Failing forward v2

Failing Forward
David Matheson, President and CEO
SmartOrg, Inc.
www.smartorg.com

#BEI13

@VirtualDavid
© 2000-2013 SmartOrg. | Confidential and Proprietary.

When heroes fail


A great technology and a compelling
customer need are necessary but not
sufficient to change the world.
What is missing?


The work of innovation: answering three
questions.
Winning Opportunities

Market/ customer
need

Does
anybody
care?

Should
we do
It?

Can we
Do it?

Technology/ Product
Solution

Strategic and
Economic value

Our image of innovation


Stage-Gate focus: Delivery
Predictability

Efficiency

What are some values associated with delivery?

The reality


Agile Focus: Learning
Uncertainty

Ambiguity

What are some values associated with learning?

Failing Forward Workshop
Agenda

Purpose

Introduction

Advance real innovations your
are working on.

A common model of
innovation
Formulation: the learning plan
Incubation: pivoting
Advancing your own work
Conclusion

Explore and develop this
important question by
comparing notes and
experiences.
Generate insights and results
from our interactions.

Create a highly interactive
session and great networking
environment among peers.

David Matheson
Dr. David Matheson has helped senior management of firms in the
United States and Europe improve their results from portfolio
management, product development, innovation, R&D, capital
investment and strategy, and is an expert on measuring value and
managing uncertainty.
His practical experience covers a wide variety of industries, including
printing, software
development, biotechnology, telecommunications, chemicals, pharma
ceuticals, medical devices, manufacturing, electric power and
entertainment.
He is co-author of the best selling book, The Smart Organization:
Creating Value through Strategic R&D (Harvard Business School Press)
and has authored numerous articles on innovation, portfolio
management and decision making.
In addition to SmartOrg, his executive roles include: currently member
of the board at Photozini, Inc. and prior to founding SmartOrg in 2000, a
principal at Strategic Decisions Group.
His Ph.D. is from Stanford University, where he currently teaches on
Strategic Portfolio Management and other topics at the Stanford
Center for Professional Development

SmartOrg software and services helps companies find
the most profitable projects
Life science

Aerospace


Technology

Other

Eric McAfee
Founder

Investor

Aemetis, Inc.
Solargen Energy
Evolution Petrolium
Pacific Ethanol
Procera Networks
Netstream

McAfee Capital
Cagan McAfee Capital
Partners
Berg McAfee Companies


Thought Leader: Rich Duncombe
Innovation Catalyst Group

33 Years with HP
−
−
−
−
−

Directly involved in 35+ major innovation
projects
70% involve disruptive innovation
60% started during idea inception
Founder, HP Sensing Solutions business
Founder, GM/VP of Retail Photo Solutions

My specific role is innovation catalyst
Build the vision, attract the talent and secure
necessary resources
− Catalyze the innovation from inception through
incubation
− Come back to the front end
−

14

How we make it matter
Co-innovation and collaboration is key to a
healthy innovation system – my
partnerships include:
−

−
−
−
−
−
−
−

Shell
Boeing
Motorola
Intel
IBM
Oregon State
Stanford
RPI

© Copyright 2012 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice.

BIO

Ricardo
dos Santos

Industrial Age
• BS, MS Industrial
Engineering, LSU
• Ford/Volkswagen JV
• MBA, MIT Sloan
• The Boston Consulting
Group

Imagination Age
• Lecturer SDSU
• Mobilocity (Tech Startup)
• Qualcomm (Innovation
Management)
• Biological Dynamics
(Biotech Startup)


Introductions
Name, Company, Role
What are you working on that you want to advance in
this session?
Your favorite food


Asking executives what worked and what didn’t:
•
•
•

What have you tried in the last ten years or so?
What worked really well and should become (or remain in) the
innovation canon?
What did not work well, was significantly oversold or under
delivered, and should fade from memory?


The five must-do’s of innovation management:
1.
2.
3.
4.
5.

Use iterative, learning-based processes.
Make uncertainty and ambiguity your allies.
Allow innovation to challenge strategy.
Experience your customers.
Find and support committed innovators.

Go to www.smartorg.com and
search for “assessing the state of
innovation” to download a
whitepaper and view a webinar.
PDMA Visions

Making Innovation Soar.

Ideate

Formulate

Incubate

Accelerate

Reformulate

Committed
Innovators with
actionable insight

Aligned
Learning
Plan


Proven
Opportunity

Scalable
Business

Ideation: finding the committed innovator with
unique insight.


Niccolò Machiavelli on Innovation:
“It ought to be remembered that
there is nothing more difficult to
take in hand, more perilous to
conduct, or more uncertain in its
success, than to take the lead in
the introduction of a new order of
things. Because the innovator has
for enemies all those who have
done well under the old
conditions, and lukewarm
defenders in those who may do
well under the new.”

A common misconception:

“People think ideas are the input
to the process. This is wrong.
Ideas are the byproduct of the
committed innovator.”
Alberto Savoia
Serial Entrepreneur
Currently at Google


In every field, HHMI grants generated the most
important and innovative research.

