Itron Idea Labs
Innovation Projects: How to Determine Progress
September 07, 2021
Innovation projects are different from product development projects. Many tools and processes have been developed and are available for standard project management, where speed of execution and predictability are the main goals. Innovation projects, however, don’t share the same goals and the same tools don’t apply equally well.
Since the primary objectives of an innovation project are to determine product market fit and to validate the business model, a more appropriate evaluation can be based on metrics such as risk and uncertainty, opportunity size, learning velocity, technology availability, time spent on the project and cost. While there are numerous metrics that may be relevant when evaluating new business opportunities, tracking a wide variety of project types across multiple metrics is problematic. For organizations such as business incubators or accelerators, it can become difficult to compare the progress of different projects on a relatively equal, objective footing. To address these challenges, we choose to focus on a single metric: risk.
We use the business model canvas to describe the opportunity. Each section describes a component of the business model. To identify areas of risk with greater granularity and precision, we further divide the canvas into three sections:
- Desirability is about the assumptions that will actually create customer value (risk: solving an irrelevant customer job). It includes value proposition, customer segment, channel and customer relationship.
- Feasibility is about the assumptions that will ensure having the right infrastructure to execute the business model well (risk: poor execution). It includes key partners, key activities and key resources.
- Viability is about the financial assumptions that will earn more money than is spent (risk: flawed business model). It includes revenue model and cost structure.
We designed a tool to separately assess risk for each section and then average the risks to a total. That total gives a metric of the project’s evaluation.
The various parameters for risk evaluation are shown in the following table, where the column on the left shows the parameter and the one on the right describes the questions we need to answer.
Desirability |
|
Customer Segment |
For whom are we creating value? Who are our most important customers? |
Value Proposition |
What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? |
Product/Market Fit |
Are we building something that our customers want? |
Market Size |
How large is the market? |
Channel |
Through which channels do our customer segments want to be reached? How are we reaching them now? |
Customer Relationship |
What type of relationship does each of our customers expect us to establish and maintain with them? Which one have we established? |
Feasibility |
|
Key Activities |
What product do we need to build? What does the product need to do? |
Development |
Are we able to build the product? |
Key Partners |
Do we need partners to build the product? |
Key Resources |
Do we have all the resources necessary to deliver the product? |
Viability |
|
Revenue Streams |
For what value propositions are our customers really willing to pay? |
Cost Structure |
What are the most important costs inherent in our business model? |
Competition |
How well are we differentiating from existing players? |
Table 1. Parameters related to the business model canvas.
Each parameter in the table is assigned a risk, from very high (4) to very low (0), based on the project’s current status, and the risk is estimated periodically. The values related to desirability, feasibility and viability are calculated separately as the average of the scores in that section. The total risk value is calculated as the average of the three section scores. The figure below shows total risk and component risk scores over time for one of our recent projects.
We have made this tool available as a free web app. We encourage new business entrepreneurs of all types to use the tool and provide feedback.
References
1. Aiello, Roberto. Innovation for Survival. 2019.
2. Perry, Mark J. AEIdeas Blog. [Online] December 16, 2016.
3. Baghai, M, Coley, S and White, D. The Alchemy of Growth. 1999.
4. Blank, Steve. Lean Innovation Management - Making Corporate Innovation Work. [Online] June 26, 2015.
5. O'Reilly, Barry, Molesky, Joanne and Humble, Jez. Lean Enterprise, How High Performance Operations Innovate at Scale. 2014.
6. Osterwalder, Alexander and Pigneur, Yves. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. 2010.
7. Osterwalder, Alexander. How To Systematically Reduce The Risk & Uncertainty Of New Ideas. Strategizer Blog. [Online] December 5, 2017.
8. The 4 KPIs to Track In Innovation Accounting. Strategizer Blog. [Online] May 16, 2018.
9. Polovets, Leo. How to De-Risk a Startup. Coding VC. [Online] October 27, 2016.
10. Nathan, Adam. Business Model Canvas - Integrating KPIs. The Bartlett System. [Online] October 24, 2018.
11. Smith, Josh. Lower your startup risk with this template. Code Corps. [Online] November 2, 2016.
12. Itron Idea Labs. Risk Assessment Tool. [Online] https://riskassessment.idealabs.cloud/dashboard.
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