Your numbers are always wrong

29 november 2012

Nothing is certain in innovation projects except one fact: YOUR NUMBERS ARE WRONG! Even when you have thoroughly assessed the market opportunity and costs involved, you can be sure that the forecasts in your business case will not come true. If that is the case, you can question yourself if you should spend time and resources on the development of a business case. The answer is a firm ‘yes’. Development of a business case and the subsequent analysis deliver you new insights that contribute significantly to the success of your innovation project.

How can firms successfully innovate? Most scientists dealing with New Product Development are strong believer from a structured innovation process. This seems to be counterintuitive since everyone assumes that creativity is at the heart of innovation. The role of formal and structured processes is in many cases underestimated. Research uncovered that firms who followed a structured analysis – including cost ramifications – are more successful in bringing the product to the market and in its commercialization. Firms following a structured approach had to work out fewer ideas for one product success and realized higher percentages revenues and profits from these new innovations. See table below. (Source: Trends and Drivers of Success in NPD Practices: Results of the 2003 PDMA Best Practices Study. By: Barczak, Griffin and Kahn.2009)

Benefits

The development of a business case offer several benefits.

  • Avoid that company’s scarce resources are spent on inappropriate projects
    When a business case is made for each new product, you can compare the expected results and select the most attractive products to be developed. This will be necessary since a firm’s resources are not infinite and thorough analysis will support the selection of those projects with the highest potential.
  • Stimulate stop & think behavior
    The development of a business case forces employees to think over the complete business concept. The analysis will result in increased knowledge and new insights which should be used to continuously adjust and optimize the business concept.
  • Cost savings on unnecessary and expensive prototyping
    Actual product development is in many cases much more expensive than analyzing the business concept on paper. So if no viable business case can be constructed, you can better save the money on the development of the prototype.
    It should be noted that the cost saving consideration is not important for service development when no physical infrastructure, equipment or other expensive resources are required.
  • Generate higher levels of commitment
    The business case can be used to convince management and secure the required resources to implement the business case.

But be aware…

It will be important that – when developing a business case – you keep an open mind and avoid a strict application of business cases for management decisions. Overuse of financial indicators to select development projects tends to favor the known projects with lower uncertainties, and thus drives your business to a conservative, low risk portfolio—lots of low-hanging fruit projects, fast, cheap, and certain. Since disruptive innovation is essential for a firm’s long term market position, revenues and profits these uncertain innovation projects should also be included in your portfolio. So use business cases as a reflective learning tool that helps you to reduce uncertainties.

 

 

Suggested reading

Barczak, G., Griffin, A., Kahn, K. 2009. Trends and drivers of success in NPD practices: Results of the 2003 PDMA Best Practices Study. Journal of Product Innovation Management. 26, 3–23.

Cooper, R. 2011. The Innovation Dilemma: How to innovate when the Market Is Mature. Journal of Product Innovation Management. 28 (1), 2-27.Griffin, A., Price, R., Maloney, M., Bruce A., Vojak B., Sim, E. 2009. Voices from the field: How exceptional electronic industrial innovators innovate. Journal of Product Innovation Management. 26, 222-240.

Hammedi, W., van Riel, A., Sasovova, Z. 2009. Antecedents and consequences of reflexivity in New Product Idea Screening. Journal of Product Innovation Management. 28, 662-679.

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Over de Auteur


Irma is meer dan 20 jaar actief als management consultant in de ICT sector en oprichter van SMARTconsulting.nu. Zij heeft een bedrijfskundige en financiële achtergrond en specifieke ervaring met innovatiemanagement, business modellering, financiële assessments, risico analyse, scenario ontwikkeling en benefit realisation management. Naast deze expertise heeft Irma onderzoekskennis en ervaring opgebouwd door in (internationale) researchprojecten te participeren.