Overcoming the Innovation Valley of Death (part 2 of 3)

Technology Readiness Level as a Framework to Inform your Innovation Strategy

Technology Readiness Level (TRL) is a well-known scale within certain industries (aviation and space in particular) and it is used to evaluate the technological maturity of an idea on a 9-point scale per the figure below. The TRL is typically employed to help evaluate acquisition strategy for new technology by asking questions of maturity and therefore risk and commensurate investment. However, most people don’t realize that the TRL can be used as a framework to inform your innovation strategy – all the way from how resources are allocated, what skills you look for in new hires, what type of company you want to be, how to design your innovation portfolio etc. The role of technology is critical in modern society where it can be considered that all successful businesses will be technology companies in one form or the other. Therefore, technology is a reasonable lens to view business and innovation strategy through, hence TRL is as good a starting point as anywhere else to consider innovation strategy.

I will explain what the TRL is today and how it is traditionally employed and then go into the ways in which it can inform your innovation strategy. In fact, adding some additional insights on top of the TRL gives us a potentially new concept called Innovation Readiness Level (IRL) that I will discuss more below.

I know there are a myriad of innovation frameworks out there and I am reticent to add to the noise; however, the information I share below is based on direct, personal and painful learning in the space of innovation and I haven’t come across any other work that leverages the TRL in this way.  I hope this approach proves insightful – as it has been extremely helpful in informing my own innovation strategy.

At the very far left on the TRL (region 1 – 4) is a region of new ideas, fundamental research and at the most mature research output level (at TRL of 4) is typically a lab proof-of-concept (PoC). This PoC may only show at the most rudimentary level the functionality of a new piece of hardware or new algorithm - but typically is not optimized, not miniatured, not built for scale, not reliable, not cost optimized, not designed for manufacturing etc etc. Most of the output at this stage is knowledge in the form of published papers and patents. There usually isn’t much information at this stage to evaluate market potential of this new knowledge as it is too risky and unproven.  This is the realm of academia and a handful of industrial research labs.

The region between 4 and 7 on the TRL is what is called the “Innovation valley of death” and I will explain that in the final part of this series part (3 of 3) in more detail and how to overcome it. This is a region which can be considered as applied R&D and sits between fundamental research and traditional R&D activities that are much closer to market deployment. In this region you need to develop the solution and prove it out to a much greater level by building many versions, testing, iterating, scaling up, and testing further to derisk. Towards the latter stages of this region (near TRL of 7) you should start customer trials – in fact engaging and educating the customer in advance of TRL 7 is highly beneficial if possible. Testing the solution with customers at this stage is critical in order to best derisk the solution and improve its potential for market success. Also, for “true innovation” as discussed in part 1 of 3 (see link below) it is necessary to educate your potential customers about this new solution – this education also serves to create demand. Potential customers will be comfortable with the technology and solutions they already employ. If you are disrupting what they are comfortable with then you need to engage them early and educate them on the new world you are trying to create and explain the benefits of this new approach in terms that will prove the value to them directly.  

The region from TRL 7-9 is the more traditional R&D activity of full productization, large customer trials and ultimately full commercial deployment. This is where most of the R&D activity and investment takes place in medium and large companies. If your innovation strategy is based solely within this region it is likely that you engage in incremental innovation or that your innovation comes via M&A which is an expensive way to fund innovation and lacks all the other benefits to internal innovation discussed below.

The colored triangles in the figure highlight the relative skillset strengths of the people working in each area. The tall part of the triangle indicates most strength and the thin part represents relative weakness. The regions of overlap between these regions is where a lot of tension can reside but also where there is a lot of opportunity as described in part 3 of 3 which will follow.

The above explains TRL where this scale is employed to help evaluate technology acquisition typically within space and aerospace industries. However, this scale offers so much more from a strategic perspective in my opinion. Here are a couple of examples where it can be used to inform your innovation strategy.  By combining the TRL with these additional insights we can consider a new fledgling concept called Innovation Readiness Level (IRL).

For the discussion below please refer to part 1 of 3 where I describe what true innovation is. That definition is required to make sense of the following discussion. In summary here is what I say:

Innovation = Inventive + Impactful

Innovation must be something new AND impactful.

Here inventive means something new, differentiated or unique.

