• Learning Objectives for Project Managers and Innovation Personnel
• To understand the characteristics of the innovation environment and how they different from a traditional project management environment
• To understand that there will be new tools that project managers and innovation personnel must use in an innovation environment
• To understand that the organizational reward system may influence team members to work differently on innovation projects

INTRODUCTION

“Problem-insight precedes solution insight. Someone has to recognise a problem before they start to solve the problem.”

— Max Mckeown, The Innovation Book: How to Manage Ideas and Execution for Outstanding Results

For innovation to take place on a repetitive basis, there must be an environment that fosters creativity and free thinking. Environments that focus on rigid policies and procedures generally have one and only one approach to managing projects and tend to reward people for obeying the requirements of the methodology. Innovation is often limited, and good ideas may never make it to the surface for examination.

The situation gets worse if senior management dwells on past successes and cannot envision the future. While governance of innovation is a necessity, it cannot be the same as governance of the day-to-day operations. Executives must understand that innovation leadership and governance may have to follow different practices than we use in traditional hierarchical leadership.

In this chapter we will look at some of the topics taught in traditional project management courses and how some of these topics may have to be looked at differently in an innovation environment. Emphasis will be placed on the new tools that innovation project managers must use. Most of the traditional project management tools still apply to innovation projects but may have to be supported by other tools such as brainstorming, prototype development, product or investment life cycles rather than the stage-gate approach, design thinking, and idea management.

NEW PRODUCT DEVELOPMENT

“Dreamers are mocked as impractical. The truth is they are the most practical, as their innovations lead to progress and a better way of life for all of us.”

— Robin Sharma

Most innovations in business are in the form of incremental changes to existing products or totally new products resulting from discontinuous innovation efforts. The product can be tangible (something physical that one can touch) or intangible (like a service, experience, or belief), though we tend to separate services and other processes from products.

In business and engineering, new product development (NPD) covers all activities necessary to bring a new product to market. A central aspect of NPD is product design, along with various business considerations. NPD requires an understanding of customer needs and wants, the competitive environment, and the nature of the market. Although cost, time, and quality are the main variables that drive customer needs, the management of innovation covers significantly more variables. Aiming at these three variables, companies develop continuously improved practices and strategies to better satisfy customer requirements and to increase their own market share by a regular development of new products. There are many uncertainties and challenges that companies must face throughout these activities.

The product development process typically consists of several activities that firms employ in the complex process of delivering new products to the market. A process management approach is used to provide structure. Product development often overlaps much with the engineering design process, particularly if the new product being developed involves application of math and/or science. Every new product will pass through a series of stages/phases, including ideation among other aspects of design, as well as manufacturing and market introduction. In highly complex engineered products (e.g., aircraft, automotive, machinery), the NPD process can be likewise complex regarding management of personnel, milestones, and deliverables. Such projects typically use an integrated product team approach. The process for managing large-scale complex engineering products is much slower (often 10-plus years) than that deployed for many types of consumer goods.

THE FUZZY FRONT END

The product development process can be broken down in several ways, many of which often include the following phases/stages:

1. Fuzzy front end (FFE) is the set of activities employed before the more formal and well-defined requirements specification is completed. Requirements speak to what the product should do or have, at varying degrees of specificity, to meet the perceived market or business need.
2. Product design is the development of both the high-level and detailed-level design of the product: which turns the what of the requirements into a specific how this particular product will meet those requirements. This typically has the most overlap with the engineering design process, but can also include industrial design and even purely aesthetic aspects of design. On the marketing and planning side, this phase ends at the pre-commercialization analysis stage.
3. Product implementation often refers to later stages of detailed engineering design (e.g., refining mechanical or electrical hardware, or software, or goods or other product forms), as well as test processes that may be used to validate that the prototype actually meets all design specifications that were established.
4. Fuzzy back end or commercialization phase represent the action steps where the production and market launch occur.

The front end of the innovation is the greatest area of weakness in the NPD process. This is mainly because the FFE is often chaotic, unpredictable, and unstructured. Unfortunately, this is where many of the decisions are made for later development and commercialization. It includes all activities from the search for new opportunities through the formation of a germ of an idea to the development of a precise concept. The FFE phase ends when an organization approves and begins formal development of the concept.

