Reducing Innovation Failures and Resource Waste

To reduce failure in innovation and the resulting waste of resources

Professor Raphael H. Cohen, Doctor of Economic and Social Sciences Academic Director of the specialisation (DAS) in Entrepreneurship & Business Development of the MBA at the University of Geneva

Why use a model for analysing innovative projects? Simply because various studies have shown that around 30% of projects that are launched are discontinued before completion and that only 12% of projects are delivered on time and within the budget initially planned. In other words, roughly speaking, one project in three should never have been launched, and 88% perform less well than expected. This quite obviously leads to a colossal waste of resources.

Is this inevitable? Fortunately not. One thing is certain: more rigorous upstream analysis not only makes it possible to eliminate those projects that should never have been launched, but also to gain better control over the cost and duration of those that ultimately are. This more refined analysis, which is the subject of the IpOp Model, should be useful to any organisation launching innovative projects, as well as to everyone active in innovation, whether as an intellectual property expert or as legal counsel. Helping clients gain better control over the innovation process is a prerequisite for any advisory activity.

I. The three pillars of the IpOp Model

The IpOp Model, taught in particular at the University of Geneva and at ESCP Europe, is used not only by Sonceboz but also by Nestlé, other multinationals, banks, hospitals and public administrations, as well as SMEs and start-ups. It consists of three components, which are of course interconnected. First, it contains a decision tree that enables decision-makers to ask themselves the right questions so as to eliminate the projects that should be eliminated.

This is then complemented by the framework of the Opportunity File, which is the communication document designed to present projects to decision-makers in such a way as to provide them with the information they genuinely need, in light of the decision tree they should be using.

The third pillar corresponds to the analysis method (the IpOp Model in the strict sense), which makes it possible to answer decision-makers’ questions. It should be stressed that the project sponsors are also decision-makers, if only because of the time they choose to devote to the project.

These three pillars are not the product of intellectual flights of fancy, but reflect the modelling of the way successful entrepreneurs and innovators think. Observing the way they analyse and decide led to the development of the IpOp Model. It is therefore merely the systematic written synthesis of their approach, which is often intuitive while remaining holistic.

A. Decision-makers’ blind spot

Various studies have shown that the number of criteria used by decision-makers to analyse a project lies between 3 and 9, with an average of 6.

Since the latest version of the IpOp Model highlights the need to check at least 11 parameters, the gap between this number and that used in practice in decision-making simply means that decision-makers give in to the temptation to reduce the number of parameters, out of a desire for simplification or, more precisely, to avoid complexity. Since managing complexity is laborious, it is obviously very tempting to focus on a smaller number of parameters.

The trouble with this excessive simplification is that it inevitably leads to ignoring certain parameters likely to affect the outcome of projects. With luck, one may get away with it, but without luck, it is more than likely that it will be precisely one of the parameters not taken into account that causes the project to stumble, or at least slows it down.

Another certainty to bear in mind is that collisions never occur with identified obstacles, but with those that were not identified early enough to react accordingly. It is the logic of the blind spot when driving. To avoid it, we add mirrors: one in the middle, one on the right and another on the left. Anyone who, for the sake of simplification, finds it too complicated to monitor three mirrors at once is obviously putting themselves in greater danger than someone prepared to accept the complexity of watching all three.

B. The decision tree

Imagine the feeling of safety inspired by an airline pilot who announces that, for the sake of simplification, he does not use all the instruments in his cockpit...! Yet since business leaders, like their advisers, are also pilots, with the heavy responsibility of making the best use of the resources entrusted to them, they have an imperative duty to grasp all the parameters in order to understand the ins and outs of each project.

It is for decision-makers wishing to exercise discernment that the decision tree of the IpOp Model was designed. It is the subject of Chapter 3 of the book Winning Opportunities, proven tools for converting your projects into success (without a business plan), which can be downloaded free of charge at www.winning-opportunities.org. The unusual business model of this work provides that readers decide, after reading it, what price the book deserves and pay afterwards (if they consider its content of no interest, they obviously pay nothing).

The systemic representation of the IpOp Model may at first sight appear complex and intimidating, which is why it is not presented here. Fortunately, people trained to use the IpOp Model very quickly realise that this apparent complexity is in fact fairly easy to grasp. The book Winning Opportunities, proven tools for converting your projects into success (without a business plan) explains it in detail. This systemic graphical representation highlights some of the links between the different components of the model.

The sequential approach below is often used at first, while the aforementioned systemic approach is used in practice to answer the general questions raised by the sequential approach.

C. The Opportunity File

Once there is a genuine willingness to get to the bottom of things, experience has shown that decision-makers appreciate having information that goes beyond the questions in the decision tree. To gain a better understanding, they need not only the answers to the 10 or 11 questions, but also to certain sub-questions.

