Inpaqt Confidential and Proprietary
How to create, develop and capture new business value?
Business Innovation Value Management
November 2013
Inpaqt Confidential and Proprietary
Object 3
Contents
Understanding the complexity
§Business Innovation Framework
§Approach – Process Visualization
§Lifecycle of Innovation
§Service Offerings to Accelerate Innovation
§Appendices
• Service Offerings
• References
• About ....
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Operating Model Innovation
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Growth Strategy
Inpaqt Confidential and Proprietary
Our understanding of the difficulties to ensure the Value creation, development and capturing for Innovation in a complex and uncertain environment
KEY QUESTIONS
How we can double the Value of the existing Innovation Portfolio?
CHALLENGESITUATION ?
§ The key characteristics of Innovation are high level of uncertainty in technology and markets, complex decision making for innovation program leaders and the board members.
§ Traditional business case approach for future value calculation doesn’t support the decision makers.
§ Once a business case is approved in the start of the innovation program, it isn’t used in the next steps of the innovation process to take the complex decisions needed.
§ The majority of the Innovation Program delay in time compared to the original Business Case
§ Portfolio Management
§ Speed of Innovation & Program Management.
§ Innovation Business Case, Management, Tooling & Training
§
§ Decision makers for Innovation Programs and Portfolio urge for better decision supporting tools on program and portfolio level.
§ Once a Innovation Program is started a need for a more dynamic Track & Trace tool regarding the performance of the program is required. The lack of Speed of Innovation the one of the most critical business case “killers”.
§ Due to the complexity of the decision making process and portfolio management, building internal competences is vital for sustainable success.
How to develop and implement an Innovation Decision Making Approach to double the Business Value of the existing Innovation Portfolio?
• How to define and use clear criteria for decision making process on Program and Portfolio level?How to develop a Innovation Business Case reflecting the right decision making process?How to manage the high sensitive value criteria successfully?
•
KEY SERVICESBusiness Innovation Value Management
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I. Growth StrategyIdentifies where to allocate
organizational resources for future return on investments. Development of strategic scenarios to provide direction for the long-term growth strategy.
II. New Business ModelsA business model describes the
rationale of how an organization creates, delivers, and captures value. We help to develop effective, game-changing business models.
III. SOM InnovationDefines how an organization aligns
its assets and capabilities to deliver the future value proposition. Detailed design of the required changes to the current organization.
IV. Innovation Value ManagementTo maximize the outcome of your
innovation efforts, proper innovation management is imperative; i.e. portfolio mgt, Speed of Innovation & Program mgt, Co-development & Partnership mgt, Innovation BC mgt
DESIGN THE FUTURE VALUE PROPOSITION
DESIGN HOW TO CAPITALIZE
ON IT
DESIGN HOW TO DELIVER IT
TEST HOW TO MANAGE THE
FUTURE VALUE
Innovation Value Management is the financial reflection of our business innovation framework (designing & testing of Value Hypothesis) in terms of Future Value: NPV, IRR and Payback Time.
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Operating Model Innovation
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Inpaqt Confidential and Proprietary
Source: Adapted from Damien Newman – Central Inc,
Approach – Process Visualization of Entrepreneurial Innovation
Entrepreneurial Innovation means coping with uncertainty in all dimensions and therefor many iterations in redesign of the four dimensions
THE FUTURE VALUE PROPOSITION
HOW TO CAPITALIZE
ON IT
HOW TO DELIVER IT
HOW TO MANAGE THE FUTURE VALUE
UNCERTAINTY / RISKS /
PATTERNS /INSIGHTS
CLARITY / FOCUS
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Models
Operating Model Innovation
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odels
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odel
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Innovation Value Management
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Innovation Value
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Operating M
odel Innovation
Innovation Value Management
Grow
th Strategy
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Operating Model
InnovationInnovation Value
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New Busioess
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Growth Strategy
New Busioess
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Growth Strategy
New Busioess Models
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Innovation Value Management
Gro
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Inpaqt Confidential and Proprietary
Source: Adapted from Damien Newman – Central Inc,
Approach – Process Visualization of Managerial Innovation
Managerial innovation means that less dimensions requires redesign along the way and the process of innovation becomes more manageable and standardized at the end of the process
THE FUTURE VALUE PROPOSITION
HOW TO CAPITALIZE
ON IT
HOW TO DELIVER IT
HOW TO MANAGE THE FUTURE VALUE
UNCERTAINTY / RISKS /
PATTERNS /INSIGHTS
CLARITY / FOCUS
New
Busioess
Models
Operating Model Innovation
Inno
vatio
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lue
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agem
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Growth Strategy
New
Busioess
Models
Operating Model Innovation
Inno
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lue
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Growth Strategy
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odels
Operating Model Innovation
Inno
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Growth Strategy
New
Busioess
Models
Operating Model Innovation
Inno
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Growth Strategy
New
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Models
Operating Model Innovation
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odels
Operating Model Innovation
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Growth Strategy
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Operating Model Innovation
Inno
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Growth Strategy
New
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Models
Operating Model Innovation
Inno
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Growth Strategy
Inpaqt Confidential and Proprietary
Source: Adapted from Damien Newman – Central Inc.