Although the FFE may not be an expensive part of product development, it can consume 50 percent of development time, and it is where major commitments are typically made involving time, money, and the product's nature, thus setting the course for the entire project and final product. Consequently, this phase should be considered as an essential part of development rather than something that happens “before development,” and its cycle time should be included in the total development cycle time.

There has been a great deal of research on the FFE in incremental innovation but limited research regarding radical or disruptive innovation. With incremental innovation, which tends to reinforce existing core competencies, information regarding technology and the markets are known and many of the ideas that come forth are internally generated. Therefore, a business case can be developed where strategic business objectives drive the decision-making process in the FFE. With radical innovation, the reverse is true. Technology and competition may be unknown, and therefore the outcome of the FFE can drive the strategic planning process from which the business case is then prepared. Knowledge about the technology and the technology trajectory selected may come from just one individual, or perhaps a small team, and personal desires may affect his/her decisions. The decisions must still be approved by senior management, but the decision-making process can be significantly different than with incremental innovation. The organization may not understand the FFE process. A great many more assumptions must be made during the FFE in radical innovation, and less information is normally available.

De Brentani and Reid (2012) identify three characteristics of networking and information sharing that are important during FFE activities:

• Quality of the information
• Speed of the information
• Variables impacting effectiveness of information flow

Koen et al. (2001) distinguish five different front-end elements (not necessarily in any order) that must be considered:

1. Opportunity identification. In this element, large or incremental business and technological chances are identified in a structured way. Using the guidelines established here, resources will eventually be allocated to new projects—which then lead to a structured NPPD (new product and process development) strategy.
2. Opportunity analysis. It is done to translate the identified opportunities into implications for the business and technology specific context of the company. Here, extensive efforts may be made to align ideas to target customer groups and perform market studies and/or technical trials and research.
3. Idea genesis. This is described as an evolutionary and iterative process progressing from birth to maturation of the opportunity into a tangible idea. The process of the idea genesis can be made internally or come from outside inputs, such as a supplier offering a new material/technology or from a customer with an unusual request.
4. Idea selection. Its purpose is to choose whether to pursue an idea by analyzing its potential business value.
5. Idea and technology development. During this part of the front-end process, the business case is developed based on estimates of the total available market, customer needs, investment requirements, competition analysis, and project uncertainty. Some organizations consider this to be the first stage of the NPPD process (i.e., Stage 0).

A universally acceptable definition for fuzzy front end or a dominant framework has not been developed so far. The reason is that the FFE for incremental innovation appears to be easier to understand than for radical innovation, and there is significantly more literature on incremental than radical innovation. However, the outcomes of FFE in both types of innovation are the following:

• Mission statement
• Customer needs
• Details of the selected idea
• Product definition and specifications
• Economic analysis of the product
• Development schedule
• Project staffing and the budget
• Business plan aligned with corporate strategy

LINE OF SIGHT

Strategic planning is an activity usually performed at the senior-most levels of management. Executives establish the company vision and mission statement, and then roll it out to all levels of the organization to get their support. As stated by Jack Welch, former chairman and CEO of General Electric,

Good business leaders create a vision, articulate the vision, passionately own the vision and relentlessly drive it to completion. (Tichy and Charan 1989)

The execution of the plan is performed at various lower levels through a series of projects. Not all projects require detailed knowledge about the strategic plan. For those projects where this information is critical for decision making, such as in the FFE innovation activities for new product development, there must be a line of sight between the executives, strategic planners and the innovation team for information sharing to make sure that innovation decisions are aligned with strategic business objectives. Some executives believe that information is power and refuse to share. If then sharing is done, it generally varies according to the need to know, hierarchical level, tenure, and type of project.

Without knowing the strategy, innovation team members can be at a loss on how to contribute effectively. They may develop conflicting goals and objectives that can interfere with expected innovation success. Free thinking may then be replaced by simply following the commands given to them by others.

Strategic planning and portfolio management must be aligned with project planning and execution. If the alignment does not exist, we may end up canceling potentially successful projects or wasting precious resources on projects that provide little business value. Line-of-sight is critical for this alignment to occur and assists in risk-mitigation activities.

