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Radical Innovation Research Program. Learning Based Project Management For Radical Innovation Gina Colarelli O’Connor Massachusetts Institute of Technology Systems Design and Management Program Alumni Conference October 2004. Where we’ve been…. Introduction.

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slide1

Radical InnovationResearch Program

Learning Based Project Management For Radical Innovation

Gina Colarelli O’Connor

Massachusetts Institute of Technology

Systems Design and Management Program Alumni Conference

October 2004

rensselaer radical innovation project phase i
Rensselaer Radical Innovation Project (Phase I)

Purpose: To identify and examine current managerial practices associated with radical innovation projects and eventually understand best practice.

Introduction  Phase I

slide4

Radical Innovation Research Project: Phase I

  • Longitudinal Study of 12 Radical Innovation Projects in Ten Mature Firms
  • Launched in 1995
  • Multi-disciplinary team of faculty
  • Major grant from the Sloan Foundation
  • Partnership with the Industrial Research Institute
  • December 5, 2000: Harvard Business School Press released our book:

RADICAL INNOVATION:

How Mature Companies Can Outsmart Upstarts

Introduction  Phase I

radical innovations qualifying projects
Radical Innovations: Qualifying Projects
  • The project was established -- with an identifiable team and funding. The company perceived that the innovation had the potential for significant strategic impact, via development of:
    • new to the world performance features,
    • 5-10X (or greater) performance improvement, or
    • 30 - 50% (or greater) reduction in cost.

Introduction  Phase I

the companies their radical innovations
1. Air Products Oxygen Separation Technology

2. Analog Devices Air Bag Accelerometer**

3. DuPont Biodegradable Polymer*

4. DuPont Display Technology

5. General Electric Digital X-ray**

6. General Motors Hybrid Vehicle

7. IBM Silicon Germanium Devices**

8. IBM Electronic Book

9. Nortel Networks Internet Software Rental

10. UTC / Otis Elevator Multi-directional Elevator

11. Polaroid Memory Storage Device

12. Texas Instruments Digital Light Processor**

The Companies & their Radical Innovations

Introduction  Phase I

defining radical innovation
Defining Radical Innovation

Technical Uncertainty

Low High

High

Low

RADICAL INNOVATION

Market

Uncertainty

INCREMENTAL INNOVATION

Phase I  Uncertainties

four dimensions of uncertainty
Four Dimensions of Uncertainty

  

Technical Uncertainty

Market Uncertainty

Organization Uncertainty

Resource Uncertainty

  

Phase I  4 Uncertainties

comprehensive framework for managing radical innovation
Comprehensive Framework for Managing Radical Innovation

Technical Uncertainty

Resource Uncertainty

Market Uncertainty

Organization Uncertainty

Challenge 1: Capturing Breakthroughs

Challenge 2: Living with Chaos

Challenge 3: Market Learning

Challenge 4: Business Model

Challenge 5: Resource Acquisition

Challenge 6: Transition Mgt.

Challenge 7: Individual Initiative

Phase I  7 Challenges

building the organizational capacity for capturing radical innovations
Building the Organizational Capacity for Capturing Radical Innovations

Other RI Project Tasks

Evaluating and Screening

The RI HUB

“gatherer”

“hunter”

“hunter”

Business Unit A

Central R&D

Business Unit B

“gatherer”

“gatherer”

“gatherer”

“gatherer”

Phase I RI Hub

slide12

O

R

T

M

R&D

SBU

RI Project Team

SR. MGT.

SBU

RI HUB

Mfg Partner

Early Adopter Partner

Funding Partner

Technology Development Partner

Phase I RI Hub

slide13

RI Oversight Board

RI HUB II

RI HUB III

RI HUB I

Evaluation Bd.

Project 1

Project 2

Project 3

Project n

Project Advisory Board 1, 2, 3….n

Transition Oversight Bds. 1…n

(Project Maturation)

Phase I RI Hub

the radical innovation learning curve radical innovation maturity
The Radical Innovation Learning Curve:Radical Innovation Maturity

Radical innovation maturity is defined

as the degree to which the organization

has embedded a system for initiating,

supporting and sustaining RI activities

Phase I  RI Maturity

early vs mature ri capacity
Early vs. Mature RI Capacity

Executives act as provocateurs, patrons, and champions to compensate for lack of supportive culture

Mavericks try to catch the attention of patrons. Lack of infrastructure and systematic approach.

Acquisition of resources is ad hoc. Project teams often expect a budget allocation for funding.