And impactful means generates a lot of revenue and/or delivers societal good

I will share here 3 ways in which we can build on the TRL to inform your innovation strategy and in the process consider a new concept called Innovation Readiness Level (IRL).

1)     What type of company do you want to be?

Looking at the figure below there are 3 main regions. Region 1 is fundamental research (TRL 1-4), Region 2 is applied R&D (TRL 4-7) and region 3 is traditional R&D and market deployment (TRL 7-9). You can choose to operate in one or all these regions depending on your innovation strategy. A company that operates in these regions has the following characteristics:

Region 3 only (TRL 7-9):

-        This region starts at the end of applied R&D which implies there is very little research performed and the work is geared more towards development.

-        This is the realm of typical R&D to market deployment and therefore innovation is incremental and low risk.

-        The time cycle to develop and deploy a new product variant or offering is every 18 months or less (depending on whether it is hardware or software).

-        Frequent field trials and customer testing/feedback occurs.

-        Consumes approximately 90% of R&D budget (if regions 1 and 2 are also part of your innovation strategy). For most companies this region consumes 100% of their R&D budget.

-        Companies that operate only in this region are either fast followers or fast losers. Much of their “innovation” emerges from M&A activity which comes at very high cost.

Region 2 (TRL 4-7) and Region 3:

-        Region 2 is this is the realm of applied research and development. Applied research is not the same as fundamental research and is represented by experimenting and inventing on top of the fundamental insights gathered in the deep research mode.

-        Innovation is more disruptive in nature and has the potential to provide significant differentiation to the company.

-        The time cycle to bring ideas to market when you start in this region is 5 plus years.

-        Enables possible transfer of technology assets to the market 1-2 years ahead of the competition. 

-        Limited field testing or customer trials (although they would be of value).

-        Early product similar prototyping to derisk the technology.

-        Consumes approximately 9% of R&D spend (if regions 1 and 3 are also part of the innovation cycle within the company).

-        Very few big companies operate in this space. This is more like the way start-ups operate except a start-up focuses on only one idea/product/technology/business model whereas big companies should focus on many to have a broad portfolio to reduce risk.

-        There is a higher chance of failure within region 2 unless there is a broad a balanced portfolio. Hence few large companies operate in this region because of the perceived rate of failure and the inability to apply appropriate metrics to measure success. Business normal metrics should NOT be used to evaluate innovation programs within Region 2.

Region 1 (TRL 1-4) and Regions 2 and 3:

-        This is the realm of fundamental research leading to new scientific insights which initially may not have any obvious utility. Applying scientific principles through rigorous theory and experimentation. New knowledge is the key here.

-        Innovation commenced at this stage and seen through to a TRL of 9 can be disruptive/radical in nature and can create and transform entire industries.

-        The time cycle to bring new insights in this region all the way to market can be 10 years or more.

-        Can provide many years lead to market on competitors.

-        Very few prototypes built and those that are built are primitive.

-        Likely zero customer interaction.

-        Consumes only 1% of total R&D budget (if regions 2 and 3 are also part of the innovation agenda within the company).

-        Can provide great advantages to the company but the time frame for return on investment is long (10 years plus) and much of the research won’t directly generate revenue via sales but can generate revenue via patents.

-        The solutions that go big emerging from this region go very big and can payback the total investment across all stages many times over.

You can see from the above that knowing the different regions and deciding which you want to operate within will have profound implications for the overall strategy of your company.

I call the allocation of funds across the three regions  the 90-9-1% rule of innovation investment from fundamental research to product deployment.

2)     For each big success you need to try many things

The diagram below shows the typical project selection funnel where there are lots of ideas that get filtered to just a few (by some arbitrary set of constraints) and then one is ultimately is selected, receives the resources necessary and goes to market. In the figure each bubble represents an idea and as the idea progress along the TRL its technological maturity increases.  There could be several stage gates in this selection process and each company has their own process. As the maturity increases the riskiness of the idea typically reduces and the idea that is selected is typically deemed least risky and therefore will likely only enable incremental growth. You can see that this is not innovation by my definition but is rather a process for selecting incremental ideas with limited risk. It is understandable why companies take this approach – they are more comfortable knowing with high probability that they can increase sales by 3% rather than take a risk on a new product that could increase sales by 1000% but with much lower probability of success.

