Making Innovation Work : How to Manage It, Measure It, and Profit from It

by Davila, Tony; Epstein, Marc; Shelton, Robert

• ISBN13: 9780131497863
• ISBN10: 0131497863
• Edition: 1st
• Format: Hardcover
• Copyright: 2005-07-22
• Publisher: Pearson Prentice Hall

Summary

Innovation isn't magic. It must be managed, measured and incentivized to be profitable. This book by three experts shows you how it's done. bull; The first total management framework to consistently and profitably execute on innovation: covers strategy, organizational design, incentives - everything needed to get the job done. bull; Three world-renowned experts deliver today's most sophisticated and battle-tested innovation knowledge. bull; Presents powerful metrics for measuring innovation, from idea creation through commercialization.

Author Biography

Tony Davila is a faculty member of Stanford's Graduate School of Business. Building on his doctoral work at the Harvard Business School, he works with both large industrial companies and Silicon Valley startups to design management control and performance measurement systems that drive innovation. He has been published in Harvard Business Review, Research Policy, and other leading journals.

Marc J. Epstein has been a visiting professor and Hansjoerg Wyss visiting scholar at Harvard Business School and a distinguished research professor at Rice University's Jones Graduate School of Management. He has been a senior consultant to leading corporations and governments for over twenty-five years, specializing in strategy implementation, innovation, governance, accountability, and performance metrics. Epstein has also served as a professor at Stanford Business School and INSEAD.

Robert Shelton is managing director of Navigant Consulting's Innovation practice. His client list is a "who's who" of innovative Fortune 500s, including leaders in the electronics, energy, health care, automotive, consumer goods, software, and aerospace industries. Shelton has served as vice president and managing director with Arthur D. Little and as managing director of the Technology and Innovation Management practice at SRI International (formerly Stanford Research Institute). His work has been referenced in media ranging from The Wall Street Journal to CNN Financial News.

© Copyright Pearson Education. All rights reserved.

