failing forward v2

Failing Forward

David Matheson, President and CEOSmartOrg, Inc.www.smartorg.com

#BEI13

@VirtualDavid

© 2000-2013 SmartOrg. | Confidential and Proprietary.

http://www.smartorg.com/

When heroes fail


A great technology and a compelling customer need are necessary but not sufficient to change the world.

What is missing?


The work of innovation: answering three questions.

Market/ customer need

Technology/ Product Solution

Doesanybody care?

Can weDo it?

Shouldwe do

It?

Winning Opportunities

Strategic and Economic value


Our image of innovation


Stage-Gate focus: Delivery


Predictability Efficiency

What are some values associated with delivery?

The reality


Agile Focus: Learning


Uncertainty Ambiguity

What are some values associated with learning?

Failing Forward Workshop

Agenda

Introduction

A common model of innovation

Formulation: the learning plan

Incubation: pivoting

Advancing your own work

Conclusion

Purpose

Advance real innovations your are working on.

Explore and develop this important question by comparing notes and experiences.

Generate insights and results from our interactions.

Create a highly interactive session and great networking environment among peers.


David Matheson

Dr. David Matheson has helped senior management of firms in the United States and Europe improve their results from portfolio management, product development, innovation, R&D, capital investment and strategy, and is an expert on measuring value and managing uncertainty. His practical experience covers a wide variety of industries,

including printing, software development, biotechnology, telecommunications, chemicals, pharmaceuticals, medical devices, manufacturing, electric power and entertainment. He is co-author of the best selling book, The Smart Organization:

Creating Value through Strategic R&D (Harvard Business School Press) and has authored numerous articles on innovation, portfolio management and decision making. In addition to SmartOrg, his executive roles include: currently

member of the board at Photozini, Inc. and prior to founding SmartOrg in 2000, a principal at Strategic Decisions Group.His Ph.D. is from Stanford University, where he currently teaches

on Strategic Portfolio Management and other topics at the Stanford Center for Professional Development


SmartOrg software and services helps companies find the most profitable projects

Life science Aerospace Technology Other


http://www.bayer.com/

http://www.lilly.com/index.html

http://www.ineco.es/ApliServlet?accion=verPagina&idNavegacion=100

http://www.alcatel-lucent.com/wps/portal/!ut/p/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd4w3cjUDSUGYpvqRKGIG8Y4IkSB9b31fj_zcVP0A_YLc0IhyR0dFAJgg_-M!/delta/base64xml/L3dJdyEvd0ZNQUFzQUMvNElVRS82X0FfMkU2

http://www.cisco.com/en/US/hmpgs/index.html

http://www.andersenwindows.com/

Eric McAfee

Founder

Aemetis, Inc.Solargen EnergyEvolution PetroliumPacific EthanolProcera NetworksNetstream

Investor

McAfee CapitalCagan McAfee Capital PartnersBerg McAfee Companies


© Copyright 2012 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice.14

Thought Leader: Rich DuncombeInnovation Catalyst Group

33 Years with HP− Directly involved in 35+ major innovation

projects− 70% involve disruptive innovation− 60% started during idea inception− Founder, HP Sensing Solutions business− Founder, GM/VP of Retail Photo Solutions

My specific role is innovation catalyst− Build the vision, attract the talent and secure

necessary resources− Catalyze the innovation from inception through

incubation− Come back to the front end

How we make it matterCo-innovation and collaboration is key to a healthy innovation system – my partnerships include:− Shell− Boeing− Motorola− Intel− IBM− Oregon State − Stanford− RPI

Industrial Age• BS, MS Industrial

Engineering, LSU• Ford/Volkswagen JV• MBA, MIT Sloan• The Boston Consulting

Group

BIO

Ricardodos Santos

Imagination Age• Lecturer SDSU• Mobilocity (Tech Startup)• Qualcomm (Innovation

Management)• Biological Dynamics

(Biotech Startup)


Introductions

Name, Company, RoleWhat are you working on that you want to advance in this session?Your favorite food



Agenda

Introduction





Conclusion

Purpose






Asking executives what worked and what didn’t:

• What have you tried in the last ten years or so?• What worked really well and should become (or remain in)

the innovation canon?• What did not work well, was significantly oversold or under

delivered, and should fade from memory?


The five must-do’s of innovation management:

1. Use iterative, learning-based processes.2. Make uncertainty and ambiguity your allies.3. Allow innovation to challenge strategy.4. Experience your customers.5. Find and support committed innovators.


Go to www.smartorg.com and search for “assessing the state of innovation” to download a whitepaper and view a webinar.

PDMA Visions

http://www.smartorg.com/

Making Innovation Soar.

FormulateIdeate Incubate Accelerate

Reformulate

Committed Innovators with

actionable insight

Aligned Learning

Plan

Proven Opportunity

Scalable Business

ExpandsFocuses


Ideation: finding the committed innovator with unique insight.


Niccolò Machiavelli on Innovation:


“It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.”

A common misconception:

“People think ideas are the input to the process. This is wrong. Ideas are the byproduct of the committed innovator.”