A better way of thinking about this funnel process in the context of innovation strategy is to consider the figure below. In this figure I show the cyclical and iterative innovation process that is required to ensure greater success across a portfolio of innovations. It is this process of doing many things such that a small number will be very successful that is missing in most innovation organizations. Also, what is missing is the necessary connection to the upstream research and the downstream market deployment that helps inform better ideas.

When an innovation organization is running well it has several projects across the spectrum of readiness levels. Some of the projects/ideas merge and grow into solutions that solve bigger market or human need challenges and therefore they have the potential for more impact. Some of the early ideas might be strong enough on their own or in their original state and they might progress without combination. Very few of these ideas make it all the way through the stage gates to market readiness and success. The proof of this is in the failure rate of start-ups and the lack of transfer of research ideas from academia to market.

The key here is that when this process runs well and is given time to prove its impact there is a virtuous cycle created where failures in any part of the cycle inform new and better ideas at the earlier stages and the knowledge gained by technologists/innovators gets put to good use for the next project thereby giving the next project/idea better chance of success. After a period of time if the impact of this process is  embraced it will be understood by management that a necessary part of long-term success is short-term failure (or at least perceived failure by business normal metrics) and that out of all the attempts to innovate only a small proportion will have revenue generating business impact – but the probability that those innovations that have impact will have big impact has greatly increased and therefore the risk across the entire investment strategy is reduced significantly.

Looking at this section and the previous section I hope you get a sense that examining corporate strategy and culture this way could have profound implications for the overall business and innovation strategy of your company. How you go about deciding on what projects to select, how you evaluate them, how you progress them, how you prove them out and ultimately bring to market is far more nuanced than the simple project selection funnel would suggest.

3)     Not all investment is equal

Something I learned very early on in my career when I was developing technology assets that were transferred into our internal businesses or licensed externally is that not all investment (cash and time) is equal. Or put another way – there is a certain level of investment needed to mature an idea before others are willing to invest in it at a significant level.

For example, many research entities and universities try and monetize their IP which is usually at or below a TRL of 4. In fact, most universities that have a patent may only have matured that idea to a TRL of 2. When they try and license this technology to industry, they are often shocked at how little industry is wiling to pay for the patent - if at all. The reason for this is because from the industry perspective there is almost no value in the solution if its TRL is less than 7. The risk is very high, and all the risk and investment are on the industry member to prove it out towards market viability. Just because you have a patent does not mean that you automatically can generate revenue from that idea.

In my experience the level of investment to bring an idea/asset to TRL of 7 from TRL of 4 is at least 10X. However, if you are a research entity and if you can mature your asset closer to TRL of 7 then the level of investment you will receive in return is many times higher than what you would have invested to get it to that level. As an example, for 10X investment to mature the asset from TRL of 4 to 7 might provide a 1000X return if the solution is acquired of many times that return if the solution goes to market.

Understanding this dynamic of investment versus effort and risk to bring to market is critical for universities to understand. Otherwise, universities will always overvalue their IP and alienate industry from engaging on a meaningful level. On the other hand industry should understand better the level of effort to mature these ideas and put structures in place to bridge that innovation valley of death.

Again, you can see the value of the TRL as a strategic innovation framework when considered this way. You can decide what type of company you want to be, decide on the resourcing and staffing (skills) and then build a model of investment and return based on how truly innovative you want to be. This applies to universities, start-ups and large-scale corporations alike.  

 Summary of Innovation Readiness Level concept

 When I first started writing this article, I wanted to share with you why I believe the TRL is an extremely useful framework to help inform your innovation strategy. However, as I put my thoughts on paper, I realized that there may be more to this idea and that maybe I happened upon the early stages of a new concept called Innovation Readiness Level (IRL). Based on the examples and discussion above we can consider an organization to have a high IRL if they invest in all three stages of innovation from left to right on the TRL – ideas and research, applied R&D and standard R&D to market deployment. If you only operate in the standard R&D mode, I argue that your IRL is low and therefore your ideas and business will be incremental without heavy investment in external innovation via M&A. 

The idea behind the IRL concept is to help you think about what kind of innovation strategy you want for your company - do you want to be a leader, follower, or loser and how should you invest in the ideas and people to help you get there. Once you define your innovation investment strategy your ideas/products/solutions have the best chance of getting to market giving you a competitive advantage. Once market deployment takes place (selling to customers) there are other frameworks to help such as the law of innovation diffusion - not for discussion here as they assume you already have a product ready to go to market.