Life Cycle of Innovation
Managing the complexity and uncertainty means understanding the lifecycle of Innovation and knowing which risks and uncertainties are sensitive for Future Value
§ In an ideal scenario, an idea quickly transforms into a new product, without excessively high investments. New products are successfully introduced into the market, which, in turn, reach break-even fast.
§ Key financial ratio’s to measure success of Innovation are NPV, IIR and Payback Time
§ Key drivers for NPV are Time to Market (TTM), Investments, Income growth and Risk/Interest
§ The innovation cycle faces technical risks and market uncertainties
§ Main causes for loosing Value: taking too much time to perfect products instead of good enough, not having a launching customer, lack of IP protection, lacking solid market insights, not involving (e.g.) customers, suppliers or other third parties, due to matters taking longer, higher investments are required which push back the break-even point. Also the growth curve is likely to slope down due to missing market momentum.
§ Key Insight you need is: Which risks, uncertainties are most sensitive to impact the Future Value
§
Ideal Life Cycle of Innovation Reality is often different
Accu
mul
ated
Cas
hflo
w
IDEAL SCENARIO
MARKET INTRODUCTION
BREAK EVENTechnical
Risks
Time
Market
Uncertainties
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Service Offerings to accelerate Innovation Value Managem ent
Successfully managing the Future Value requires to build up the right capabilities our having access to services offering the requested functionalities
Services
Innovation BC Training 101
Full Outsourced Full Self Capable
Innovation Program Management Acceleration
IMS License & tool readiness Current Portfolio
CertificationFacilitating user community
Speed of Innovation - Consulting
Speed of Innovation - Building the capability
Innovation Portfolio “Value Doubler”
Portfolio Future Value Assessment
One Innovation Program NPV Acceleration
Innovation Portfolio - Building the capability
Outcome
Portfolio
Management
Speed of Innovation & Progr. Mgt.
Innovation Business Case
PROGRAM FUTURE VALUE
CERTAINTY INCREASE
FUTURE VALUE MANAGEMENT
CAPABILITY
PORTFOLIO FUTURE VALUE
CERTAINTY INCREASE
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Service Offering Details
Inpaqt Confidential and Proprietary
Innovation Business Case Training 101How build and manage business case in Innovation Dynamics?
Business Case Training 101
Objectives
§ Understand the Lifecycle of Innovation§ Understand and execute building a base line business
case using the tool ©IMS§ Develop different business case scenario’s for your own
project§ Simulate for each scenario improvement on NPV, IRR
and Payback Time
Output
§ Actual Business Case for your own Innovation Project§ Different business case scenario’s§ NPV-Reports for each executed simulation§ Capability to use ©IMS at initial level§
Method
§ Day 1: getting started with the base line BC:ü Client Case Introduction
ü BC introduction - base line
ü New case creation walkthrough base on prepared case information
ü Get used working with the tool ©IMS
ü Speed of Innovation – Introduction
ü Q&A
§ Day 2: advanced BC understanding:ü Collective Case Introduction
ü Sensitivity Analysis – introduction
ü Execute sensitivity analysis - Group work
ü Acceleration of the BC – Report out
ü Portfolio Management – Introduction
ü Q&A
ü Day 3: advanced Portfolio Management (OPTIONAL)
Inpaqt Confidential and Proprietary
In order to analyze different business case scenario’s the Sensitivity Analysis based on Monte Carlo Simulation method can be applied in complex and uncertain environment
What is it How to apply it
§ The Innovation Business Case Method is based upon Discounted Cash Flow (DCF) models, which help managers ask the right questions when judging projects and make better-founded decisions in complex and high uncertainty environment. We feel that a manager’s toolbox is not complete without this model and should be used throughout the life cycle of a product.
§ Free cash flow will fluctuate in the course of the project due to technical risks and market uncertainties. There are a number of possible scenarios, each with its own specific net present value and likelihood of occurring.
