Innovation Challenge

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Let’s start by defining innovation:

  • According to BusinessDictionary.com:
    • Innovation derives greater or different values from resources using the deliberate application of:
      • Information
      • Imagination
      • Initiative
  • In the context of projects we’re looking to deliver benefits to the customer, with the following breakdown:
    • What we deliver are new capabilities to the buyer
    • How we deliver the new capabilities is through a product or a service
    • Why we deliver the new capabilities is so the buyer can have a positive return on investment
  • Definition of Return on Investment (ROI)
    • Return on Investment (ROI) is unit of profit for each unit of money invested
    • Most often defined as the “Profits per Dollar Invested”
    • The formula for ROI is the total benefits less the total costs normalized by the costs.
      • [Benefits – Costs] / Costs
  • Capability Return on Investment or “Capability ROI”
    • The improvement in the organization from delivering a new capability to an organization
    • Measures the change in Throughput of delivery and the change in Costs for delivery in an organization.
      • Throughput is often the “revenue” for many commercial companies. It could also be the total units sold, lives saved, or clients served for other organizations or activities.  
      • Costs is often the “operating cost” for many commercial companies. Or it may be the allocated budget or number of people needed to support an activity.
    • The formula for the Capability ROI for an investment is calculated as follows:
      • Set Objectives – state value in fungible terms (e.g. money or units) for business operations
      • Baseline Original Performance – Measure initial business process costs and throughputs
      • Measure Performance with New Capability – evaluate new operating throughputs and costs
Capability ROI Formula; The Numerator includes the sum of New Throughput less Initial Throughput and Initial Cost less New Cost. The Denominator is the Amortized Capability Investment.
  • “New Cost” includes the Amortized Capability Investment (planning, development, O&M) and resources needed to operate the business with new capability. 
  • This ensures the topline is net profit, or gains (higher throughputs and lower costs) minus the investment. All values are amortized to normalize economic life and rates of return.
  • Why does Innovation Matter?
    • Innovation is the way we’re actually developing these benefits!
      • Higher Throughputs!  – Do more!
      • Lower Costs – Use Less!
    • Looking at our definition of innovation we can re-evaluation the formula:
      • What’s Different or New in Value?  – this comes from the change in throughput and cost
      • What are the Existing Resources?   – these are the organizational resources (mostly people!)
      • How can we know that ROI is positive?  – the change in throughput and costs must be positive
      • Does size of a project impact if the ROI is positive?  – nope! Only the size of the ROI is impacted by the size of the project.
  • Innovation Challenge:
    • 90% of Startups Fail
    • 80% of New Products Fail
    • 70% of Transformation (Process) Projects Fail
    • 50% of general projects fail, and miss on either
      • Schedule
      • Budget
      • Scope or Objectives
  • Drivers of the Innovation Challenge, according to PMI’s Pulse of the Profession 2018:
This graphic says that the top reasons projects fail are: (1) Change in the organization's priorities (39%); (2) Change in project objectives (37%); Inaccurate requirements gathering (35%); 4) Opportunities and risks were not defined (29)%; 5) Inadequate, poor communication (29%); 6) Inadequate vision or goal (29%)

This graphic says that the top reasons projects fail are: (1) Change in the organization’s priorities (39%); (2) Change in project objectives (37%); Inaccurate requirements gathering (35%); 4) Opportunities and risks were not defined (29)%; 5) Inadequate, poor communication (29%); 6) Inadequate vision or goal (29%)

  • What this shows us is that in general, “requirements are the reasons that projects fail.” 
  • Therefore, Innovators must do the following:
    • Align the Project Objectives   [with people and the Organization]
    • Get Accurate Requires            [by communicating effectively around changing needs]
    • Manage Project Uncertainty  [addressing the inability to predict Technical, Business, and Environmental impacts]
  •   Summary of Innovation Challenge:
    • Innovation means applying information, imagination, and initiative to create new value from existing resources
    • Projects drive Innovation by delivering capabilities with a positive return on investment (ROI): [Benefits-Costs]/Costs
    • Most projects fail because they don’t align objectives, get accurate requirements, and manage uncertainty

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