Table of Contents

Introduction	xvii
Chapter 1 Driving Success: How You Innovate Determines What You Innovate	1	(28)
Innovation Is the Power to Redefine the Industry	1	(4)
The Innovation Imperative: Driving Long-Term Growth in Top and Bottom Lines	5	(2)
How to Make Innovation Work: How You Innovate Determines What You Innovate	7	(2)
The Rules of Innovation	9	(19)
1. Exert Strong Leadership on Innovation Direction and Decisions	12	(3)
2. Integrate Innovation into the Business Mentality	15	(1)
3. Match Innovation to Company Strategy	16	(2)
4. Manage the Natural Tension Between Creativity and Value Capture	18	(5)
5. Neutralize Organizational Antibodies	23	(1)
6. Cultivate an Innovation Network Beyond the Organization	24	(1)
7. Create the Right Metrics and Rewards for Innovation	25	(3)
Summary: The Innovation Company	28	(1)
Chapter 2 Mapping Innovation: What Is Innovation and How Do You Leverage It?	29	(30)
A New Model of Strategic Innovation	29	(3)
Business Model Change	32	(3)
Value Proposition	32	(1)
Supply Chain	33	(1)
Target Customer	34	(1)
Technology Change	35	(3)
Product and Service Offerings	35	(1)
Process Technologies	36	(1)
Enabling Technologies	37	(1)
Three Types of Innovation	38	(20)
Incremental Innovation	42	(5)
Semi-Radical Innovation	47	(4)
Radical Innovation	51	(4)
Ersatz Radical Innovation	55	(2)
Disruptive Technologies	57	(1)
Innovation Model and the Innovation Rules	58	(1)
Chapter 3 Choosing Your Destiny: How to Design a Winning Innovation Strategy	59	(28)
Choosing the Right Strategy	59	(1)
Play-to-Win or Play-Not-to-Lose Strategies	60	(11)
Play-to-Win Strategy	60	(3)
Play-Not-to-Lose Strategy	63	(8)
Too Much of a Good Thing	71	(1)
Clearly Defined Innovation Strategy Drives Change	72	(3)
Do You Select an Innovation Strategy?	75	(3)
Internal Factors	76	(1)
External Factors	77	(1)
Risk Management and Innovation Strategy	78	(1)
Innovation Strategy: The Case of the Pharmaceutical Industry	79	(6)
Attempts to Solve the Innovation Problem	81	(1)
Changing the Innovation Approach	82	(3)
Strategy and the Innovation Rules	85	(2)
Chapter 4 Organizing for Innovation: How to Structure a Company for Innovation	87	(32)
Organizing for Innovation	87	(1)
Developing an Internal Marketplace for Innovation	88	(12)
Balancing Creativity and Value Creation	89	(2)
The Balance Changes as the Organization Matures	91	(6)
Five Steps to Balancing Creative and Commercial Markets	97	(3)
Outsourcing Innovation	100	(4)
Making Good Use of Your Partners	103	(1)
Integrating Innovation Within the Organization	104	(15)
The Value of Networks and Innovation Platforms	106	(3)
The Corporate Venture Capital Model	109	(2)
The Ambidextrous Organization	111	(3)
The Leadership Role	114	(1)
Organization and the Innovation Rules	115	(4)
Chapter 5 Management Systems: Designing the Process of Innovation	119	(24)
Systems and Processes Make Things Happen	119	(2)
The Objectives of Well-Designed Innovation Systems	121	(4)
Choosing and Designing Innovation Systems	125	(12)
Systems for Ideation: Seeing the Gaps	127	(1)
Structured Idea Management	128	(2)
Experimentation	130	(1)
Prototyping	131	(2)
Making Deals	133	(1)
Innovation That Fits	134	(3)
Management Systems Comparison	137	(2)
Electronic Collaboration	139	(3)
Management Systems and the Innovation Rules	142	(1)
Chapter 6 Illuminating the Pathway: How to Measure Innovation	143	(36)
To Measure or Not to Measure?	143	(5)
What Gets Measured Gets Done	145	(1)
The Three Roles of a Measurement System	146	(2)
A Balanced Scorecard for Measuring Innovation	148	(9)
The Business Model for Innovation	149	(1)
Inputs, Processes, Outputs, and Outcomes	150	(3)
From the Business Model to the Measurement System	153	(4)
Designing and Implementing Innovation Measurement Systems	157	(17)
Measures for Ideation	158	(5)
Measuring Your Innovation Portfolio	163	(4)
Measuring Execution and Outcomes of Innovation	167	(2)
Measuring Sustainable Value Creation	169	(5)
The Barriers to Effective Performance Measurement	174	(3)
Measurement and the Innovation Rules	177	(2)
Chapter 7 Rewarding Innovation: How to Design Incentives to Support Innovation	179	(30)
The Importance of Incentives and Rewards	179	(1)
Motivation	180	(3)
Different Strokes for Different Folks	181	(2)
A Framework for Incentive Systems' Design	183	(3)
Setting Goals for Measuring Performance	186	(5)
Specific Versus Broad Goals	186	(2)
Quantitative Versus Qualitative Goals	188	(1)
Stretch Versus Expected Goals	188	(1)
Success-Driven Versus Loss-Avoidance Goals	189	(2)
Performance Evaluation and Incentive Contracts	191	(6)
Team Versus Individual Rewards	191	(3)
Subjective Versus Objective Evaluation	194	(2)
Relative Performance Versus Absolute Performance Evaluation	196	(1)
Incentive Contracts	197	(5)
Expected Level of Pay	198	(1)
The Shape of the Pay-Performance Relationship	198	(2)
Timing Incentives	200	(1)
Delivery of Compensation	201	(1)
Key Considerations in Designing Incentives Systems for Innovation	202	(4)
The Danger of Over Use	203	(1)
The Negative Effect on Intrinsic Motivation	204	(1)
Fear, Failure, and Fairness	205	(1)
Incentives and Rewards, and the Innovation Rules	206	(3)
Chapter 8 Learning Innovation: How Do Organizations Become Better at Innovating?	209	(26)
The Importance of Learning	209	(4)
A Model of Learning	213	(2)
Learning to Act	213	(1)
Learning to Learn	214	(1)
Learning Systems for Innovation	215	(7)
Systems for Delivering Value	216	(2)
Systems for Refining the Current Model	218	(1)
Systems for Building Competencies	219	(2)
Systems for Crafting Strategy	221	(1)
How to Make Learning Work in Your Organization	222	(5)
Knowledge and Ignorance Management	222	(2)
The Project Roadmap	224	(1)
Failures as Part of the Process	225	(1)
Learning Histories	226	(1)
The Dynamic Nature of Innovation Strategy	227	(6)
The Technology Stage	228	(2)
The Performance Stage	230	(1)
The Market Segmentation Stage	231	(1)
The Efficiency Stage	232	(1)
The Complementarities Stage	232	(1)
Learning and the Innovation Rules	233	(2)
Chapter 9 Cultivating Innovation: How to Design a Winning Culture	235	(26)
How Culture Affects Innovation	235	(1)
Is Innovation the New Religion?	236	(3)
The Danger of Success	239	(3)
Organizational Levers of an Innovative Culture	242	(8)
The Levers of an Innovative Culture	243	(6)
Legends and Heroes	249	(1)
The Physical Environment	250	(1)
Different Country Cultures Breed Different Innovation Cultures	250	(3)
People and Innovation	253	(3)
Recruiting to Build an Innovative Organization	253	(1)
Turn Your Recruitment Strategy Upside-Down!	254	(2)
The Role of Senior Management	256	(3)
Leading Innovation	257	(1)
The Role of the CEO	258	(1)
Culture and the Innovation Rules	259	(2)
Chapter 10 Conclusion: Applying the Innovation Rules to Your Organization	261	(26)
Combining Creativity with Commercial Savvy	261	(2)
Smart Execution	263	(1)
The Role of Leadership	264	(3)
Leadership Must Define the Innovation Strategy and Link It to the Business Strategy	264	(1)
Innovation Must Be Aligned with the Company Business Strategy, Including Selection of the Innovation Strategy	265	(1)
Leadership Must Define Who Will Benefit from Improved Innovations	266	(1)
Diagnostics and Action	267	(16)
Stage-Gate Systems	276	(2)
The Venture Capital Model	278	(1)
The Technology Innovation Model	279	(1)
Time-Driven Systems	280	(3)
Organizing Initiatives	283	(1)
Fine-Tuning	283	(1)
Redirection/Revitalization	284	(1)
Generating Innovation Value	284	(3)
Endnotes	287	(18)
Bibliography	305	(20)
Index	325

