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Peter J. Sherman

Six Sigma

Creating a Sustainable Innovation Process

Who invents innovation?

Published: Monday, November 17, 2008 - 12:47

Today’s hyper-competitive business environment is creating a need for even more new products, new services, and new processes. Design for Six Sigma (DFSS) offers a generalized and effective approach for designing new products and services from the ground up. One of the more popular DFSS methodologies is define, measure, analyze, design, verify (DMADV).

Unfortunately, DFSS doesn’t address how new ideas are generated in the first place nor does it offer a framework for creating a sustainable innovation process. The innovation or ideation process starts much earlier in the typical DMADV process. See figure 1.

Figure 1

The focus of this article is two-fold: first, discuss innovation and its importance to an organization. Second, present a suggested approach for developing and implementing a sustainable innovation process in your own company.

Invention vs. innovation
New ideas, more ideas, better ideas. Ideas are the life-blood of most companies, whether it means generating incremental revenues from new products or services, preserving revenues and customers, or reducing costs through new processes to more effectively manage the business. According to a Conference Board 2007 global survey of CEOs, executives’ No. 1 concern is “sustained and steady top-line growth.” Without a constant flow of ideas, a business is condemned to obsolescence.

Historically, invention was the traditional approach for creating new products and services as personified by the lone genius operating in his lab. Thomas Edison or the Wright Brothers come to mind. Gradually, invention in the United States was performed through large corporate research and development (R&D) efforts by companies such as AT&T (Bell Labs), Xerox Corp., RCA, Eastman Kodak Co., and IBM. These internal research labs spawned significant technological breakthroughs and patents such as the transistor, semiconductor, laser, etc.

Innovation is different from invention in that it goes beyond the solitary genius or traditional corporate R&D. Innovation involves leveraging your company’s combined internal core expertise (market research, marketing, engineering, R&D, manufacturing, or distribution) to develop new products or services. It also means working closely with external groups including customers, vendors/suppliers, academia, and even competitors. As A.G. Lafley, CEO of Proctor & Gamble describes, “Innovation is a team sport that uses the expertise of people from a lot of different fields. It lets you make unlikely connections that enable you to solve wickedly hard problems. It ties that idea to a better customer experience, and results in increased sales and profits.”

Creating a sustainable innovation process is even more challenging. Examples of systematic innovators include P&G (household and beauty care products), IDEO (product design), Google (web-based tools and applications) and IdeaLab! (serial entrepreneur of new business models). The innovation process within these companies share the following characteristics:

  • A strong commitment from executive leadership with clear direction

  • An inclusive approach that brings together all key stakeholders to encourage idea generation and knowledge-sharing.

  • A streamlined yet disciplined process to screen, evaluate, prioritize, and recommend ideas to management for approval.

  • A framework for quickly testing the feasibility of concepts

Leadership commitment
Most initiatives that fail aren’t due to the inherent nature of the initiative or program itself. They die because of the lack of senior management commitment. Even the best of new programs or initiatives require the backing of a senior executive(s). Leadership must be very clear about the mission, how it supports the strategic agenda, and articulate specific goals and objectives, such as, “Within five years we expect to generate 50 percent of our revenues through new products/services introduced within a 36-month period.”

Leadership commitment also means aligning resources, capabilities, and needs. Before ideation, business plans must identify opportunistic markets for the company. Determine priorities for new product/service development in specific arenas according to resources, capabilities and needs. Establish a case as to why this market, why this time. In this way, target constituencies can be identified for exploration. A shotgun approach to the marketplace will dilute resources and result in ideas that may target niche groups or segments that don’t leverage brand equities adequately.

An inclusive approach
The successful innovation process brings together stakeholders from all disciplines (internal and external) to participate in identifying/defining opportunities, refining concepts, product refinement (as it matures in the test stages), and defining success. These stakeholders include internal groups such as marketing, sales, engineering, operations, and R&D, as well as external organizations including customers, vendors/suppliers, academia, and even competitors. It should be recognized that success isn’t defined by numbers alone or that one number will establish the threshold for moving forward.

