L10. Is It Real Can We Win Is It Worth Doing
The Risk Matrix
To balance its innovation portfolio, a company needs a clear picture of how its projects fall on the spectrum of risk.
The risk matrix employs a unique scoring system and calibration of risk to help estimate the probability of success or failure for each project based on how big a stretch it is for the firm
A project’s position on the matrix is determined by its score on a range of factors, such as how closely the behavior of targeted customers will match that of the company’s current customers, how relevant the company’s brand is to the intended market, and how applicable its technology capabilities are to the new product.
A portfolio review team – typically consisting of senior managers with strategic oversight and authority over development budgets and allocations – con ducts the evaluation, with the support of each project’s development team.
Team members rate each project independently and then explain their rationale. They discuss reasons for any differences of opinion and seek consensus.
The resulting scores serve as a project’s coordinates on the risk matrix.
Screening with R-W-W
The R-W-W screen is a simple but pow- erful tool built on a series of questions about the innovation concept or product, its potential market, and the company’s capabilities and competition
It is not an algorithm for making go/no-go decisions but, rather, a disciplined process that can be employed at multiple stages of product development to expose faulty assumptions, gaps in knowledge, and potential sources of risk, and to ensure that every avenue for improvement has been explored.
The R-W-W screen can be used to identify and help fi x problems that are miring a project, to contain risk, and to expose problems that can’t be fi xed and therefore should lead to termination.
Innovation is inherently messy, nonlinear, and iterative.
R-W-W guides a development team to dig deeply for the answers to six fundamental questions:
click to edit
Is the market real?
Is the product real?
Can the product be competitive?
Can our company be competitive?
Will the product be profi table at an acceptable risk?
Does launching the product make strategic sense?
Is it
real?
Is there a need or desire for the product?
Can the customer buy it?
Is the size of the potential market adequate?
Is there a clear concept?
Can we win?
Does it have a competitive advantage?
Can the advantage be sustained?
How will competitors respond?
Do we have superior resources?
Is it worth doing?
Are forecasted returns greater than costs?
Does the product fit our overall growth strategy?
Will top management support it?
Do we have appropriate management?
Can we understand and respond to the market?
Will the final product satisfy the market?
Can the product be made?
Unmet or poorly satisfi ed needs must be surfaced through market research using observational, ethnographic, and other tools to explore customers’ behaviors, desires, motivations, and frustrations.
Are there subjective barriers to purchasing it? If alternatives to the product exist, customers will evaluate them and consider, among other things, whether the new product delivers greater value in terms of features, capabilities, or cost.
It’s dangerous to venture into a “trombone oil” market, where the product may provide distinctive value that satisfi es a need, but the need is minuscule. A market opportunity isn’t real unless there are enough potential buyers to warrant developing the product.
Before development begins, the technology and performance requirements of the concept are usually poorly defi ned, and team members often have diverging ideas about the product’s precise characteristics.
If the concept is solid, the team must next explore whether a viable product is feasible.
(Here the customer research that informed the team’s evaluation of whether the market and the product were real should be drawn on and extended as needed.)
Assuming that patent protection is (or will be) in place, the project team needs to investigate competitive threats that parents can't deflect.
Competitive advantage is only as good as the company’s ability to keep imitators at bay. The fi rst line of defense is patents.
The odds of success increase markedly when a company has or can get resources that both enhance customers’ perception of the new product’s value and surpass those of competitors. Superior engineering, service delivery, logistics, or brand equity can give a new product an edge by better meeting customers’ expectations.
Here the team must examine whether the organization has direct or related experience with the market, whether its development-process skills are appropriate for the scale and complexity of the project, and whether the project both fi ts company culture and has a suitable champion.
Successful product development requires a mastery of market research tools, an openness to customer insights, and the ability to share them with development-team members.
Are the risks acceptable?
A forecast’s riskiness can be initially assessed with a standard sensitivity test: How will small changes in price, market share, and launch timing affect cash fl ows and breakeven points?
This requires projecting the timing and amount of capital outlays, marketing expenses, costs, and margins; applying time to breakeven, cash fl ow, net present value, and other standard fi nancial performance measures; and estimating the profi tability and cash fl ow from both aggressive and cautious launch plans.
In other words, will it enhance the company’s capabilities by, for example, driving the expansion of manufacturing, logistics, or other functions?
It’s certainly encouraging for a development team when management commits to the initial concept.
But the ultimate success of a project is better assured if management signs on because the project’s assumptions can withstand the rigorous challenges of the R-W-W screen.
During development, trade-offs are made in performance attributes; unforeseen technical, manufacturing, or systems problems arise; and features are modified.