RISK MANAGEMENT

Effective risk management practices are critical in an innovation environment, and quite often people do not realize the importance. As an example, a company began losing market share because of a performance gap that existed between what they could deliver and what their customers expected. This is shown in Figure 4-1.

The company put together an innovation team to solve the problem and close the gap. The innovation team eventually solved the problem, but much later than they desired, resulting in lost revenue and a smaller market share than they anticipated.

The company debriefed the innovation team after the project was over to find out what lessons were learned and any accompanying best practices. Initially, everyone believed that the problem was the result of having the wrong technical people assigned to the project. What the interviews showed was that the right team was assigned, but the team did not understand that risk management in innovation and the accompanying complexities were not the same as risk management in traditional project management. The result, as shown in Figure 4-2, was that ineffective risk management practices had prevented certain critical decisions from being made in a timely manner, thus missing strategic opportunities. Effective risk management is a critical skill in innovation.

Sometimes, innovation risk management suffers because of the team's desire to get involved in detail that can hinder effective risk-taking. As Douglas Bowman (2009), a former visual designer at Google, explained:

When a company is filled with engineers, it turns to engineering to solve problems. Reduce each decision to a simple logic problem. Remove all subjectivity and just look at the data…. (For example) a team at Google couldn't decide between two blues, so they're testing 41 shades between each blue to see which one performs better. I had a recent debate over whether a border should be 3, 4 or 5 pixels wide, and was asked to prove my case. That data eventually becomes a crutch for every decision, paralyzing the company and preventing it from making any daring design decisions.

The innovation environment can be characterized by five words; ambiguity, complexity, uncertainty, risk, and crisis. In Figure 2-1, we showed that certain types of innovation are accompanied by very high levels of ambiguity and complexity, thus increasing the need for effective risk management practices. While these words also apply to some degree to traditional project management practices and are considered during risk management activities, they may not have the severity impact as in innovation project management (Pich et al. 2002).

Ambiguity is caused by having unknown events. The more unknowns you have, the greater the ambiguity. As shown in Table 4-1, there are unknowns in the innovation environment that are treated as knowns in traditional project management. There are several other differences that could have listed in Table 4-1. It is important to understand that the way we taught project managers in the past was by promoting the use of an enterprise project management methodology that had forms, guidelines, templates and checklists often designed to minimize the ambiguity on a project. These tools may not be applicable on innovation projects. Other tools will be necessary.

Traditional project management focuses heavily on well-defined business cases and statements of work, whereas IPM relies on goal setting. Tension can exist when setting IPM goals (Stetler and Magnusson 2014). There is no clear-cut path for identifying IPM goals. Some people argue that improper goal setting can change the intended direction for an innovation project, whereas others prefer to recognize the need for some ambiguity with the argument that it creates space for innovative ideas, more fallback options are available, and the team may have an easier time converting ideas to reality.

Complexity deals with the number of components the project managers must monitor and the relationship between components. In innovation, many of the components are not known even with experimentation. If the technology is new and the product being developed is considered novel, then the company may have little historical experience and must therefore plan for cost and schedule uncertainties during innovation activities.

Complexity also increases when the project team must interface with a large stakeholder base or co-creation team, all of whom may have their own ideas about the project. With a large stakeholder base, the PM must deal with:

• Multiple stakeholders, each from a different culture and perhaps with hidden agendas
• Political decisions that become more important than project decisions
• Slow decision-making processes
• Conflicts among stakeholders
• Stakeholders that do not know their own role
• Frequent changes to the stakeholder base

Most innovation projects, which by nature are complex projects, generally have several components. The integration of these components requires an understand of the relationships between the project, the company's business strategy, management practices, processes, and the organizational process assets (Gann and Salter 2000) and (Hobday and Rush 1999). Although the complexity in innovation projects may be no different than complexity in traditional projects, the impact it can have on risk management practices can be severe. Standard project management methodologies that often use linear thinking tend to evaluate risks on an individual risk basis without considering the human ramifications associated with each risk (Williams 2017). Without considering the human ramifications, marketing may have issues downstream in dealing with customers.