Internal competition—particularly in larger organizations—hampers communication because it encourages groups to hoard information. To bring together all stakeholders and encourage information-sharing, a level of trust must be created. Consider allowing the sponsoring innovation group to be completely independent (i.e., politically neutral) of the corporate structure to avoid such political landmines. To this end, a dedicated innovation screening team represented by key stakeholders in the organization coordinates and manages the day-to-day activities of the innovation process. This ensures that the process becomes operational. The screening team works closely with the innovators to facilitate the ideation process and foster communication with other innovators.

The next challenge is to determine the means of how information is going to be shared with your stakeholders. The web offers an extremely effective, secure, reliable, and low-cost means to communicate and store information, distribute tools and templates, and show status in real time.

Finally, a proper risk-reward model is critical to encouraging participation in such an innovation program. This might include combinations of formal recognition, gifts, or even monetary awards. Some companies offer equity stakes in the company (in the form of stock options or restricted stock) as an incentive for employees to come up with meaningful ideas. In 2005, Ericsson embarked on an innovation initiative to stimulate employees to think differently about how new telecommunications devices and services could be developed. Ericsson initiated an “Idea Competition” to its 2,000 U.S. employees  The screening criteria was very basic and simple, including New Customer Potential, Retain Existing Customers, and Revenue Growth. Within four weeks, 856 ideas were submitted. These were initially screened down to the top 20, which were further screened to the three winning ideas. The winners were awarded cash prizes ranging from $3,000 to $10,000. 

The innovation screening process
Any innovation process must strike a delicate balance between being simple enough as to encourage idea generation and yet follow a disciplined approach. The key steps in the innovation screening process include: Analyzing, evaluating, prioritizing, recommending, and approving of ideas. A diagram is a useful technique to understand all the key suppliers, inputs, processes, outputs, and customers (SIPOC) of the innovation process. See table 1.

Suppliers

Inputs

Processes

Outputs

Customers

Marketing

Web-based innovation portal

Innovation template

Screening tools

Analyze

Evaluate

Prioritize

Recommend

Approve

Completed innovation templates

Scored ideas

New product/services

New process ideas

Customers, end-users

Sales

Key stakeholders (management, employees, investors)

Product Management

 

Engineering

Operations

R&D

Finance

Senior Management (sponsors)

Innovation Screening Team

Customers

Vendors/Suppliers

Industry

Venture Capitalists

Figure 2 represents a suggested generic innovation process. It’s designed with specific gates including idea generation, screening, recommendation, approval, and testing.

Figure 2

The first step in the process is for the owner (a.k.a. innovator) to fill out an innovation template housed on the innovation portal web site. The innovation template describes the proposed new product, service, or process. Specifically, “What is the new idea? How does it work? How do we monetize it?”The innovation template also addresses the key criteria established by the executive sponsors and the innovation screening team. Click here to see a sample innovation template with suggested criteria including market opportunity, strategic fit, feasibility, and financial effects. The challenge of the innovation template is that it must be must easy enough to encourage innovators to submit new ideas and at the same time be sufficiently rigorous to ensure the ideas are well conceived. Once received, the innovations can be posted to the web site for all interested stakeholders to view, comment, and possibly collaborate on.

At this point, the innovation screening team evaluates, screens, prioritizes, and recommends ideas based on certain criteria with assigned percentage weights. Each potential idea can be scored based on a scale of one to five. The scores are multiplied by the weight to produce a weighted score. The sum of the weighted scores reflects the total weighted score for each idea. Those ideas with the highest weighted scores can be identified as higher priorities. Table 2 is an example of a primary screen with sample criteria, suggested percentage weights, and scoring algorithm.

Primary Screener

Criteria

Description

Weight

Scoring Algorithm

Score

Weighted Score

Market opportunity

Size of market, growth rate, capture rate, etc.