Completion of RI tasks, project staffing and champions rely on individual initiative.

Communication difficulty makes transition difficult, often flounders, relies on intervention of senior mgmt.

E

The firm’s leader-ship sets expectations, develops RI culture, estab-lishes facilitating organizational mechanisms (hubs), develops goals and reward systems

RI idea hunters seek opportunities. Hubs establish effective evaluation boards. Non-traditional mktg/ biz creation person- nel work with RI technical teams to develop biz model. Learning orientation

to project mgmt.

used.

Individual mgrs. with authority to provide seed fund-ing and internal v.c. organizations provide multiple sources of capital for RI. The firm adopts a portfolio approach to funding RI projects.

RI hubs work with HR to develop a strategy for identifying, selecting, rewarding and retaining RI champions, experts and team members

Transition team established with funding and senior mgmt support continues development until uncertainty reduced for successful transition.

M

Phase I  RI Maturity

slide16

Phase II

Where we are now…

Corporate Competency Development

for the

Management of Radical Innovation

Introduction  Phase II

slide17

Radical Innovation Research Project: Phase II

  • Study Objectives
  • The Companies
  • Preliminary Results
    • Organizational Structures
    • Not 1 Competency... But 3
    • Approaches by Culture

Agenda  Phase II

i study objectives
I. Study Objectives

TO UNDERSTAND HOW ORGANIZATIONS CAN SYSTEMMATICALLY DEVELOP, EVOLVE AND SUSTAIN THEIR RADICAL INNOVATION COMPETENCIES:

  • What are firms currently doing to develop and support radical innovation, as a distinctive activity, requiring distinctive management techniques?
    • Leadership and Culture?
    • Organizational Structure and Interfaces?
    • Governance and Decision Making?
    • Specific Processes and Tools?
    • Skills?
    • Metrics?
  • What mechanisms can be developed to enhance org’s RI capability ?
  • What are the most effective implementation techniques for instituting those mechanisms?

Phase II  Study Objectives

participating firms
Participating Firms
  • 3M
  • Air Products
  • Albany International
  • Corning
  • DuPont
  • GE
  • IBM
  • J&J Consumer
  • Kodak
  • Mead-Westvaco
  • Sealed Air/Cryovac
  • Shell Chemical

Phase II Participating Firms

organization structure i idea generator
Organization Structure:I. Idea Generator

Technology Board (Decides)

Case #1

Idea Creation

Idea Development

Idea Screening

External Scanning

RI HUB

BU’S

R&D

NBD

BU’S/Divisions

Case #2

Phase II Organizational Structures

slide21

Organization Structure:II. Idea Manager & Incubation

Idea review & elaboration

Staffed full time

External technology acquisition

Incubation/Development

Keep white space businesses through to initial commercialization

Oversee incubation of aligned opportunities too far out for BU’s to handle.

Growth Board/Corporate Renewal Team (Advisory)

R&D

Venture Board/Business Development Council

Phase II Organization Structures

slide23

Organization Structure:IV. Corporate New Ventures (separate activity)

CEO

Venture Review Board (CEO, CTO, COO, BU VPs)

NEW VENTURES

  • R&D
  • BU Related Projects
  • (1,2, …n)
  • Ventures Technology

New

division

President

Business 1

BU

Business 2

Business 3

Phase II Organization Structures

slide24

Organization Structure:V. R&D Management System

Portfolio Governance Board (CTO, EVPs, & BU Leadership)

Exploratory

Marketing

BU’s aligned

projects “caught”

by BU development

group

R&D Directors

Projects 1, 2, 3 ….n

Exploratory

Research

Incubator for

unaligned

business

Inventory, Bench

Phase II Organizational Structures

slide25

Organization Structure:VI. Self-Similar Model

Corporate Strategy

Governance Board

Strategy, Technology, Finance

Corporate RI Hub staffed full time

(Projects 1….n) – Funded in BUs

Divisional Hub

-staffed full time

-project 1….n

Divisional Hub

-staffed full time

-project 1….n

Divisional Hub

-staffed full time

-project 1….n

…………..

Phase II Organizational Structures

slide26

Organization Structure:VII. Mirrored Model

CEO

CTO

R&D Staff (Ops, funding, personnel mgmt.)

RI Program 1

& Team

RI Program 2

& Team

RI Program 3

& Team

RI Program 6

& Team

BU1

Acceleration

activity

mirror

BU2

Acceleration

activity

mirror

BU3

Acceleration

activity

mirror

Planned

Acceleration

activity

mirror

Phase II Organizational Structures

slide27

Not just one competency…but 3!

