9780131497863

Innovation isn't magic. It must be managed, measured and incentivized to be profitable. This book by three experts shows you how it's done. bull; The first total management framework to consistently and profitably execute on innovation: covers strategy, organizational design, incentives - everything needed to get the job done. bull; Three world-renowned experts deliver today's most sophisticated and battle-tested innovation knowledge. bull; Presents powerful metrics for measuring innovation, from idea creation through commercialization.

Tony Davila is a faculty member of Stanford's Graduate School of Business. Building on his doctoral work at the Harvard Business School, he works with both large industrial companies and Silicon Valley startups to design management control and performance measurement systems that drive innovation. He has been published in Harvard Business Review, Research Policy, and other leading journals.

Marc J. Epstein has been a visiting professor and Hansjoerg Wyss visiting scholar at Harvard Business School and a distinguished research professor at Rice University's Jones Graduate School of Management. He has been a senior consultant to leading corporations and governments for over twenty-five years, specializing in strategy implementation, innovation, governance, accountability, and performance metrics. Epstein has also served as a professor at Stanford Business School and INSEAD.

Robert Shelton is managing director of Navigant Consulting's Innovation practice. His client list is a "who's who" of innovative Fortune 500s, including leaders in the electronics, energy, health care, automotive, consumer goods, software, and aerospace industries. Shelton has served as vice president and managing director with Arthur D. Little and as managing director of the Technology and Innovation Management practice at SRI International (formerly Stanford Research Institute). His work has been referenced in media ranging from The Wall Street Journal to CNN Financial News.

Introduction

xvii

Chapter 1 Driving Success: How You Innovate Determines What You Innovate

1

(28)

Innovation Is the Power to Redefine the Industry

1

(4)

The Innovation Imperative: Driving Long-Term Growth in Top and Bottom Lines

5

(2)

How to Make Innovation Work: How You Innovate Determines What You Innovate

7

(2)

The Rules of Innovation

9

(19)

1. Exert Strong Leadership on Innovation Direction and Decisions

12

(3)

2. Integrate Innovation into the Business Mentality

15

(1)

3. Match Innovation to Company Strategy

16

(2)

4. Manage the Natural Tension Between Creativity and Value Capture

18

(5)

5. Neutralize Organizational Antibodies

23

(1)

6. Cultivate an Innovation Network Beyond the Organization

24

(1)

7. Create the Right Metrics and Rewards for Innovation

25

(3)

Summary: The Innovation Company

28

(1)

Chapter 2 Mapping Innovation: What Is Innovation and How Do You Leverage It?

29

(30)

A New Model of Strategic Innovation

29

(3)

Business Model Change

32

(3)

Value Proposition

32

(1)

Supply Chain

33

(1)

Target Customer

34

(1)

Technology Change

35

(3)

Product and Service Offerings

35

(1)

Process Technologies

36

(1)

Enabling Technologies

37

(1)

Three Types of Innovation

38

(20)

Incremental Innovation

42

(5)

Semi-Radical Innovation

47

(4)

Radical Innovation

51

(4)

Ersatz Radical Innovation

55

(2)

Disruptive Technologies

57

(1)

Innovation Model and the Innovation Rules

58

(1)

Chapter 3 Choosing Your Destiny: How to Design a Winning Innovation Strategy

59

(28)

Choosing the Right Strategy

59

(1)

Play-to-Win or Play-Not-to-Lose Strategies

60

(11)

Play-to-Win Strategy

60

(3)

Play-Not-to-Lose Strategy

63

(8)

Too Much of a Good Thing

71

(1)

Clearly Defined Innovation Strategy Drives Change

72

(3)

Do You Select an Innovation Strategy?

75

(3)

Internal Factors

76

(1)

External Factors

77

(1)

Risk Management and Innovation Strategy

78

(1)

Innovation Strategy: The Case of the Pharmaceutical Industry

79

(6)

Attempts to Solve the Innovation Problem

81

(1)

Changing the Innovation Approach

82

(3)

Strategy and the Innovation Rules

85

(2)

Chapter 4 Organizing for Innovation: How to Structure a Company for Innovation

87

(32)

Organizing for Innovation

87

(1)

Developing an Internal Marketplace for Innovation

88

(12)

Balancing Creativity and Value Creation

89

(2)

The Balance Changes as the Organization Matures

91

(6)