Alberto SavoiaSerial EntrepreneurCurrently at Google

In every field, HHMI grants generated the most important and innovative research.


Funds projects based on rating proposals on multiple criteria.

Funds researchers and encourages them to explore interesting topics.

Source: Jonah Lehrer, author of How We Decide, from his blog “The Necessity of Funding Failure.”

Having committed innovators is not enough; your innovator needs actionable insight.


Market Customer Technology Trend Etc.

Formulation: aligning on a learning plan.


Success FactorsShelter the project from internal metrics and processes

Banish supplier / procurement thinking

Have the tough conversations up front

Negotiate based on principles

Never over estimate your knowledge of your partner

Every decision needs to improve risk adjusted value

Communicate your vision (prepare the market, build your brand)

Market disruptions are often driven by technology innovation

New businesses fail for commercial reasons

Internal

Partner

ValueCreation

MarketDisruption

1

2

3

4

5

6

7

8

9

The more outrageous the vision, the more resilient the program10

Real-time traffic conditions

Security/Access

Climate monitoring

Water/Gas

Infrastructure health

Home automation

Home security


Aspirations are low


Can we distribute motor oil in a cardboard box?


Frost & Sullivan wrote up a best practice guidebook for the Formulation Phase.


See a webinar or download at: www.smartorg.com/hpguidebook

How to develop a DVD burner that writes its own label? (circa 2002)


A feature in our computers

Multiple strategies – need to learn which is best.


A feature in our computers

License out

A consortium-based inside brand

Laying out your strategic choices

Brand Business Model

Market Scope HP Contribution HP's Role in Optical Drive Industry

Consumer Strategy

Consumer Software

HP Branded

HP HP Branded drives and discs

HP Branded PC's Only

Optical drive design, disc coating material and consumer software application

HP works with select partners to build HP specific solution

HP drives demand as a proprietary feature

HP exclusive software feature

Harvest IP White Label License on Drives and Discs

All MS and Apple PC's

IP Only HP provides licenses to all industry participants -- HP does not develop solution

Disc Brands drive consumer demand

Open development platform for all optical drive software

Drive Consumer Standard

Ingredient Brand

License on Drives and Discs

All MS and Apple PC's

IP and certification HP works with all suppliers to build standard solution

Create industry standard and trademark


Drive Industry Standard

Ingredient Brand

License on Drives and sales of Disc Coating Material

All MS PC's, all aftermarket drives and replicators

IP, disc coating material and certification

HP works with all suppliers to build standard solution and becomes the exclusive supplier of LightScribe coating material

Create industry standard and trademark



Which uncertainties matter?


Future disc usage? Bill of Materials Cost?

Strong growth supported by multiple third-party experts.

Detailed engineering estimates and contracts show BOM within 5%.

Team not concerned.Team very worried estimates might be 10% off.

Lightscribe sensitivity analysis (Tornado Diagram)

Loss Small OK Good GreatNPV given launch success

The team was focusing on the wrong factors.


If mp3 players take off, then business is small

If copyright favors disc distribution, then business is great

BOM uncertainty has limited impact on business

Incubation: delivering on the proof points.


Work vs. proof: HP’s idea for the “ATM of photo printing.”

• What is the biggest source of risk?

• Supply Chain― Very difficult to set up, very

complex― Large source of schedule and

budget variance.


Work vs. proof: HP’s idea for the “ATM of photo printing.”

• What is the biggest source of risk?

• Supply Chain = needs work― Very difficult to set up, very

complex― Large source of schedule and

budget variance.― HP is world class at this!

• Behavior change = needs proof― Will someone encountering a station

on the street pull out their camera card and print?

― To get evidence, saturate an area with prototypes.

TechnicalPhase Cost ($M) Uncertainty

Probability of Success

Product Development 2$ 47%Performance 95%Reliability 90%Channel Partner Trials 55%

Scale -Up 10$ 8%Ease of Use 25%Business Model Validated 35%Channel Partner Commitment 90%

Total Cost 12$ Million 4%Expected Cost 10.9$ Million

Common plans: morale building, strength focused

Big questions left unanswered until late in the project—an expensive way to fail. Note Expected Cost and Total Cost are close.

Big questions left unanswered until late in the project—an expensive way to fail. Note Expected Cost and Total Cost are close.

A risky project. The overall probability of technical success is the probability of overcoming all the hurdles in all the phases.

A risky project. The overall probability of technical success is the probability of overcoming all the hurdles in all the phases.


TechnicalPhase Cost ($M) Uncertainty

Probability of Success

Product Development 2$ 5%Ease of Use 25%Business Model Validated 35%Channel Partner Trials 55%

Scale -Up 10$ 77%Peformance 95%Reliability 90%Channel Partner Commitment 90%

Total Cost 12$ Million 4%Expected Cost 2.48$ Million

Learning plans: manic anxiety, uncertainty focused

Revised Project Plan

Reordering plan to “fail fast” radically reduces expected cost.

Reordering plan to “fail fast” radically reduces expected cost.