Funds projects based on
rating proposals on multiple
criteria.

Funds researchers and
encourages them to explore
interesting topics.

Source: Jonah Lehrer, author of How We Decide, from his blog “The
Necessity of Funding Failure.”


Having committed innovators is not enough;
your innovator needs actionable insight.

Market

Customer

Technology


Trend

Etc.

Formulation: aligning on a learning plan.


Success Factors internal
Shelter the project from
1

metrics and processes

2

Banish supplier / procurement thinking

3

Internal

Have the tough conversations up
front

4

Negotiate based on principles

Security/Access

Partner

6

Never over estimate your
knowledge
of your partner
Every decision needs to improve
risk adjusted value

7
Market
Disruption

8
9

Climate monitoring

Home automation
Home security

Water/Gas

Market disruptions are often driven
by technology innovation

New businesses fail for commercial
reasons

Real-time traffic
conditions

Communicate your vision (prepare
the market, build your brand)

5
Value
Creation

Infrastructure health

10

The more outrageous the vision,
the © 2000-2013 SmartOrg. the program
more resilient | Confidential and Proprietary.

Aspirations are low


Can we distribute motor oil in a cardboard box?


Frost & Sullivan wrote up a best practice
guidebook for the Formulation Phase.

See a webinar or download at: www.smartorg.com/hpguidebook

How to develop a DVD burner that writes its own
label? (circa 2002)

A feature in our
computers


Multiple strategies – need to learn which is best.

A feature in our
computers

License out

A consortiumbased inside brand


Laying out your strategic choices
Brand

HP
Branded

HP

Business
Model
HP Branded
drives and discs

Market Scope HP Contribution

PC's

Ingredient License on Drives All MS and Apple IP and certification
Drive
and Discs
PC's
Consumer Brand
Standard

Drive
Industry
Standard

Ingredient
Brand

Consumer
Strategy

Consumer
Software

HP Branded PC's Optical drive design, HP works with select partners HP drives demand HP exclusive software
Only
disc coating material to build HP specific solution as a proprietary
feature
and consumer
feature
software application

Harvest IP White Label License on Drives All MS and Apple IP Only
and Discs

HP's Role in Optical
Drive Industry

License on Drives All MS PC's, all
and sales of Disc aftermarket
Coating Material drives and
replicators

IP, disc coating
material and
certification

HP provides licenses to all
industry participants -- HP
does not develop solution

Disc Brands drive Open development
consumer demand platform for all optical
drive software

HP works with all suppliers to Create industry
build standard solution
standard and
trademark

Open development
platform for all optical
drive software

HP works with all suppliers to Create industry
build standard solution and standard and
becomes the exclusive
trademark
supplier of LightScribe coating
material

Open development
platform for all optical
drive software


Which uncertainties matter?
Future disc usage?

Strong growth supported
by multiple third-party
experts.
Team not concerned.


Bill of Materials Cost?

Detailed engineering
estimates and contracts
show BOM within 5%.
Team very worried estimates
might be 10% off.

The team was focusing on the wrong factors.
Lightscribe sensitivity analysis (Tornado Diagram)
NPV given launch success

If mp3 players
take off, then
business is small

Loss

Small

OK

Good

Great

If copyright favors disc
distribution, then
business is great

BOM
uncertainty
has limited
impact on
business


Incubation: delivering on the proof points.


Work vs. proof: HP’s idea for the “ATM
of photo printing.”
• What is the biggest source of risk?
• Supply Chain
― Very difficult to set up, very complex
― Large source of schedule and budget
variance.


Work vs. proof: HP’s idea for the “ATM
of photo printing.”
• What is the biggest source of risk?
• Supply Chain = needs work
― Very difficult to set up, very complex
― Large source of schedule and budget
variance.
― HP is world class at this!

• Behavior change = needs proof
― Will someone encountering a station
on the street pull out their camera
card and print?
― To get evidence, saturate an area
with prototypes.

Common plans: morale building, strength
focused
A risky project. The overall probability of technical success is the
probability of overcoming all the hurdles in all the phases.

Technical
Phase
Cost ($M)
Product Development $
2

Uncertainty
Performance
Reliability
Channel Partner Trials

Scale -Up

$

10
Ease of Use
Business Model Validated
Channel Partner Commitment

Total Cost
Expected Cost

$
$

12 Million
10.9 Million

Big questions left unanswered until late in the project—an
expensive way to fail. Note Expected Cost and Total Cost
are close.

Probability
of Success
47%
95%
90%
55%
8%
25%
35%
90%
4%

Learning plans: manic anxiety, uncertainty
focused
Revised Project Plan
Technical
Phase
Cost ($M)
Product Development $
2

Uncertainty
Ease of Use
Business Model Validated
Channel Partner Trials

Scale -Up

$

10
Peformance
Reliability
Channel Partner Commitment

Total Cost
Expected Cost

$
$

12 Million
2.48 Million


Probability
of Success
5%
25%
35%
55%
77%
95%
90%
90%

Reordering plan to “fail fast”
radically reduces expected cost.