Excerpts

MAKING INNOVATION WORK MAKING INNOVATION WORK: HOWTO MANAGE IT, MEASURE IT, AND PROFIT FROM IT INTRODUCTION Much that is held as common wisdom regarding how successful innovation is managed is wrong. It seems that somewhere along the line, the correct set of rules of innovation have been misplaced, distorted, or simply misinterpreted. This is not to say that organizations are not innovative--obviously many are. But how and why these companies are innovative is very different than what many managers think. This book challenges the prevalent misconceptions about innovation, and lays out the tools and processes necessary for an organization to harness and execute innovation. The following chapters show that, contrary to popular belief: Innovation does not require a revolution inside companies. What it does require is thoughtful construction of solid management processes and an organization that can get things done. Innovation is not alchemy, with mystifying transformations. It's much more like the basic blocking and tackling of other key business functions. Innovation is not primarily about creativity and having a "creative culture." Many companies find that coming up with good-to-great ideas is the easy part; the hard stuff is selecting the right ideas and implementing them. Nor is it solely about processes and stage-gate tools. These do count, but tools and processes alone are not effective--they must be coupled with an organization, metrics, and rewards that can make things happen. Innovation does not focus exclusively on cool new technology. Developing new business models and new strategies are every bit as important--sometimes more. Innovation is not something that every company needs in large quantities. Innovation must match the opportunity and the competencies of the organization--sometimes, with good timing, a little goes a long way. Making Innovation Work provides three new, important perspectives for senior managers: Innovation, like many business functions, is a management process that requires specific tools, rules and discipline--it is not mysterious. Execution is simple once it is clear how the pieces fit together. Company executives typically complain that they cannot get innovation accomplished in their organizations. Making Innovation Work presents an integrated framework, formal processes and tools that all managers can use to create top- and bottom-line growth from innovation. The book describes how to use these standard management tools (such as strategy, organizational design and structure, management systems, performance evaluation, people, and rewards) to dramatically increase the payoffs from innovation investments. Innovation requires measurement and incentives to deliver sustained, high yields. Remember the saying, "You can't manage what you can't measure"? That certainly holds true for innovation, but many managers have only paid lip service to this crucial aspect. Many companies measure the wrong things and provide incentives for behavior that corrodes the systems and processes that support innovation. Making Innovation Work shows how to use metrics and incentives to manage every facet of innovation from creating the ideas, through selecting and forming the prototype innovations, and all the way through to commercialization. The book has metrics and incentives that can be used by companies of all sizes, complexities, and in all types of industry. Companies can use innovation to redefine an industry by employing c