§ All these scenarios ought to be worked out and set against the likelihood that they may occur. This will be done using a Monte Carlo simulation. The various outcomes are presented as a distribution of NPV
§•
§ In de Innovation Lifecycle many options can create value, but they usually also cost money. Decision diagrams are a good way to estimate the value of an option. When they are set against the costs of obtaining flexibility, gathering information and implementing the decision, one can see whether or not the option will in fact create value.
§ We feel that the ability to think in terms of options is an important skill and an essential element of innovative entrepreneurship.
Innovation Business Case – Method: Sensitivity Analysis based on Monte Carlo Simulation
8/24/200323
Several real options are embedded in R&D-projects
• Several real options are embedded in R&D-projects
research and development
LaunchDecision
LaunchDecision
commercialisation
Cash Outflows Cash Inflows
launch
Embedded real options:•option to abandon•option to speed up•option to slow down•option to temporarily stop
Embedded real options:•option to defer launch
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Success of launch:•dog•average•star
Embedded real options:•option to abandon•option to expand•option to contract
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IMS Tool License & readiness current PortfolioHow to start with IMS and be ready to manage the current Portfolio?
IMS tool license & readiness current portfolio
Objectives
§ License to operate with ©IMS tool§ Able to install projects in IMS§ Able to execute simulations on project basis§ Install current portfolio of innovation projects§ Execute different scenarios and simulation on portfolio
Output
§ Running IMS tool§ Dynamic Business Case for Innovation Projects§ NPV-Reports for each executed simulation§ Portfolio analysis reports§
Method
§ Quick scan current data model, tool, infrastructure and security. Possible reuse of data and infrastructure.
§ IMS Module planning and road mapping. Decision which modules are relevant and beneficial and in which order.
§ Business Case design and reporting. Supporting decision making process for go/no-go with IMS
§ Configuration and installation planning for each module. Ready to use and roll out scheme
§ User training and coaching§ Train-the-trainer workshops for key-users§ Install knowledge digital platform§ Annual support for optimizing IMS usages
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Benefits of the IMS tool
What is it How to apply it
Increasing innovation competencies and skills within an organization requires specific management. For this purpose, INPAQT has developed powerful tools in order to make this management possible. They are combined into a single software package: the Innovation Management Suite (IMS).Consisting of over 100 tools and models, IMS is dived into different management systems covering the following tools in a row:· Foresight & Visioning· Business Modeling· Risk and Uncertainty Analysis· Appreciations· E-learning. Portfolio Management. Road-mapping. Idea management &Stage Gate. Pipeline management•
INPAQT will provide you with an experienced team of managers and professionals to successfully implement innovation management within your organization.We will install and configure the innovation management tools and interconnect them with your other systems.During this process your employees will be continuously involved. They will receive a training to get familiar with new procedures and utility features.After implementation, solid innovation management has thus become a fact.
IMS tool license & readiness current portfolio enables deep insight in portfolio in order to optimize portfolio
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Blueprint of Innovation management system as recommended by innovation management experts
Generate Capture Evaluate Develop Launch
Workflow
Dash boarding and reporting
Back office integration and customisation tools
Phases
Features
Support functions
Ideation Road mapping
Social media
Databases
Contests/voting
Evaluation
Idea Portfolio mngt.
Project mngmt.
Collaboration
P2P advice
P2P enrichment
Mind-map PLM/BLM
Decision making
Business case PPMCommunities
Private communities
Innovation value chain
These features are best practices and
recommended by innovation experts such as Clayton Christenson of HBR
and addressed by the Inpaqt’s Innovation
Management Solution
Status alerts
Source: Innovators DNA, HBR, 2008, Capgemini Consulting
Innovation knowledge process
Life Cycle Innovation Management System – LIMS integrates all innovation value chain functions along the whole innovation life cycle
Business modelling
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Via an “innovation” portal you enter the landingspage where you can navigate to the different parts of LIMS
LIMS landing (web) page depending on user role based access rights
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The dashboards landing page provides different views on the innovation activities from challenges and ideas uptill projects and products on the market.
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Each dashboard let you compare the status of the different innovation activities(in graph selections possible)
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LIMS supports multi disciplinary teams to work together on an captured idea
In the Ideation phase an idea is captured and worked out into a full project/business plan by a multi-displinary team.
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Specific out of the box tools support the team with generation of applications up to defining the business model and refining the value proposition.
Results of brainstorming using mindmapping functionality Value network showing up and downstream parties
Overserved and underserved product/service attributesAlexander Osterwalder’s Business Model Canvas
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Our focus in Business Case is on the cost and value drivers, determing the critical uncertainties and risks; support the team to create new options to mitigate the uncertainties and risks.