Print Engine

Fast 4x6 Print EngineAddressing the needs of incumbents

“Dry” Photofinishing labSemi-Attended EnvironsLow Volume Stores

“Can I get the printer part of the kiosk”

“Just chop the head off, add an Ethernet, and I’ll write you a check!”

Acceleration: growing up.


What is the best first major account for your new business?You have launched a business. • Customers are enthusiastic about the product.• You are making money (gross margin), but still require

investment to grow.• The product is in version 1.0. • Manufacturing is ramping up.


OR

Adolescent businesses need adult challenges in a safe environment.

Need P&L discipline without crushing pressure.Require the flexibility to adjust.Have lots of awkward issues that need to be worked through.Metrics that transition to full P&L accountability.


Beware the kill zone


Upstart / New Established

Accelerate Phase (transitional metrics from proving to P&L)

Established Business (on commit plan of executives in a significant way, routine part of corporate strategy)

KILL ZONE= 100% failure

External Reality

Inte

rnal Tr

eatm

ent Acceleration

Trajectory = 100%

Success

Making Innovation Soar.

FormulateIdeate Incubate Accelerate

Reformulate

Committed Innovators with

actionable insight

Aligned Learning

Plan

Proven Opportunity

Scalable Business

ExpandsFocuses


Where is your organization strongest? Most in need of improvement?

Ideation

Formulation

Incubation

Acceleration


A culture shift in innovation.


How companies increase innovation project risk and what to do about it.


Norm for Creates innovation risk

Resolved by

Predictability Failure Frame Learning Frame

Urgency Kill Zone Taking time to accelerate

Reasonableness Mediocrity Formulate boldly

Fitting in Incrementalism Courage


Agenda

Introduction





Conclusion

Purpose






Quick survey

What are your innovation aspirations?

$1M in new revenue

annually

$5M

$10M

$50M

$100M

$500M

$1B

What is your innovation delivery?

$1M in new revenue

annually

$5M

$10M

$50M

$100M

$500M

$1B


Table exercise

What is the inspiring vision for your innovation project?

Select one at the table for further focus and discussion.



Success = delivering an Exploitable Business Asset.

What would you want to know before mortgaging your house to pay for your company to launch the product?

• Technology• Market• Partnerships / Suppliers• Customer / Patient• Cost / Reimbursement• Regulatory• …

Table exercise

What are the most important proof points for the focus project?

Select the most problematic and decisive at the table for further focus and discussion.


The best proof points are…


Problematic Decisive

Proof points: what would cause you to stop (or significantly redirect) the project?

DO – a good list DON’T – a bad list

Focus on evidence needed

Focus on tasks needing lots of work

Take the full business perspective

Stay in your comfort zone

Creates something exciting and worthwhile

Fulfills the stage-gate requirements

Create developable, clear and objective proof points

Create mushy proof points

Include only material issues:• Problematic• Decisive

Pile on:• If it is 90%+, omit it.


Table exercise

What activities would advance learning and deliver on the proof?


What is your gap between proof and work?

1 = project is focused on delivering work234 = project is balanced between work and proof567 = project is focused on delivering



Agenda

Introduction





Conclusion

Purpose






Three questions

How do you know it is time to pivot?

What can you do to pivot?

How does pivoting go wrong?


Rotation Exercise

Each Thought Leader takes a station.

Divide into groups.

Work question for 10 minutes.

Rotate to another station. Repeat.

At end, each Thought Leader gives a five minute report on five biggest insight.



Agenda

Introduction





Conclusion

Purpose






Individual worksheet

What is your compelling vision?

What are the most important proof points?

What can you do to learn about them as quickly as possible?

What are potential pivots?

What are you personally committed to?


Pair up & discuss

One person speaker, the other listener.Speaker describes their situation and ideas – 7 minutes

• The listener’s job is to support the speaker. The more safe space provided by the listener, the more direct and authentic the speaker.

Listener provides feedback to speaker in support of their commitments – 3 minutes

Rotate (I’ll keep track of time)



Agenda

Introduction





Conclusion

Purpose






What are your top five commandments for failing forwards?

Thou Shalt…

Thou Shalt Not…

Write on index cards.Vote using the “like” method:

• Circulate and review others’ cards.• Vote on your favorite two (or fewer).• When you reach five votes on a single item, bring card up to

be read.


Don’t settle for safety and mediocrity.


“As this is your proposal, Cosgrove, its failure could mean the end of your career. I think, however, that is an acceptable risk.”

Formulate your projects for greatness.


and execute.


SmartOrg® provides software and services to help companies evaluate their opportunities and make the best decisions about where to invest, especially when the future is clouded with uncertainty. Customers use SmartOrg® to build their capability in driving innovation from idea to commercial results and in selecting projects, improving returns in their portfolio.

SmartOrg® helps companies to attain the highest value from projects and portfolios.

855 Oak Grove, Suite 202Menlo Park, CA 94025 USAT: [email protected]

www.linkedin.com/company/smartorg

@smartorginc

© 2000-2013 SmartOrg. | Confidential and Proprietary.72

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