This led to the development of a project presentation model, the Opportunity File, which also makes it possible to avoid the painful drafting of a business plan. Since the uselessness of a business plan has been demonstrated on several occasions, the Opportunity File appears as a far more user-friendly and useful alternative. In order to answer the questions that decision-makers ought to ask themselves, it does not exceed around ten pages.

Since each company normally has strategic options of its own, every company should in fact customise the Opportunity File so as to include parameters specific to its situation and strategy. The Opportunity File model presented in Winning Opportunities, proven tools for converting your projects into success (without a business plan) should serve as a starting point and source of inspiration for the management of each company to devise its own model.

II. The IpOp Model

To answer these questions, both for decision-makers and for oneself, one must ensure that all the parameters that determine a project’s success or failure are covered. The aim of the IpOp Model is precisely to provide a holistic view of all these parameters. This overall vision serves as a checklist to ensure that nothing is forgotten.

The sequential approach was developed to help innovation and R&D managers make better use of their resources. Since those resources are always limited, they need to eliminate as early as possible the projects that will unnecessarily consume their precious resources. To that end, the sequential version proposes four fundamental questions, each of the last three to be addressed only once the previous one has received a positive answer.

Thus, before knowing whether the game is worth the candle (IpOp Review 2), one must make sure that the product has a chance of appealing to the target customers and also that the opportunity supports the strategy of the company or the investor (IpOp Review 1). If that is not the case, the project stops there without consuming any more resources. If the offering is sufficiently attractive to customers and to the company (IpOp Review 1), it then becomes appropriate to determine whether the opportunity is worthwhile (IpOp Review 2), which amounts to comparing the expected measurable outcome with the effort to be deployed. IpOp Review 3 consists in understanding what may influence the project’s success, namely the factors that include risks as well as stakeholders. One will only turn to the implementation plan and the investment it requires (IpOp Review 4) when the previous three IpOp Reviews are convincing.

III. Iterations and management of Unknowns

It should be stressed that, unlike a traditional stage-gate approach, the IpOp process is iterative. This means that until one has gone through the 4 IpOp Reviews, nothing is truly acquired and final. Indeed, the analysis of each IpOp Review requires revisiting the answers provided in the previous IpOp Reviews. The “yes” to one IpOp Review may subsequently be called into question in light of the answers provided in later IpOp Reviews.

The analysis for IpOp Review 1 is within the reach of most innovators, including scientists and engineers in R&D. Brief training is generally sufficient for them to be able to produce a very satisfactory IpOp Review 1 report. If not, coaches or experts can support their work. From IpOp Review 2 onwards, it will probably be necessary to bring in more substantial business skills.

Going through the three or even four IpOp Reviews is intended not only, of course, to answer these fundamental questions, but also to identify the Unknowns that affect control of the project. Every project contains Unknowns that require something to be done (Tactical Action) to reduce doubt or ignorance. For example, doubt about technical feasibility will lead to the production of a prototype (= Tactical Action), while doubt about customer acceptance will lead to the carrying out of a market study (= Tactical Action). Similarly, doubt about intellectual property will require an analysis of freedom to operate and patentability. All these Tactical Actions obviously consume resources.

The value of taking stock, upstream, of all identifiable Unknowns is that it makes it possible to gain an overall view of all the project’s challenges even before beginning to spend resources on the project in question. This catalogue of critical Unknowns makes it possible in particular to determine all the Tactical Actions that will be required to obtain the missing information. This overall vision then makes it possible to establish a timetable as well as the resources to be deployed in order to reduce these critical Unknowns.

Without an overall view, one risks consuming resources to reduce certain Unknowns before realising that other Unknowns make the project unworkable. What is the point of building a prototype to verify technical feasibility only to realise afterwards that the price is too high for customers or that demand is insufficient?

IV. The objective: saving resources

Since the underlying logic of the stage-gate approach is to manage the allocation of resources parsimoniously, upstream IpOp analysis makes it possible to optimise stage-gate. Stage-gate users are regularly led to stop a project that, at a later stage of stage-gate, ultimately fails to meet the expectations of that stage. This means that the resources consumed during the previous stage or stages were consumed in vain.

IpOp analysis therefore makes it possible to begin stage-gate only after obtaining an overall view of all the question marks before even starting to spend resources, as happens as soon as stage-gate is activated. In fact, the prior inventory of Unknowns makes it possible to develop a tailor-made stage-gate that defines the specific Go/No-Go points for that project instead of relying on a stage-gate process which, as a standard approach, obviously cannot take account of the particular Unknowns of each project.

Once the critical Unknowns have been reduced, of course in a satisfactory way, the project can be launched beyond the information-gathering phase (= reduction of Unknowns). The launch thus takes place on solid foundations after the critical Unknowns have been minimised through a well-controlled process.

In conclusion, the IpOp Model thus makes it possible to eliminate very early on those projects that have little chance of succeeding, while at the same time making the task of decision-makers easier. This results in a better allocation of R&D resources and/or resources devoted to innovation. This improved control of the process and of resources explains the success the IpOp Model is enjoying among an ever wider audience.