0 10.000 20.000 30.000 40.000 50.000-10.000
R&D1 -> Phase1 -> [Out of Pocket Costs]
R&D1 -> Phase1 -> [Duration (in quarters)]
C2 Cost-Return AnalysisDemo -> Market1 -> [PricePerUnit]
C2 Cost-Return AnalysisDemo -> ComplementaryMarket1 -> [PricePerUnit]
C2 Cost-Return AnalysisDemo -> Market1 -> [MarketShare Expectation]
Impa
ct
Sensitivity Analysis2 -> Impact On Static NPV (Sensitivity Analysis) (Sensitivity Analysis2)Sensitivity Analysis2 -> Impact On Static NPV (Sensitivity Analysis) (Sensitivity Analysis2)
0
200,000
400,000
600,000
800,000
1,000,000
-200,000
-400,000
-600,0002.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00
Stat
ic N
PV
Duration (in quarters) -> Duration (in quarters)|Static NPV (Sensitivity Analysis2)Duration (in quarters) -> Duration (in quarters)|Static NPV (Sensitivity Analysis2)
Duration (in quarters)
-1.000.000
-500.000
0
500.000
1.000.000
Aver
age
tota
l acc
umla
ted
NPV
29-10-2015 3-9-2019
Time
Business Case -> Accumulated NPV
Business case Income statement
Tornado diagram with most important cost- and value drivers
Cash curve showing break even point and payback time
The effect of time to market on expected Net present Value
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Benefits using our tool
• Our integrated innovation system LIMS covers the whole innovation value chain
• Support of all innovation people involved and on all levels, from the innovation team members, innovation managers up till board level.
• Easy access to actual data assures that board decisions are up to date and based upon verifiable facts and input
• Inpaqt LIMS software assures that innovation activities are in line with your company strategy
• with LIMS from Inpaqt you can easily increases speed of innovation , innovation productivity and flexibility
• Our software is customizable and modular, adjusting it to your innovation process needs and capabilities and thus helping you to improve your innovation process and capabilities over time
• Open and .Net technology to easily connect with other systems and share data
• Fast implementation through Agile/scrum working methods
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Example case
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Sensitivity analysis BC: Tornado diagram
-200.000 -100.000 0 100.000 200.000 300.000
Impact
Quarter Basis Funnel FEI1 v2 aanpassing def. -> [Discount_Rate_WACC]
Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [TotalUnitsSoldperyear Expectation]
Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [CoGS1 Expectation]
Quarter Basis Funnel FEI1 v2 aanpassing def. -> ceta market -> [PriceperUnit Expectation]
Sensitivity Analysis30 -> Impact On Static NPV (Sensitivity Analysis)
Average Sales Price
Expected CoGS
Total unit sold/year
Discount rate (WACC)
Cost drivers Value drivers
Sensitivity analysis: Discount rateNPF
-2.000.000
0
2.000.000
4.000.000
6.000.000
8.000.000
10.000.000
12.000.000
Stat
ic N
PV
-25 -5 15 35 55 75 95 115
Discount_Rate_WACC
Discount_Rate_WACC -> Discount_Rate_WACC|Static NPV
IRR
Used DR
Sensitivity analysis: Sales priceNPF
-5.000.000
0
5.000.000
10.000.000
15.000.000
20.000.000
Stat
ic N
PV
62.500 82.500 102.500 122.500 142.500 162.500
PriceperUnit Expectation
PriceperUnit Expectation -> PriceperUnit Expectation|Static NPV
Break even price
Sensitivity analysis: CoGSNPF
-2.000.000
0
2.000.000
4.000.000
6.000.000
8.000.000
Stat
ic N
PV
32.500 42.500 52.500 62.500 72.500
CoGS1 Expectation
CoGS1 Expectation -> CoGS1 Expectation|Static NPV
Break even CoGS
Examples of reports using Innovation Business Case approach
Inpaqt Confidential and Proprietary
Case “e-bike development
Basic assumption for the case: “e-bike development”
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Results of the Analysis using IMS: NPV, payback time, IRR and P&L
Income Statement2013 2014 2015 2016 2017 2018 2019 2020
Revenues 0 0 155.278 1.277.600 2.296.749 2.433.400 2.434.185 2.129.502COGS 0 0 49.689 408.832 734.960 778.688 778.939 681.441Gross Margin 0 0 105.589 868.768 1.561.789 1.654.712 1.655.246 1.448.061Total R&D Cost 314.785 250.415 100.578 2.748 0 0 0 0EBITDA: -314.785 -250.415 5.011 866.021 1.561.789 1.654.712 1.655.246 1.448.061Depreciation/amortization 0 0 0 0 0 0 0 0EBIT -314.785 -250.415 5.011 866.021 1.561.789 1.654.712 1.655.246 1.448.061Tax 0 0 0 216.505 390.447 413.678 413.811 362.015Net Income -314.785 -250.415 5.011 649.516 1.171.342 1.241.034 1.241.434 1.086.046
