Analysis and Commentary

Towards 3% R&D – picking innovation winners by Professor Danny Samson

Analysis and Commentary

Today in the closing days of our editorial series – Towards 3% R&D – Turbocharging Australia’s Innovation Effort – Professor Danny Samson looks at picking winners in R&D. His conclusion – no guarantees but a structured approach can help.

We all pick winners: so let’s do it well!

From governments and big businesses to startup entrepreneurs, and even individual investors, we make choices under uncertainty, and place bets on ‘what will work’ in the light of uncertainty.

Once an organisation has committed to building its innovation capability and progressing a portfolio of innovation projects and initiatives, it then becomes a case of prioritising, choosing the initiatives to take forward and then project managing them in a firm and disciplined way.

It is reasonable to assume that essentially all innovations begin with an idea, and we should acknowledge the truism that ‘ideas are cheap’ and they are indeed plentiful.

Once we have completed a process of idea generation at any particular time, the hard work begins of selecting the most promising ideas and investing in moving them through the various stages of development towards commercialisation.

There are many ways to decide on which ideas should go forward and which should not.

Even the most successful of innovative organisations such as Apple, Google and Samsung have taken innovation ideas forward and invested in them heavily, only to find them unable to succeed in the marketplace.

Our research identified that a purely subjective approach to choosing innovation initiatives is far from optimal, and that a systematic and structured approach can be effectively used as a set of tests of new ideas.

Further, these tests can be periodically reapplied to the portfolio of ideas as the research, development and commercialization processes continue.

@AuManufacturing is in its last week of publishing contributions from readers for our series – Towards 3% R&D – turbocharging our national innovation effort – and will shortly publish contributions in an e-Book. Information: Peter Roberts, 0419 140679 or write to [email protected].

We set out below our proposed minimum set of key tests that every new proposed innovation should be evaluated on:

  1. The function and value test. This element of feasibility questions whether the innovation will fundamentally serve a required need and be fit for the purpose that is intended. It further questions whether the value that is delivered is superior to existing offerings or solutions in the marketplace, such that customers will consider switching, or if it is a
  2. The market and marketing test. This element of feasibility is concerned with the appeal to customers and the ability that we have to effectively find a channel of distribution to the marketplace.
  3. The operations and scale up test. Can the product or service being developed B affectively mass produced? It is certainly not good enough to be able to demonstrate the functionality of a pilot or prototype, but rather the new innovation’s design must be sufficiently robust so as to be mass produced without compromising quality or productivity.
  4. The management and key personnel test. Do we have or can we recruit the human resources required to scale up and commercialise this innovation?
  5. The financial test. Will this innovation activity, whether it be a product, service, new process, new technology, or indeed a new business model, provide a financial return on investment. This should be considered on a discounted cash flow basis that is ultimately adjusted for the project’s riskiness.
  6. Intellectual property control and access test. This requirement is to ensure that we not transgressing on the intellectual property of other entities and that we therefore have full control of all elements of intellectual property to be used in this innovation. It also serves to cause us to consider and create our own intellectual property strategy for this innovation.
  7. Strategic alignment test. To what extent does the new innovation fit and align with our organisational strategy and its priorities? For example, if this is a new product or service, does it fit within or sensibly extend our existing portfolio of marketplace offerings, and do we have the capabilities to produce, market, sell and distribute it, or to effectively outsource those activities?
  8. And sustainable development and ESG. Does this new innovation at least meet minimum standards of environmental and social sustainability, and hopefully perform at much higher levels then those minima? Will the innovation be attractive 2 stakeholders who increasingly mindful of environmental and social factors when choosing their consumption items?

We propose that these tests can be used to rank and prioritise the feasibility of innovation ideas whether this be at the very early stages of choosing initial projects to conduct research in, or down the track when periodic reviews should be conducted with increasingly careful focus on which projects to allocate resources to.

An interesting question about the eight tests listed above is to consider how many of the eight tests need to be ‘passed’ in order to make an innovation potentially valuable?

We believe that the answer is that eight out of eight tests need to have a satisfactory answer, without which, in all eight cases, problems will arise later and will only grow in magnitude, if satisfactory solutions cannot be found.

Returning to the overall theme of picking winners, and having drilled down into some of the key tests that should be used in selecting potential innovation projects, we propose that the use of such a structured approach across a range of potential innovation projects, can be an effective screening process, and should then lead to the shortlisted set of projects that can be assembled into an innovation portfolio of activities.

Governments should use test criteria such as these, just as do the best of businesses.

The worst that government can do is remain impotent because of a fear of failure of some of its initiatives.

Good judgement, channelled through a set of structured criteria and tests, is the best way forward.

Dr Danny Samson is Professor of Management at the University of Melbourne where he teaches, conducts research and advises businesses on operations/supply chain, innovation and ESG strategies.

Picture: Professor Danny Samson

Also by Professor Samson in this sries:
Towards 3% R%D – Building innovation capability by Danny Samson

This series is brought to you through the support of our principal sponsor, public accounting, tax, consulting and business advisory BDO, and R&D tax incentive consultancy Michael Johnson Associates.

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