A New Approach to Manage Disruptive Innovation in an Environment of High Uncertainty

By: Jose A. Briones

Existing methods for the management of innovation projects have a low probability of success in the development of radical or disruptive innovations. A new spiral approach has been developed that provides the balance of flexibility and control needed for a repeatable and successful approach to disruptive innovation.

Product innovation has been described as the way out of today’s difficult business environment.  However, the rate of success of development projects, in particular white space and disruptive innovation projects, remains low.

This low success rate can be attributed in part to the erroneous application of methods designed for incremental innovation to projects with high levels of uncertainty.  Common approaches to the management of innovation projects, like Waterfall or Stage-Gate, follow a linear approach that does not provide the flexibility needed for disruptive innovation to be successful.

It’s time for an innovation in innovation itself.

The key to success in disruptive innovation is the use of a strategy that reconciles opposite needs:  flexibility and control.  A framework of controlled iteration can provide the right level of flexibility while at the same time give management the information required for proper allocation of resources.  It’s time for an innovation in innovation itself.

The need for effective approaches to the management of innovation projects led to the development of the Spiral System for disruptive innovation management. This method applies an iterative, agile approach to market and business development.  Development projects are classified based on degree of uncertainty and managed along project tracks appropriate to the level of uncertainty.  Finally, appropriate innovation tool sets are employed based on the best fit between information available and decision making needs.

The Spiral System offers a balanced, agile approach to innovation management.  It preserves the metrics needed for measurement of project progress, but also provides the flexibility needed for high uncertainty innovation projects to succeed.

Problem statement

Recent examples such as Blockbuster, Borders, Kodak, Nokia and Blackberry show that innovation has become a matter of life and death for companies today.  But innovation may be costly.

Dr. William Strauss of FutureMetrics has documented that the ratio of R&D needed per unit of GDP output has gone from 1:1 in the early 90’s to ~3:1 in 2009. This increase can be attributed to the fact that the rate of success of innovation projects, particularly radical or new market innovation projects rarely exceeds 20% and may be as low as 2.5%.

Referring to classical innovation management processes such as Stage Gate, Clayton Christensen, author of the book “The Innovator’s Dilemma”, has stated:

“The Stage-Gate system assumes that the proposed strategy is the right strategy; the problem is that except in the case of incremental innovations, the right strategy cannot be completely known in advance.  The Stage-Gate system is not suited to the task of assessing innovations whose purpose is to build new growth businesses, but most companies continue to follow it simply because they see no alternative.”

Christensen’s observation reflects the need for new management approaches that increase the probability of success, but at the same time preserve the metrics required for measurement of progress and resource allocation.  The challenge is then to reconcile a formal management framework with the flexibility that is needed for innovation to thrive.

The need for iterations

To develop disruptive innovations, one round of voice of the customer is not enough to be the cornerstone of a project.  This is because customers cannot say that they want what they do not know, and can only provide feedback on incremental modifications on what they do know.  As the American industrialist Henry Ford famously said, “If I had asked people what they wanted, they would have said faster horses.”

The spiral solution

The solution to this challenge consists of 3 parts:

1. Classifying projects according to the degree of uncertainty
2. Adopting a controlled iterative process to discovery
3. Using the right analysis tools that correspond to the level of uncertainty at each iteration level

The practical framework that incorporates these solutions is show in Figure 1 below

Time is the X axis, resources is the Y axis. Center = 0 for both, thus they both grow from the center. This is visual way to indicate that time and resources allocated should be low for level 1 projects and grow as more information is obtained and uncertainty is reduced. 

Keys to the process

• Time and resources required are low when uncertainty is high, but increase as the project advances through each iteration and likelihood of success increase.
• The analysis is repeated at each level, but the tools used for each level are different.
• The first iteration at level 1 uses tools more suitable for high levels of uncertainty, i.e. Discovery Driven Planning, Probabilistic Decision Analysis
• The 3^rd level of iteration uses more conventional management tools, i.e. Linear Stage-Gate, Agile, NPV.

Benefits of the Spiral Approach

The use of this framework offers the following advantages compared to traditional linear innovation management systems:

• For disruptive innovation projects iterations are needed where customers evaluate a prototype and a new cycle starts, complete with a new VOC, market and business analysis.  This framework allows for the iterations to occur in a controlled manner;
• The use of this framework, combined with the right analysis tools, allows for effective financial forecasting even in the early stages of the innovation project where uncertainty is high.
• The initial iterations, where uncertainty and risk are high (represented by the inner spirals on the chart) can be completed quickly and at low cost.  Ideas can be rapidly promoted to the next iteration – or discarded.  Because initial resource allocation is minimal, resources are made available to focus on projects that have entered iteration 3
• The controlled iteration approach provides a way to properly define the right value for the product or offering, leading to more accurate price estimates.
• In this framework, allocation of time and resources starts at low levels. These increase as the levels go up and the uncertainty is reduced, thus minimizing risk.
• This approach does not compare incremental innovation projects to radical innovation projects in the early stages, a classical mistake made by established leaders which results in the early kill of radical innovation projects.

This framework for the management of innovation projects provides the flexibility needed for successful innovation projects in any industry and the metrics needed for proper measurement of progress and resource allocation.  By utilizing this approach, managers insure that radical and disruptive innovation projects have a chance to prove their benefits and create the innovative products and services that companies need to remain competitive.

This method has been used to successfully introduce a disruptive innovation to the construction additives market in Europe.  Compared to conventional innovation management approaches, this framework led to the switch from an incremental innovation goal to a disruptive innovation technology with an identified profit potential of 25 MM$/yr.

By  Jose A. Briones

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Resources

A short video that summarizes the Beyond Stage Gate framework for innovation

“Beyond Stage Gate” Framework Presentation

Stage-Gate® is a registered trademark from Stage-Gate International’s Product Development Institute Inc.