How To Make Innovation A Predictable Process21 March, 2018 / Articles
Is there a manageable, predictable process for product innovation? Many people would say no, but Josh Valman contends that there is. And he has credentials in that area as CEO of RPD International, who work on product innovation with the likes of Unilever, Bosch and GSK.
Josh Valman: Most people, when they look at innovation, see this enormous system diagram of 300 stages to get to market. Each has a conversion rate, a percentage of times that something doesn’t make it through to the next stage. With 300 stages with losses at each of them, you’ve got this tiny, tiny success rate. So what they look at is the 99.9% of the times that it doesn’t work. Therefore innovation looks terrifying.
Alastair Dryburgh: Very expensive.
Valman: Whereas what we try and do is to look at innovation in a different way so that we can actually clarify what you need to go through to make something work. Keeping it separate from the main business is important because you keep that controlled chaos of innovation in a package. What you’re doing is packaging it as “we made a new thing” as opposed to “we’ve tried a thousand things and one of them works”. You bundle everything together into one process.
One of the most interesting things we do when we work with a business is to categorise a pipeline. So in the same way that you think about sales with a conversion pipeline, you’ve got a big bucket of leads and you qualify them. Then you’ve got slightly less, then you send a proposal, you have slightly less again, then you get into contracts, slightly less again, then in the end you close one in every hundred. We do the same thing with innovation. You package it, you say right these are fresh ideas, we’ve got x number of those. How many of those fresh ideas go into prototyping and validate positively, then how many of those things go into a more consumer friendly test, then how many of them go into an early market test? What you do is you count each one of those buckets.
So you say, when you’ve got a new idea, I will give you £2 ,500 of time and materials to go and flesh it out, write me a business plan, tell me what it looks like. This year, we’re going to invest in 10,000 of those. Then one in ten will pass to the next stage where we’ll give you £10,000 to go and make a model or 3D print it or whatever. Then we’ll have a hundred of those to invest in. When we go to an early market test, where we’ll give you £50,000 to explore and the conversion rate is again one in ten. So you end up with 10, and you set that out at the beginning of the year. So what you’re not doing is saying this year I’m going to spend 100 million dollars on innovation and 99 million dollars go off into things that are not innovation and don’t go anywhere.
You say I’m going to test 10,000 ideas, I’m going to prototype 100 ideas, I’m going to launch 10 ideas, I’m going to take 5 ideas to market and look at those products. So you look at what the conversion rate looks like. You’re committing to a volume of ideas through a pipeline as opposed to an amount of cash. That’s quite an interesting change for these large businesses because they used just to put in money and see what happened. One of the biggest issues internally was that nobody believed anything would ever happen because they’d spent so long trying to do something and it’d never happened. They didn’t believe that any amount of innovation effort was going to make their big Goliath business do anything. So it is as much about communication internally; to say we can launch something. Our full intention is to launch this many, this many, this many, and therefore people start to contribute and they start to create more of a culture of innovation because they can understand where things are going, what happens, how they get to market.
Dryburgh: The first thing I thought as you were speaking was that it was like, “you might like eating sausages but you don’t want to visit the sausage factory.” but it seems as if you are doing more. You aren’t just putting the innovation process in a black box and saying “just look at what comes out.” You’re turning it into a more comprehensible, more controllable process.
Valman: What you’re doing is risk management, in the same way that you do it in a supply chain and you work out how to reduce the risks. You’re doing the same thing with the complete unknown of innovation. You’re saying okay, how do we measure trends so we can understand what our cost is, what goes in, what comes out. That tends to be quite an important factor for anyone that’s going to invest in innovation and see returns. The biggest problem that I’m seeing at the moment with particularly large corporates is their saying “well I’ve invested a lot of money into innovation in the last few years and I don’t really have much to show”.
They’ve managed to create enormous buckets of ideas, enormous buckets of PR campaigns, but now they’re sitting there saying okay I need to measure my ROI, the return on the 100 million dollars that I’ve spent on innovation. Most of it went to market at such small volumes that it didn’t make a dent, and now I need someone to come in, take that bucket of ideas, sort out what’s going to work, get some of those into the market, and show me how I can actually make some money on this stuff.
Dryburgh: You’ve described your process, which is pretty controlled for an entirely uncontrollable process like innovation and it’s a fairly transparent way of spending the money and seeing what exactly you’re getting at each stage of the process. Could you contrast that now with what people have been trying to do on their own with the hundred million pound budget that hasn’t been able to produce that much?
Valman: Now this varies, I don’t want to be damning on the entire world, although I’m quite good at that. What’s happened a lot is that people have invested in innovation as being this bright shiny thing. So they’ve invested a lot of money in front end innovation of new ideas, new conceptual stuff, new future thinking. There’s been quite a bit of ignorance towards what’s feasible because press releases are more interesting than anything else at that point. There’s been a lot of shouting about it because, you know, it helps recruitment, it helps fundraising, it helps everything. What they’ve ended up with is a lot of ideas that have been lightly validated or are good for a £50,000 press campaign but actually weren’t feasible as a long term product, part of a product range. A few things have gone through but either they’ve taken so long that they’ve missed the opportunity in the market or they’ve been done in a scrappy way.
You end up with a board that says we want more innovation, here’s some money. You end up with lower ranks who have ideas and really know what is necessary in the business. Then you’ve got the middle management layer that’s supposed to spend it but doesn’t really know where to spend it that’s safe because they don’t want to be the person that messes up. Then you’ve got the executive level that’s looking at it and says well that was a mess. You’re not following process. You’re not doing it in the way that I need it to be done. I need to manage my risk. It’s really convoluted. Because of that, innovation has become this slightly scary word for businesses.
Innovation done well is a process and it’s fully predictable. I spend most of my time modelling innovation businesses in excel. People will tell you that innovation is something to do with drawing on walls with marker pens. Actually, it’s all predictable and it’s all about risk controls.