Chance on Negative NPV (%)
0,50
Estimated Annual Revenues
36
Estimated R&D for Next Year
Calculated Risk (between 1 (very low) to 25 (Very high)
*IRR (%)
Payback time (Years)
2.748
7,8
51
Not Def ined
76,89
Choose
Results
Project Description
Project Number
Expected NPV (mil)
Case: “e-bike development”
Inpaqt Confidential and Proprietary
Sensitivity analysis results using IMS:
-20.000 0 20.000 40.000 60.000
Impact
Business Case (P) -> E-bike market -> [CoGS1 Expectation]
E-bike development -> Phase1 -> [Duration (in quarters)]
E-bike development -> Phase1 -> [MaterialsandServices1]
Business Case (P) -> E-bike market -> [TotalUnitsSoldperyear Expectation]
Business Case (P) -> E-bike market -> [PriceperUnit Expectation]
Sensitivity Analysis4 -> Impact On Static NPV (Sensitivity Analysis)
Case: “e-bike development”
Inpaqt Confidential and Proprietary
Boosting Time to Market show significant increase of Value
-4.000.000
-2.000.000
0
2.000.000
4.000.000
Stat
ic N
PV
2 7 12 17 22 27
Duration (in quarters)
Duration (in quarters) -> Duration (in quarters)|Static NPV
Now
Scenarios: Outsource, more resources, concurrent engineering etc
Case: “e-bike development”
Break even
Increasing speed increases NPV
Inpaqt Confidential and Proprietary
Can the number sold increased by using other distribution channels?
-3.000.000
-2.000.000
-1.000.000
0
1.000.000
2.000.000
Stat
ic N
PV
-550 -50 450 950 1.450 1.950 2.450
TotalUnitsSoldperyear Expectation
TotalUnitsSoldperyear Expectation -> TotalUnitsSoldperyear Expectation|Static NPV
Break even
Case: “e-bike development”
Now
Inpaqt Confidential and Proprietary
-2.000.000
-1.500.000
-1.000.000
-500.000
0
500.000
1.000.000
Stat
ic N
PV
400 900 1.400 1.900
CoGS1 Expectation
CoGS1 Expectation -> CoGS1 Expectation|Static NPV
Break even
Price now
Case: “e-bike development”
Can the cost price be lowered by deleting overserved product attributes or by lowering costprice using lean principles?
Low
High
Low High
No Noise
Comfortable posture/sittingLow weight
Lighting
Good braking
Well known Brand
Needed storage room Sportive, modern designCompeting price/price range
Range/Action radiusRobust design
Cycling light
Rat
io A
ttrib
ute
real
izatio
n vs
Impo
rtanc
e
Attribute Importance
Bubble size represents costs and or presence of barriers
No actionUnderserved: Qualifier, improve/0ther customer group
Overserved:Lower costs/Other customer group
Differentiator: May deliver customer excitement
Overserved costly attributes that can be deleted and in this way increases the value for money
Inpaqt Confidential and Proprietary
-3.000.000
-2.000.000
-1.000.000
0
1.000.000
2.000.000
3.000.000
Stat
ic N
PV
625 1.125 1.625 2.125 2.625 3.125 3.625
PriceperUnit Expectation
PriceperUnit Expectation -> PriceperUnit Expectation|Static NPV
Break even
Now
Case: “e-bike development”
Can the price being rised by better market segmentation or adding functionalities that doesn’t require additional investments?)
Low
High
Low High
No Noise
Comfortable posture/sittingLow weight
Lighting
Good braking
Well known Brand
Needed storage room Sportive, modern designCompeting price/price range
Range/Action radiusRobust design
Cycling light
Rat
io A
ttrib
ute
real
izatio
n vs
Impo
rtanc
e
Attribute Importance
Bubble size represents costs and or presence of barriers
No actionUnderserved: Qualifier, improve/0ther customer group
Overserved:Lower costs/Other customer group
Differentiator: May deliver customer excitement
Underserved cheap attributes that can be improved and in this way increases the value for money
using customer insights and looking at underserverd product attributes (Outcome driven innovation
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Inpaqt is the core of a partnership network of top skills & experiences
The team and contact details
31
Felix Janszen, CEO at Inpaqt b.v.M: +31 (0)6 54242341@: [email protected]
Koen Klokgieters, Associate PartnerM: +31 (0)6 46934577@: [email protected]