Is Your Innovation Project for Real?

Wednesday, 17. April 2013

Innovative strength is by all means one of the key drivers for sustained business success. Empirical studies confirm this again and again. The development of innovative products and services that offer unique value to the customer, however, tends to be very risky. If a business has a wrong idea of what the customers’ needs and wants are, of what the characteristics of the market are it is getting itself into, or even of its own ability to produce the desired product, it may not only lose the money invested. It may also run the risk of falling behind the competition and forfeiting its hard-earned competitive position.

To avoid such failure, it is important to make a realistic assessment of the potential risks associated with individual innovation projects early in the process. A simple yet effective tool for this is the so-called "Real-Win-Worth it" framework which was originally developed back in the 1960s by marketing expert Don Schrello. Today, versions of the framework are widely used by large R&D corporations. In a Harvard Business Review article, published in 2007, George S. Day provides an excellent explanation of the tool.

 RWW

Real-Win-Worth it screening by George S. Day

 

R-W-W is based on three logically constructed sets of questions that allow a systematic evaluation of innovation projects. The answer choices are "Yes," "No," or "Maybe."

1. Is it real?

a) Is the market real?
The first step in the evaluation process is to clarify whether at all a market exists for the product. With other words, whether money can be made with the idea. A market exists when the following four conditions are met: 1) The product satisfies an identifiable customer need better than alternative products, 2) customers are able to buy the product, i.e. there are no access barriers such as costs, government regulations, or contractual obligations with other vendors, 3) the potential market is large enough, and 4) customers will want to buy the product. If the answer to this first question is a definite "No," the innovation project should be terminated right there, since failure is bound to occur.

b) Is the product real?
Once the company has determined that there is sufficient demand for the product, the next step of the R-W-W screening is to check the innovation project for feasibility. Based on a thorough analysis of the customer needs and wants, product requirements need to be specified. This includes technical but also legal, social, and environmental aspects. After working out the product concept in detail, the company needs to take an honest look at itself to see whether it has the skills and resources necessary to produce the desired product with good quality and at a reasonable price. The key question here really is whether the final product can satisfy the customer needs or not.


2. Can we Win?

“Simply finding a real opportunity doesn’t guarantee success: The more real the opportunity, the more likely it is that hungry competitors are eyeing it,” Day argues. What counts is the ability of the innovation to compete and win appropriate market share.

a) Is the product competitive?
The product needs to have a distinct competitive advantage which the consumers will recognize as such and be willing to pay a higher price for. In addition, the product should be difficult for competitors to copy.

b) Is the business competitive?
To be able to sustain the competitive advantage over the long-term, however, the company needs to have superior resources, management, and market insight. If this is not the case, appropriate measures, such as hiring specialists or seeking advice from external industry experts, may be taken to overcome the deficiencies, thus reducing the risks associated with launching the product.

3. Is it worth doing?

At the end of the day, what matters for businesses the most is profitability. Therefore, the final step of the R-W-W screening is to determine whether the innovation project is financially and strategically worth pursuing.

a) Will the product be profitable at a reasonable risk?
While admittedly not easy at early stages of project development, best efforts should be made to estimate the costs and potential return on investment of the proposition. Day points out that financial projections should not only include the cost for initial product development, but also for product extensions and enhancements, since these are necessary to keep ahead of the competition. The risk analysis should take into account potential changes in price, market share, and consumer behavior, time delays, causes of product failure, as well as any negative effects on other projects.

b) Does Launching the Project Make Strategic Sense?
Even when a project appears profitable, it may not make strategic sense to launch it. To determine whether the proposed project fits with the overall corporate growth strategy, the following questions should be asked: Will the project enhance the core competencies of the company? Will it have a positive or negative effect on brand loyalty? Will it improve or hamper sales of other products in the company’s product portfolio? What will be the impact on the relationships with key stakeholder groups? If a project runs contrary to corporate strategy, implementation is most likely not advisable.

R-W-W screening is basically a simple scorecard that helps businesses in identifying and assessing critical success factors involved in the launch of a new product. The rating scales can be freely chosen. To keep it clear and simple, however, Don McClure, ehemals 3M, empfiehlt using a traffic light system (“red, yellow, or green”) rather than 1-10 rating scales. "Red" is a definite "No" and "green" a definite "Yes." The more clearly the three core questions are answered with "Yes," the lower the investment risk.

Day advises to repeat the R-W-W screening at all phases of product development, since with each step more detailed product, market, and financial information becomes available which makes answering the questions easier. He concludes that R-W-W can help businesses “to expose faulty assumptions, gaps in knowledge, and potential sources of risk, and to ensure that every avenue for improvement has been explored.”



Literature

Day, G.S. (Dezember 2007). Is it real? Can we win? Is it worth doing?: Managing risk and reward in an innovation portfolio. Harvard Business Review.
http://hbr.org/2007/12/is-it-real-can-we-win-is-it-worth-doing-managing-risk-and-reward-in-an-innovation-portfolio/ar/1