Five Steps to Balancing Creative and Commercial Markets

97

(3)

Outsourcing Innovation

100

(4)

Making Good Use of Your Partners

103

(1)

Integrating Innovation Within the Organization

104

(15)

The Value of Networks and Innovation Platforms

106

(3)

The Corporate Venture Capital Model

109

(2)

The Ambidextrous Organization

111

(3)

The Leadership Role

114

(1)

Organization and the Innovation Rules

115

(4)

Chapter 5 Management Systems: Designing the Process of Innovation

119

(24)

Systems and Processes Make Things Happen

119

(2)

The Objectives of Well-Designed Innovation Systems

121

(4)

Choosing and Designing Innovation Systems

125

(12)

Systems for Ideation: Seeing the Gaps

127

(1)

Structured Idea Management

128

(2)

Experimentation

130

(1)

Prototyping

131

(2)

Making Deals

133

(1)

Innovation That Fits

134

(3)

Management Systems Comparison

137

(2)

Electronic Collaboration

139

(3)

Management Systems and the Innovation Rules

142

(1)

Chapter 6 Illuminating the Pathway: How to Measure Innovation

143

(36)

To Measure or Not to Measure?

143

(5)

What Gets Measured Gets Done

145

(1)

The Three Roles of a Measurement System

146

(2)

A Balanced Scorecard for Measuring Innovation

148

(9)

The Business Model for Innovation

149

(1)

Inputs, Processes, Outputs, and Outcomes

150

(3)

From the Business Model to the Measurement System

153

(4)

Designing and Implementing Innovation Measurement Systems

157

(17)

Measures for Ideation

158

(5)

Measuring Your Innovation Portfolio

163

(4)

Measuring Execution and Outcomes of Innovation

167

(2)

Measuring Sustainable Value Creation

169

(5)

The Barriers to Effective Performance Measurement

174

(3)

Measurement and the Innovation Rules

177

(2)

Chapter 7 Rewarding Innovation: How to Design Incentives to Support Innovation

179

(30)

The Importance of Incentives and Rewards

179

(1)

Motivation

180

(3)

Different Strokes for Different Folks

181

(2)

A Framework for Incentive Systems' Design

183

(3)

Setting Goals for Measuring Performance

186

(5)

Specific Versus Broad Goals

186

(2)

Quantitative Versus Qualitative Goals

188

(1)

Stretch Versus Expected Goals

188

(1)

Success-Driven Versus Loss-Avoidance Goals

189

(2)

Performance Evaluation and Incentive Contracts

191

(6)

Team Versus Individual Rewards

191

(3)

Subjective Versus Objective Evaluation

194

(2)

Relative Performance Versus Absolute Performance Evaluation

196

(1)

Incentive Contracts

197

(5)

Expected Level of Pay

198

(1)

The Shape of the Pay-Performance Relationship

198

(2)

Timing Incentives

200

(1)

Delivery of Compensation

201

(1)

Key Considerations in Designing Incentives Systems for Innovation

202

(4)

The Danger of Over Use

203

(1)

The Negative Effect on Intrinsic Motivation

204

(1)

Fear, Failure, and Fairness

205

(1)

Incentives and Rewards, and the Innovation Rules

206

(3)

Chapter 8 Learning Innovation: How Do Organizations Become Better at Innovating?

209

(26)

The Importance of Learning

209

(4)

A Model of Learning

213

(2)

Learning to Act

213

(1)

Learning to Learn

214

(1)

Learning Systems for Innovation

215

(7)

Systems for Delivering Value

216

(2)

Systems for Refining the Current Model

218

(1)

Systems for Building Competencies

219

(2)

Systems for Crafting Strategy

221

(1)

How to Make Learning Work in Your Organization

222

(5)

Knowledge and Ignorance Management

222

(2)

The Project Roadmap

224

(1)

Failures as Part of the Process

225

(1)

Learning Histories

226

(1)

The Dynamic Nature of Innovation Strategy

227

(6)

The Technology Stage

228

(2)

The Performance Stage

230

(1)

The Market Segmentation Stage

231

(1)

The Efficiency Stage

232

(1)

The Complementarities Stage

232

(1)

Learning and the Innovation Rules

233

(2)

Chapter 9 Cultivating Innovation: How to Design a Winning Culture

235

(26)

How Culture Affects Innovation

235

(1)

Is Innovation the New Religion?