Oversee Transitions/Interfaces

Discovery

Creation,

recognition,

elaboration,

articulation

of opportunities.

  • Incubation
  • Evolving the
  • opportunity into
  • a business
  • proposition

Acceleration

Ramping

up the

business to

stand on its

own

Conceptualization

Experimentation

Commercialization

  • Basic Research
  • Internal Scanning
  • External Scanning /License/Purchase /Invest
  • Technical
  • Market Learning
  • Market Creation
  • Strategic domains
  • Focus
  • Respond
  • Invest

Phase II  3 Competencies

ri system capabilities 4 approaches
RI System Capabilities: 4 Approaches
  • Competency & Readiness Model:
    • Build technical competencies, and be prepared to sense opportunities as a result and react quickly.
  • Strategy Driven Model:
    • Define new technology growth areas, and put resources behind them from start to finish. Coach entrepreneurial individuals to explore in these areas and build external credibility in general science domain …work with BUs to connect to applications. Selection process driven by Sr. Mgmt.
  • Execution Driven Model:
    • Identify growth platforms based on independent initiatives underway throughout company, combine them, ramp them up into whole new businesses.
    • Focus on clarity of strategy & calling on the whole organization to make those businesses happen.
  • Rational Model:
    • CR&D is only about RI, & most RI is aligned with current businesses. Tight alignment with current business’ senior leadership, & getting senior leadership to think strategically about the future is key.
    • Have an alternative structure for unaligned opportunities ( Ventures Group, Bio-Based Materials) & increase Exploratory Rsrch $$

Phase II  Approaches by Culture

slide29

Difficult to have all 3 competencies in place

COMPETENCY EMPHASIS

APPROACH TO RI

Phase II  Competency X Cultural Approach

ri lifecycle dupont biomax detail
RI Lifecycle: Dupont Biomax® Detail

Phase I  Learning Based Project Management

comprehensive framework for managing radical innovation32
Comprehensive Framework for Managing Radical Innovation

Technical Uncertainty

Resource Uncertainty

Market Uncertainty

Organization Uncertainty

Challenge 1: Capturing Breakthroughs

Challenge 2: Living with Chaos

Challenge 3: Market Learning

Challenge 4: Business Model

Challenge 5: Resource Acquisition

Challenge 6: Transition Mgt.

Challenge 7: Individual Initiative

Phase I  Learning Based Project Management

slide33

Challenge #2: Living with Chaos --

Managing Radical Innovation Projects

Keys for Successful Radical Innovation Project Management

2.1 Recruit the “right” people for the team

2.2 Manage internal and external interfaces

2.3 Track Uncertainty Reduction

2.4 Use a learning plan (vs. a business plan)

 Learning about Markets for RI (Challenge 3)

 Discover the Appropriate Business Model (Challenge 4)

 Engage in Resource / Competency acquisition (Challenge 5)

Phase I  Learning Based Project Management

slide34

2.1 Recruit the “Right” People for the Team

Incremental Innovation

Engrg

Mfg

Acctg

Mktg

Cross Functional Team

VS.

Radical Innovation

Mfg

Acctg

Team of Cross Functional Team Members

Mktg

Engrg

Phase I  Learning Based Project Management

slide35
Characteristics of radical innovation team members:

Superior technical capabilities

Inquisitive

Not afraid to be different

Extremely bright

Aggressive

Risk taker

Entrepreneurial

Someone with passion

Broadly educated

Integrative

Likes change

Goal-oriented

2.1 Building the Radical Innovation Team

Traditional NPD Teams: Cross Functional

VS.

Radical Innovation Teams: Cross-functional individuals

Phase I  Learning Based Project Management

2 1 building the radical innovation team
2.1 Building the Radical Innovation Team

Core team of Multifunctional people

Phase I  Learning Based Project Management

slide37

2.2 Manage Internal & External Interfaces 2.3 Track and Manage Uncertainty Reduction

O

R

T

M

R&D

SBU

RI Project Team

SR. MGT.

