Nixdorf Institute (HNI) in Paderborn is therefore coordinating a joint project with the goal of developing an adaptable toolbox for strategic project planning, comprising methods, a reference process and associated IT tools. It is based on the PLM solution CIM Database, specially extended for the project by CONTACT to incorporate key innovation management modules. These help companies, for instance, to visualize what functions are delivered by what technologies in order to drive innovations not only on the basis of requirements, but also on the basis of technology. Market potential Outlay Technology/skills Sustainability 24 End-to-End innovation process 10 Let’s get digital End-to-End innovation process PLM solutions such as CIM Database provide a wide range of functions offering optimum support for the operational aspect of innovation management. To start with, and it is no mean thing, they contain all the im-portant information about past innovation projects, and thus represent an invaluable pool of knowledge for incremental innovations, i.e. the further development of the existing product portfolio. On top of that, they make it possible to set up an end-to-end innovation process from ideation through to implementation in concrete development projects and to support this process with electronic workflows. Integration of ideas management in the PLM solution makes it possible to record ideas within a uni-form system, to analyze them and gradually refine them. Ideas can be linked and references can be established to problems or technological solutions. The potential, costs and risks of the ideas can be assessed over a number of steps (stage gates), Company, crowd sourcing taking account of factors such as market volumes, market growth, entry barriers, competition, customer benefits, etc. Ideas which cannot be implemented immediately can be revisited at any time and possibly be reassessed in the light of technological developments. To ensure that those who generate the ideas remain motivated, it is important that they can understand what has happened to their ideas. If the assessment comes to a positive conclusion, gradual refinement of the ideas will lead to a development project. This means that ideas that were initially unrelated to particular products give rise to concrete requirements that can be assigned to specific product features and functions as part of concrete development projects. If the entire process from ideation through to implementation is to be seamless, ideas management and requirements management must be tightly integrated. Process owner Decision committee Illustration 6 Roles and tasks in the innovation process Development project Idea Product Discuss and collect ideas Draft formally / consolidate ideas Concretize and evaluate ideas Plan and realize implementation 25 26 End-to-End innovation process CIM Database not only provides support for recording requirements, but also ensures that they are completely and correctly implemented. Linking ideas, requirements and other objects helps to ensure that a greater number of ideas flow into the innovation process. Efficient innovation management always presupposes a clearly structured innovation process, which may be based on one of a number of different process models, some of which derive from the agile methods used in software development [6]. One of the more traditional approaches is Cooper’s Stage Gate Model, which divides the innovation and development process into a number of stages. At the end of each stage, a decision is taken whether to pursue the innovation on the basis of previously agreed deliverables. A process model such as this can easily be mapped in the PLM solution and serves as a framework to guide the innovation projects. The aim is to represent the ideas in the downstream processes and monitor their implementation: ■ ■ ■ ■ ■ Map ideas to requirements and specifications Map the business case to the target costing Plan, monitor and control the project Wherever it makes sense to do so, establish Empirical indicators for the product and its components (wait, consumption, etc.) In other words, interaction between innovation management and product development is crucial! In the context of PLM, multi-project management plays an important role in allowing multiple innovation projects to be controlled without causing resource bottlenecks. It not only supports the monitoring of costs and schedules, but also facilitates evaluation of the progress of the project thanks to integrated work deliverables management. Stage gates can, for instance, be defined with clearly specified deliverables which can be verified using appropriate checklists. The next stage in the project is only initiated when all the deliverables are present. CIM Database provides powerful portfolio management facilities that make it possible to evaluate different combinations of projects, taking into account sched- ules and resources, in order to define the ideal blend of innovation projects to be implemented following the task of identifying suitable products for development. Let’s get digital Conclusion 11 27 28 Conclusion Companies must deliver a constant stream of innovations in order to become and remain competitive in global markets. The fast pace of innovation, coupled with ever shorter innovation cycles, demands a systematic approach that lays down clear innovation objectives on the strategic level and ensures that these objectives are realized on the operational level. The aim is to integrate the methods and tools used in product planning tightly with those used in design and development, from analyzing potential, identifying products and business planning right up to the seamless transition to product development. In this way, new ideas reliably give rise to development projects which, in turn, deliver products ready for rapid market release. from recording and assessing ideas right up to implementation in the form of successful products and services. Integration of ideas management in PLM resolves the apparent conflict between creativity when developing ideas and the systematic approach needed when recording, assessing and refining those ideas. The key advantage is that the ideas can be linked to other objects, such as concrete product requirements, thus permitting enhanced lifecycle traceability. Greater transparency in the project portfolio helps avoid expensive abortive developments and redundant developments and reduces the time-to-market of innovations, one of the major challenges faced by companies today. Integration of innovation management instruments in the PLM environment permits more efficient monitoring and control of the innovation process, Product management CAD integration Portfolio management Innovation management ... Project management Requirements management Let’s get digital References 12 29 30 References [1] OECD Science, Technology and Industry Scoreboards 2013 http://www.oecd.org/sti/scoreboard.htm [2] Suzanne Berger, Making in America: From Innovations to Market http://mitpress.mit.edu/books/making-america R. M. Locke, R. L. Wellhausen, Production in the Innovation Economy http://mitpress.mit.edu/books/production-innovation-economy [3] The Innovation Death Spiral: How companies get stuck throwing good money after bad ideas – and what that mistake is costing them http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_The_Innovation_Death_Spiral.pdf [4] Collaborative Product Development and Digital Tools. Today’s shortcomings – Tomorrow’s potential (In German with a summary in English) Editors: Prof. Dr. Rainer Stark, Dr. Roland Drewinski, Dr. Haygazun Hayka, Dr. Heinz Bedenbender. Year of Publication 2013, ISBN 978-3-00-039111-8 [5] Businessweek: 3M’s Seven Pillars of Innovation http://www.businessweek.com/stories/2006-05-09/3ms-seven-pillars-of-innovation.html [6] The Innovation Process: An Introduction to Process Models http://www.tuhh.de/tim/downloads/arbeitspapiere/Working_Paper_12.pdf www.contact-software.com