236

(3)

The Danger of Success

239

(3)

Organizational Levers of an Innovative Culture

242

(8)

The Levers of an Innovative Culture

243

(6)

Legends and Heroes

249

(1)

The Physical Environment

250

(1)

Different Country Cultures Breed Different Innovation Cultures

250

(3)

People and Innovation

253

(3)

Recruiting to Build an Innovative Organization

253

(1)

Turn Your Recruitment Strategy Upside-Down!

254

(2)

The Role of Senior Management

256

(3)

Leading Innovation

257

(1)

The Role of the CEO

258

(1)

Culture and the Innovation Rules

259

(2)

Chapter 10 Conclusion: Applying the Innovation Rules to Your Organization

261

(26)

Combining Creativity with Commercial Savvy

261

(2)

Smart Execution

263

(1)

The Role of Leadership

264

(3)

Leadership Must Define the Innovation Strategy and Link It to the Business Strategy

264

(1)

Innovation Must Be Aligned with the Company Business Strategy, Including Selection of the Innovation Strategy

265

(1)

Leadership Must Define Who Will Benefit from Improved Innovations

266

(1)

Diagnostics and Action

267

(16)

Stage-Gate Systems

276

(2)

The Venture Capital Model

278

(1)

The Technology Innovation Model

279

(1)

Time-Driven Systems

280

(3)

Organizing Initiatives

283

(1)

Fine-Tuning

283

(1)

Redirection/Revitalization

284

(1)

Generating Innovation Value

284

(3)

Endnotes

287

(18)

Bibliography

305

(20)

Index

325

What is included with this book?

The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.

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MAKING INNOVATION WORK MAKING INNOVATION WORK: HOWTO MANAGE IT, MEASURE IT, AND PROFIT FROM IT INTRODUCTION Much that is held as common wisdom regarding how successful innovation is managed is wrong. It seems that somewhere along the line, the correct set of rules of innovation have been misplaced, distorted, or simply misinterpreted. This is not to say that organizations are not innovative--obviously many are. But how and why these companies are innovative is very different than what many managers think. This book challenges the prevalent misconceptions about innovation, and lays out the tools and processes necessary for an organization to harness and execute innovation. The following chapters show that, contrary to popular belief: Innovation does not require a revolution inside companies. What it does require is thoughtful construction of solid management processes and an organization that can get things done. Innovation is not alchemy, with mystifying transformations. It's much more like the basic blocking and tackling of other key business functions. Innovation is not primarily about creativity and having a "creative culture." Many companies find that coming up with good-to-great ideas is the easy part; the hard stuff is selecting the right ideas and implementing them. Nor is it solely about processes and stage-gate tools. These do count, but tools and processes alone are not effective--they must be coupled with an organization, metrics, and rewards that can make things happen. Innovation does not focus exclusively on cool new technology. Developing new business models and new strategies are every bit as important--sometimes more. Innovation is not something that every company needs in large quantities. Innovation must match the opportunity and the competencies of the organization--sometimes, with good timing, a little goes a long way. Making Innovation Work provides three new, important perspectives for senior managers: Innovation, like many business functions, is a management process that requires specific tools, rules and discipline--it is not mysterious. Execution is simple once it is clear how the pieces fit together. Company executives typically complain that they cannot get innovation accomplished in their organizations. Making Innovation Work presents an integrated framework, formal processes and tools that all managers can use to create top- and bottom-line growth from innovation. The book describes how to use these standard management tools (such as strategy, organizational design and structure, management systems, performance evaluation, people, and rewards) to dramatically increase the payoffs from innovation investments. Innovation requires measurement and incentives to deliver sustained, high yields. Remember the saying, "You can't manage what you can't measure"? That certainly holds true for innovation, but many managers have only paid lip service to this crucial aspect. Many companies measure the wrong things and provide incentives for behavior that corrodes the systems and processes that support innovation. Making Innovation Work shows how to use metrics and incentives to manage every facet of innovation from creating the ideas, through selecting and forming the prototype innovations, and all the way through to commercialization. The book has metrics and incentives that can be used by companies of all sizes, complexities, and in all types of industry. Companies can use innovation to redefine an industry by employing c

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Making Innovation Work : How to Manage It, Measure It, and Profit from It

Making Innovation Work : How to Manage It, Measure It, and Profit from It

0131497863

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