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
- “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%)
- 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