4%

Fast 4x6 Print Engine
Addressing the needs of incumbents
Print Engine

“Dry” Photofinishing lab
Semi-Attended Environs
Low Volume Stores
“Can I get the printer part
of the kiosk”
“Just chop the head off,
add an Ethernet, and
I’ll write you a check!”

Acceleration: growing up.


What is the best first major account for your new
business?
You have launched a business.
• Customers are enthusiastic about the product.
• You are making money (gross margin), but still require investment
to grow.
• The product is in version 1.0.
• Manufacturing is ramping up.

OR


Adolescent businesses need adult challenges in
a safe environment.
Need P&L discipline without
crushing pressure.
Require the flexibility to adjust.
Have lots of awkward issues that
need to be worked through.
Metrics that transition to full P&L
accountability.


Beware the kill zone
External Reality

Internal Treatment

Upstart / New
Accelerate
Phase
(transitional
metrics from
proving to P&L)
Established
Business (on
commit plan of
executives in a
significant way,
routine part of
corporate
strategy)

KILL ZONE
= 100% failure


Established

Where is your organization strongest? Most in
need of improvement?
Ideation
Formulation
Incubation
Acceleration


A culture shift in innovation.


How companies increase innovation project risk
and what to do about it.
Norm for

Creates
innovation risk

Resolved by

Predictability

Failure Frame

Learning Frame

Urgency

Kill Zone

Taking time to
accelerate

Reasonableness

Mediocrity

Formulate boldly

Fitting in

Incrementalism

Courage


Quick survey
What are your innovation
aspirations?

What is your innovation
delivery?

$1M in new revenue annually

$1M in new revenue annually

$5M

$5M

$10M

$10M

$50M

$50M

$100M

$100M

$500M

$500M

$1B

$1B


Table exercise
What is the inspiring vision for your innovation project?

Select one at the table for further focus and discussion.


Success = delivering an Exploitable Business
Asset.
What would you want to know before mortgaging your
house to pay for your company to launch the product?
•
•
•
•
•
•
•

Technology
Market
Partnerships / Suppliers
Customer / Patient
Cost / Reimbursement
Regulatory
…


Table exercise
What are the most important proof points for the focus
project?

Select the most problematic and decisive at the table for
further focus and discussion.


The best proof points are…

Problematic


Decisive

Proof points: what would cause you to stop (or
significantly redirect) the project?
DO – a good list

DON’T – a bad list

Focus on evidence
needed

Focus on tasks needing
lots of work

Take the full business
perspective

Stay in your comfort zone

Creates something
exciting and worthwhile

Fulfills the stage-gate
requirements

Create developable,
Create mushy proof
clear and objective proof points
points
Include only material
issues:
• Problematic
• Decisive


Pile on:
• If it is 90%+, omit it.

Table exercise
What activities would advance learning and deliver on
the proof?


What is your gap between proof and work?
1 = project is focused on delivering work
2
3
4 = project is balanced between work and proof
5
6
7 = project is focused on delivering


Three questions
How do you know it is time to pivot?

What can you do to pivot?

How does pivoting go wrong?


Rotation Exercise
Each Thought Leader takes a station.
Divide into groups.
Work question for 10 minutes.
Rotate to another station. Repeat.

At end, each Thought Leader gives a five minute report
on five biggest insight.


Individual worksheet
What is your compelling vision?
What are the most important proof points?
What can you do to learn about them as quickly as
possible?
What are potential pivots?
What are you personally committed to?


Pair up & discuss
One person speaker, the other listener.
Speaker describes their situation and ideas – 7 minutes
• The listener’s job is to support the speaker. The more safe space
provided by the listener, the more direct and authentic the
speaker.

Listener provides feedback to speaker in support of their
commitments – 3 minutes
Rotate (I’ll keep track of time)


What are your top five commandments for
failing forwards?
Thou Shalt…
Thou Shalt Not…

Write on index cards.
Vote using the “like” method:
• Circulate and review others’ cards.
• Vote on your favorite two (or fewer).
• When you reach five votes on a single item, bring card up to be
read.


Don’t settle for safety and mediocrity.

“As this is your proposal, Cosgrove, its failure could
mean the end of your career. I think, however, that is
an acceptable risk.”

Formulate your projects for greatness.


and execute.


About SmartOrg
SmartOrg® provides software and services to help companies evaluate their
opportunities and make the best decisions about where to invest, especially when the
future is clouded with uncertainty. Customers use SmartOrg® to build their capability
in driving innovation from idea to commercial results and in selecting
projects, improving returns in their portfolio.
SmartOrg® helps companies to attain the highest value from projects and portfolios.

855 Oak Grove, Suite 202
Menlo Park, CA 94025 USA
T: +1.650.470.0120
info@smartorg.com
www.linkedin.com/company/smartorg
@smartorginc

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