SBU

RI HUB

Mfg Partner

Repeat for t = 1  n

Early Adopter Partner

Funding Partner

Technology Development Partner

Phase I  Learning Based Project Management

slide38

2.4 Use a Learning Plan

HI

Org Unc

Res Unc

Tec Unc

Mkt Unc

Learning Plan

Discovery Driven Planning

Milestone Planning

Business Plan

Operating Plan

LOW

Phase I  Learning Based Project Management

slide39

Three Dimensions of Project Uncertainty

Dimension 1

Organization

Categories of Uncertainty

Resource

Market

Technical

Unanticipated

Dimension 2

Latency

Anticipated

-

Routine

Showstopper

Criticality

Dimension 3

slide40

2.4 Use a Learning Plan

Phase I  Learning Based Project Management

comprehensive framework for managing radical innovation43
Comprehensive Framework for Managing Radical Innovation

Technical Uncertainty

Resource Uncertainty

Market Uncertainty

Organization Uncertainty

Challenge 1: Capturing Breakthroughs

Challenge 2: Living with Chaos

Challenge 3: Market Learning

Challenge 4: Business Model

Challenge 5: Resource Acquisition

Challenge 6: Transition Mgt.

Challenge 7: Individual Initiative

Phase I  Learning Based Project Management

slide44

Learning about Markets: Different Questions

INCREMENTAL

INNOVATION

  • How much market share can we grab?
  • How fast will it grow?
  • How can we segment the market?
  • How should we position the product?

BREAKTHROUGHAND RADICAL INNOVATION

  • What applications will this technology enable?
  • What is the potential impact of this technology on the market?
  • What technical hurdles must be overcome? (How can we demo?)
  • What is the order of magnitude potential market size?

Phase I  Learning Based Project Management

slide45

Market Learning: Different Methods for Seeking Answers

INCREMENTAL INNOVATION

  • Market Research
  • Written Surveys
  • Concept Tests
  • Focus Groups
  • Secondary Research

BREAKTHROUGH AND RADICAL INNOVATION

  • Past Experience
  • Demo/Prototype
  • Professional Meetings/Shows
  • Internal Networks
  • Observe Potential Users
  • Partner with Users
  • Probe and Learn

Phase I  Learning Based Project Management

two models of market learning
Two Models of Market Learning

TECHNOLOGY VOICE

CUSTOMER VOICE

  • Breakthrough New Products
  • Visioning the Market
  • Building/Creating Demand
  • Incremental New Products
  • Listening to the Market
  • Effectively/efficiently addressing existing demand

Phase I  Learning Based Project Management

market exploration vs market exploitation
Maximize variation to gain a scan of the landscape

High risk taking

Experimentation

Flexibility

Discovery

Focus on developing novelty

Focus: new connections, new potential partners, new application arenas to maximize options

Limit variety: gain deep experience.

Refine: focus on a target market

Choice/selection

Efficiency

Implementation

Focus: Building loyalty, capturing market share, saturating the identified market, leveraging knowledge of current customers to maximize profits.

Market Exploration vs. Market Exploitation

Phase I  Learning Based Project Management

slide48

GE’s Probing and Learning Process-CT Scanner

Critical Events

1971 EMI Introduces CT Head Scanner

Mid–Late 1970’s Government Regulations Certificate of Need

Breast

CT

1975

Neuroscan

Head CT

Late ’75

Body

Prototype

7800

1976

Improved

7800

1977

Body

Prototype

8800

1978

Body

Prototype

9800

1982

= Probes

= Learning

Body

Prototype

9000

Early ’80s

Lynn, Morone and Paulson (1996), “Marketing and Discontinuous Innovation,” CMR.

CT Max

1985

Phase I  Learning Based Project Management

slide49

Searle’s Probing and Learning Process-Nutrasweet

Discovery

Sweet Taste

Aspartame

1965

  • Critical Events
  • 1970 Cyclamates Banned
  • 1974 FDA Approved
  • FDA Stay
  • 1981 FDA Approved
  • 1983 FDA approval carbonated beverages
  • Late ’80s FDA approval spoon-for-spoon

Chewing

Gum

Ice

Cream

Carb.

Beverages

Powdered

Drinks

Cereal

Whipped

Topping

Spoon

For

Spoon

Tables

Packet

Chewing

Gum

Ice

Cream

Powdered

Drinks

Whipped

Topping

Tables

Packet

Chewing

Gum

Pudding

Powdered

Drinks

Whipped

Topping

Tables

Packet

Carb.

Beverages

Spoon

For

Spoon

= Probes

= Learning

Phase I  Learning Based Project Management

comprehensive framework for managing radical innovation50
Comprehensive Framework for Managing Radical Innovation

Technical Uncertainty

Resource Uncertainty

Market Uncertainty

Organization Uncertainty

Challenge 1: Capturing Breakthroughs

Challenge 2: Living with Chaos

Challenge 3: Market Learning

Challenge 4: Business Model

Challenge 5: Resource Acquisition

Challenge 6: Transition Mgt.