25 percent

1- small

5- large

4

1

Strategic fit

Aligned with strategic goals of company (i.e., international market share, stem customer loss, higher margin products/services

20 percent

1- low

5- high

5

1

Feasibility

Technical, time-to-market

35 percent

1- difficult

5- easy

5

1.75

Financial effect

Ability to monetize, magnitude of incremental revenue/savings

20 percent

1- low

5- high

3

0.6

Total

 

100 percent

 

4.35

Table 2

The screening criteria will likely produce a bell-shaped screening curve as shown in figure 3. In general, you can expect to recommend less than 10 percent of the ideas. Approximately 80 percent will either have potential or need further work. The remaining 10 percent will be rejected. The role of the screening team is more than just recommending or rejecting ideas. They serve as a “partner” with prospective innovators to help improve the ideas, bring innovators together, and facilitate the overall process.

Figure 3

At this stage, the recommended ideas are presented to the executive sponsors for review and approval of new ideas for market testing. An effective technique is to graphically depict the ideas using a matrix incorporating the weighted score relative to the financial effect. The size of the circles also indicates the relative size of the idea in terms financial metrics (i.e., revenues). See figure 4.

Figure 4

Testing
A good idea for a new product, service, or process isn’t worth much by itself. It needs to be turned into something that can be market tested, and, if successful, integrated into the rest of what a company does. Testing can include the gamut of developing prototypes, performing design of experiments, simulations, models, and beta pilots. Quickly turning an imaginative idea into a real service, product, process, or business model is the final step in the innovation process. By real, I mean concrete enough to be tested; by quickly, I mean early enough in the process that mistakes can be caught and improvements made.

One common misperception in new product or service development is that radical ideas are risky, and thus require significant funding, resources, and time. This isn’t necessarily true. Consider how Google market-tests any of their new products or applications. Visit http://Labs.Google.com and you will find more than a dozen of Google’s latest ideas (i.e., Google Talk, Experimental Search, Google Trends, Google Page Finder) that aren’t quite ready for prime time. Google encourages visitors to play with these prototypes and to submit comments to help them improve them. Google is so confident of their innovation process, that they allow customers can send their feedback directly to the Googlers who developed them. For those business professionals who are extremely sensitive about launching products or services that haven’t been completely tested, ask yourself the following question: “When was the last time you called Google with product support issues?”

How about a bricks-and-mortar retailer example? Consider Home Depot’s innovation center—an unmarked, 88,000 square-foot warehouse located in a bland office park near Home Depot’s headquarters in Atlanta. Here, Home Depot tests everything from riding lawn mowers to displays for patio furniture sets before they hit stores. "This is our working laboratory," says Thomas V. Taylor Jr., Home Depot's executive vice president for marketing and merchandising. Bringing new and better products to its 2,048 stores is critical for Home Depot, in its battle to out-innovate archrival Lowe's Cos., which has its own product testing center on its Mooresville, North Carolina, campus, and voracious juggernaut Wal-Mart Stores Inc. Company officials say they can go from an innovation center product test to an in-store pilot project in as little as 30 days. Putting a concept to test doesn’t just help determine if it has commercial value. The process also teaches the innovation team members lessons they might be able to use later, even when an idea is a complete flop. Learning from failures is sometimes just as important as blockbuster hits. It helps company’s avoid making the same mistake.

Conclusion
While most CEOs understand the importance of innovation to growth and success, very few have developed sustainable innovation processes to systematically produce new products, services, or processes. It’s a challenging paradigm shift to think of innovation in this manner. It requires real leadership commitment, fostering a trusted environment to encourage idea generation and knowledge sharing, implementing a rigorous innovation screening process, and market testing those new concepts without fear of failure or customer complaints. The few ideas that finally make it through the innovation process can then be designed more thoroughly using more rigorous techniques such as design for Six Sigma. In the meantime, a company has to keep their innovation pipeline filled.

Discuss

About The Author

Peter J. Sherman’s picture

Peter J. Sherman

Peter J. Sherman is a managing partner of Riverwood Associates, a lean Six Sigma certification training and consulting firm based in Atlanta. Sherman brings more than 20 years experience in designing and implementing process improvement programs. Sherman is a certified lean Six Sigma Master Black Belt, an ASQ-certified quality engineer, and an APICS-certified supply chain professional. He holds a master’s degree in engineering from MIT and an MBA from Georgia State University.