Chapter 17

Innovation circle

  • Why use it? The innovation circle is a model for analysing and managing the life cycle of a new innovation.
  • What does it do? Innovation processes are often complex and not easy to manage. This model identifies which phases in the life cycle of an innovation are the most important and therefore in greatest need of management focus and attention.
  • When to use it? The innovation circle can be used to manage the life cycles of a variety of innovations. As the innovation process is divided into successive phases, management attention can be more easily directed to areas of need during the life cycle of the innovation.
  • What question will it help you answer? How can I oversee and manage the different stages of the innovation process and focus on creating not only new products, but also products that are commercially interesting?

The big picture

The innovation circle is a model for efficiently analysing and successively managing the life cycle of a new innovation. Innovation – that is, the creation of new products, processes and services – is an essential process for creating a (long-term) competitive advantage. However, innovation processes are often complex and not easy to manage. This model identifies which phases in the life cycle of an innovation are the most important and in greatest need of management focus and attention.

The creation of new products, processes and services is a key challenge for management. The innovation circle identifies three main phases that are necessary to manage the life cycle of an innovation successfully – creation, implementation and capitalisation (Figure 17.1):

1 The creation phase. The ‘seeds’ of new products, processes and services are discovered and organised in the creation phase. This phase comprises three steps:
  (i) Receive incentives – in this step, the external incentives that initiate the innovation process are distinguished and interpreted. Examples of external incentives are diminishing growth, weakening of the brand, the decline of customer satisfaction and the development of new technologies (or other areas of knowledge).
  (ii) Generate ideas – in this step, the generation of new ideas is the key. The external stimuli (the incentives received) provide the initiative to create new (product) ideas. Idea creation can be stimulated by a creative climate in which variety and exploration stand central, and where chaos and energy are the main drivers. For example, brainstorming sessions in which out-of-the-box thinking is stimulated can result in the creation of (many) new ideas. The best new ideas will be selected and go through to the next phase. During this process, the focus should be on the needs of customers. Creation of (new) value for customers is the ultimate goal. The customer value can be recognised by identifying the rewards (return on investment), risks (technological and market) and resources (investment).
  (iii) Function creation process (FCP) – in this step, the ideas are transformed into manageable functions. In addition, the risks are identified and can therefore be controlled. If the functions are clear, it is time to move on to the next phase.
2 The implementation phase. In this phase, the new product, process or service is further developed. The market introduction is prepared and executed. This phase is divided into two steps:
  (i) Product creation process (PCP) – during the PCP, the new product and/or service is developed from the specifications created during the FCP phase. In this step, the product is tested, e.g. by developing a prototype and running demos.
  (ii) Market introduction – in this step, all aspects of the market introduction are managed. This also implies the preparation of the following phase (see ORP below).
3 The capitalisation phase. In this final phase, the commercialisation of the new product, process and/or service is managed. This phase addresses the issue of how to create value (money) for the firm from the innovation(s). It is divided into three steps, in which operational excellence is key:
  (i) Order realisation process (ORP) – in this step, the management of the continuous, repeating stream of product deliveries is executed. This is concerned with the management of the logistics and production of the new product. Integration with the existing logistics and the production of current products is crucial to generate synergy and scale advantages.
  (ii) Service realisation process (SRP) – in this step, the management of providing (additional) services is undertaken. New services have to be integrated into the current service process.
  (iii) Utilisation – the final step of the innovation circle concerns the management of the new product’s revenues. This implies the continued preservation of the product’s margin. Reductions in production costs and small adjustments to the product are ways in which the margin of a product can be preserved. This phase ends when the life cycle of the product has ended.

Figure 17.1 The innovation circle

Figure 17.1 The innovation circle

Source: after Krebbekx and De Wolf (2008)

When to use it

The innovation circle can be used to manage the life cycles of a variety of innovations without overlooking relevant aspects of the innovation process. As the innovation process is divided into successive phases, management attention can be more easily directed to the correct subject during the life cycle of the innovation.

How to use it

The three phases of the innovation circle – creation, implementation and capitalisation – should be managed differently. In the creation phase, the search for new ideas is dominant. In this phase, management is directed towards managing creativity, but not in the same way as programme and project management, as search processes are not directed at a clear goal (clear goals are prerequisites in programme and project management). Rather, this phase can be managed by starting parallel research to explore different solutions. This iterative process ends when, with a degree of certainty, the most appropriate solution to the problem is found.

The implementation phase can be managed more tightly. The goal of this phase is clear from the outset and includes the different functions of the product, process and/or service. The necessary resources (mainly time and money) are therefore reasonably well known and manageable. This phase can be managed well by project management.

In the capitalisation phase, the new product, process and/or service is integrated into the ongoing operation, for which operational excellence programmes are appropriate.

The final analysis

The innovation circle is an analytical tool for managing an innovation process that provides a structure for overseeing its inherent complexity. Various analytical tools for new product management have been developed during the past few decades. The best-known tool is probably the Stage-Gate model (see Chapter 18). The Stage-Gate model and the innovation circle are comparable, in that they both provide an approach to managing the different stages of an innovation process. However, the innovation circle differs from the Stage-Gate model in two ways. First, the innovation circle directs more attention to the capitalisation phase. As such, management is not only focused on creating new products, but also on the creation of new products that are commercially interesting, and which can be integrated into the present operational infrastructure. Secondly, the innovation circle differs because of its shape. It represents a continuous process, implying that innovation should not stop at the end of a product’s life cycle. The end of a product can be a powerful incentive for new product ideas.

References

Camps, T.W., de Wolf, W. and van den Berg, G. (2011) Success!! Ten Lessons in Innovation. Utrecht: Berenschot [in Dutch: Geslaagd! 10 Lessen in Innovatie].

Krebbekx, J. and de Wolf, W. (2008) Innovation in Dutch Industry: Towards Excellence in Product Development. Utrecht: Berenschot [in Dutch: Innovatie Nederlandse Industrie].

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