Challenge 7: Individual Initiative

Phase I  Learning Based Project Management

challenge 4 discover appropriate business model
Challenge #4: Discover Appropriate Business Model

Manufacturing: Component, System or Finished Product?

Sales and Marketing:

Direct or via Partners?

Technical

Development: Product or Service?

Distribution: Which Channels?

Customer Service

  • Which path to the market?
  • What parts of the value chain will the firm retain versus outsource?
  • How to entice additional members?

Phase I  Learning Based Project Management

discovering the appropriate business model
Discovering the Appropriate Business Model
  • Business Model Design and Development Highly Experimental (e.g., Nortel Networks and Dupont)
    • Logic Puzzle
    • Systems Thinking
    • Mechanisms for Envisioning Entire Value Chain
  • Market Learning Likely to Lead Company Away from Familiar Business Models
  • Value Chain Creation Stretches Company into New Business Areas (e.g., Texas Instruments)
    • Not Areas of Natural Strength
    • Business Model Evolves as Market Learns about New Technology and Infrastructure Requirements
    • Company May Require Temporary Infrastructure to Educate Partners/Accelerate Value Chain Development

Phase I  Learning Based Project Management

bending and shaping business models evidence
Bending and Shaping Business Models: Evidence
  • Downstream Changes:

We got dragged kicking and screaming into this one. It is counter to the culture of how we do business.

If people don’t rent, we don’t make money. It’s a fascinating model for a product company.

  • Upstream Changes:

We have a very complicated business arrangement with (our manufacturing partner). They basically hold title to the factory…But we have a lot of our people out there with a lot of technology invested. Ultimately what we had hoped for was a supplier relationship, but we’re having to support that a lot. And that may lead to a change in the business arrangement. I don’t know. Who knows what’ll happen?

Phase I  Learning Based Project Management

tools for market creation development tools for market exploration
Tools for Market Creation/Development=Tools for Market Exploration
  • Learning by Using
  • No Formal Market Launches… Rather,
    • ‘Concept Launches,’
    • ‘Whispering in People’s Ears,’
    • ‘Alpha, Beta, Ship.’
  • Objective: Generate Excitement about Potential Applications and Uncover More Beneficial Applications
  • Positive Impact of Large Corporate Brand Name
biz model dev market creation need exploratory processes
Biz Model Dev/Market Creation need Exploratory Processes

Phase I  Learning Based Project Management

evidence of application migration analog devices accelerometer mems device
Evidence of Application Migration: Analog Devices’ Accelerometer MEMS Device

Breakeven (2001)

Other Automotive Apps (1999)

Airbag Sensors for Automotive Industry (1992)

Process Improvements

New Product Area

Gyroscopes (2002)

PC Games (1998)

Instrumentation (Medical) Inquiries (2000)

Box Games (Playstation) (1999)

Sporting Goods Apps (2000)

New Processes (2000)

Optical Telecom (2001)

Phase I  Learning Based Project Management

comprehensive framework for managing radical innovation57
Comprehensive Framework for Managing Radical Innovation

Technical Uncertainty

Resource Uncertainty

Market Uncertainty

Organization Uncertainty

Challenge 1: Capturing Breakthroughs

Challenge 2: Living with Chaos

Challenge 3: Market Learning

Challenge 4: Business Model

Challenge 5: Resource Acquisition

Challenge 6: Transition Mgt.

Challenge 7: Individual Initiative

Phase I  Learning Based Project Management

slide58

Challenge # 5: Acquiring Resources and Competencies

KEY OBSERVATIONS

  • Funding Big, Important Distraction
  • Traditional Internal Sources of Funding NOT Set Up for Long-term, Uncertain Investments
  • Traditional Investment Criteria (projected market share, revenue growth rate, rate of return ) NOT Appropriate
  • Partnership Selection, Management Hypercritical
    • Needs Evolve as Project Maturity Evolves

Phase I  Learning Based Project Management

resource competency acquisition
Resource/Competency Acquisition
  • Go External: Gov’t Funding, Alliance Partners

Adopt Resource Acquisition Mentality

Internal Venture Capital Funds

Bootstrapping

Traditional Budget Allocation and Investment Models

Breakthrough or Radical Innovation Project Funding Needs

Phase I  Learning Based Project Management