Is It Real? Can We Win? Is It Worth Doing?
Minor innovations make up most of a company's development portfolio, on average, but they never generate the growth companies seek. The vast majority of innovations fail because companies don’t ask questions before decide which products can make and don't accept some level of risk.
Two tools can help them do this.
The first, called the risk matrix, graphically reveals the distribution of risk across a company's entire innovation portfolio. The matrix allows companies to estimate each project's probability of success or failure, based on how big a stretch it is for the firm to undertake. The less familiar the product or technology and the intended market, the higher the risk.
The second tool, the R-W-W (real-win-worth it) screen, is a simple but powerful tool to use in the early stages of the innovation process to test the viability of ideas for new products or services. It’s also useful at stage gates throughout the development process to confirm the value of the innovation project or to support its termination and allows companies to evaluate the risks and potential of individual projects by answering six fundamental questions: Is the market real? Is the product real? Can the product be competitive? Can our company be competitive? Will the product be profitable at an acceptable risk level? Does launching the product make strategic sense?
Looking at the market first makes sense for two reasons: First, the robustness of a market is almost always less certain than the technological ability to make a product or design a service. Second, if you discover that the market isn’t strong enough, you can head off a costly “technology push.” This syndrome often afflicts companies that emphasize how to solve a problem rather than what problem should be solved or what customer desires need to be satisfied.
1. Real: The first set of questions focuses on the market. Is there a need or desire for the product? Can the customer buy it? Is the size of the potential market adequate? Will the customer buy the product? Are there subjective barriers to purchasing it? Is there a clear concept? Can the product be made or the service designed? Could it be created with available technology and materials, or would it require a breakthrough of some sort? If it can be created, can it be produced and delivered cost-effectively, or would it be so expensive that potential customers would shun it? Will the final product or service satisfy the market?
2. Win: Assuming that there are no definite “No’s” in the first step, move on to exploring the competitive environment.
Can the product or service be competitive? Does it have a competitive advantage? Can someone else’s offering provide customers with the same results or benefits? Can the advantage be sustained? How will competitors respond? If we were going to attack our own product or service, what vulnerabilities would we find? How can we reduce them? Would the product or service survive a sustained price war? Can our company be competitive? Do we have superior resources? Do we have appropriate management? Does the organization have direct or related experience with the market, are its development-process skills appropriate for the scale and complexity of the project, and does the project both fit company culture and have a suitable champion? Can we understand and respond to the market?
3. Worth It: Finally, if the R-W-W Screen shows promise in the first two steps, it’s time to explore the risks vs. payoffs. Will the product or service be profitable at an acceptable risk? Are forecasted returns greater than costs? Are risks acceptable? How will small changes in price, market share, and launch timing affect cash flows and break-even points? Does launching the product make strategic sense? Does the product or service fit our overall growth strategy? Will it enhance the company’s capabilities by, for example, driving the expansion of manufacturing, human capital, logistics, or other functions? Will it have a positive or a negative impact on brand equity? Will it cannibalize or improve sales of the company’s existing products or services? (If the former, is it better to cannibalize our own products than to lose sales to competitors?) Will it enhance or harm relationships with stakeholders-dealers, distributors, regulators, and so forth? Does the project create opportunities for follow-on business or new markets that would not be possible otherwise?
All innovation involves risk, but by answering all the relevant questions in the R-W-W Screen we will have completed an effective due diligence analysis. we can be more confident in our recommendations, more influential with key stakeholders, and more likely to focus our innovation resources on projects that are well worth the costs.