Ambiguity, complexity, and the accompanying risks are characterized and assessed using the amount of information available. If too little information is known, as is the case in the early stages of innovation activities, the payoff table for decision making becomes ambiguous or there may be too many interacting parameters that create complexity. In both cases, risk management becomes complicated.

As the complexity and ambiguity increase, so does the uncertainty. In traditional project management practices, project managers can assign a probability of occurrence to the uncertainty so that we can create a payoff table and perform risk management activities. But with innovation, there most likely will not be any historical data from which to assign probabilities to the uncertainties, thus increasing the risks and hampering risk mitigation efforts.

If we now include the impact on human factors, the situation can become even worse. When complexity, ambiguity, and uncertainty affect human factors, as it often does in innovation projects, risks can increase because the rational basis for decision making may no longer exist. “In projects, bad things tend to happen in groups, not individually… . Events that affect projects in many ways … tend to go together. Even when one of those things occurs individually, it tends to trigger a cascade of problematic effects” (Merrow 2011). The combination of risks, accompanied by management's actions and team reactions can create vicious circles of disruption (Williams 2017).

The fifth element characterizing the innovation environment is the need for crisis management. A crisis is an element of surprise that can occur unexpectedly and threaten the organization or the project. A crisis comes from a slowdown in the economy, recessions, wrong decisions or unexpected events. In general, there are no contingency plans in place because of the number of different crises that can occur. However, the innovation team must have a crisis mindset, which requires an ability to consider the worst-case scenario while simultaneously coming up with alternatives and solutions. Organizations must continuously use risk-mitigation and crisis-management practices when there is a chance for significant unexpected events to occur, especially if the events are unfavorable.

The five elements characterizing the environment can have a serious impact on how a firm runs its business and the changes that may be needed for survival. As projects become more complex, the integration of components such as the firm's strategy, management practices and organizational processes can and will change. We must understand the internal dynamics within the company (Gann and Salter 2000) and (Hobday and Rush 1999).

THE INNOVATION CULTURE

“The key is to build a continuous learning culture of experimenters versus specialists, where it's everyone's job to be accountable toward creating and capturing customer value.”

– Ash Maurya, Running Lean: Iterate from Plan A to a Plan that Works

A culture is the shared values, beliefs, and performances that define a group of people and their behavior. Value includes the attitudes, beliefs, needs, and desires that people perceive as being important. Organizational cultures are intangible assets that can lead a firm to success or failure. Cultural failure can occur when innovation makes people nervous. Many people believe they are not creative. Many also conclude that it is not part of their job description and that innovation is the sole responsibility of research and development (R&D) people. Some are not even persuaded that innovation is important enough to justify a major initiative.

Effective innovative cultures must allow for:

• Risk taking
• Curiosity
• Failure tolerance
• Everyone to tap into their own level of creativity
• Freedom to follow one's intuition
• Avoid or defer from rapid judgment
• Collaboration (informal)
• Active listening
• Being team players
• Managing tensions rather than just tradeoffs

The importance of an organization's and/or project's culture is often underestimated. Companies that aspire for continuous innovation must create an organizational culture that allows people to freely contribute ideas. In the same regard, creativity alone is not sufficient for achieving the goals of innovation; organizational initiative is a necessary condition for creativity to affect innovation. In a project environment, the PM must encourage people to have a sense of curiosity, to have the freedom to bring forth ideas as well as alternative solutions and to demonstrate their own commitment to the project. This also includes a visible willingness to accept the risks necessary to make the impossible possible. Executives are the architects of the corporate culture and the support they provide must be visible.

While the PM may be able to create a project culture, it must be supported by a similar corporate culture that also encourages ideas to flow freely, understands the strengths and weaknesses of the innovation personnel and has confidence in their abilities. Not all cultures foster an innovative environment. McLean (1960) describes nine practices that some cultures use that can destroy creativity and squelch genius:

1. Coordinate work carefully to avoid duplication. Everything new can be made to look like something we have done before, or are now doing.
2. Keep the check reins tight. Define mission clearly; follow regulations: Nothing very new will ever get a chance to be inserted.
3. Concentrate on planning and scheduling, and insist on meeting time scales. New, interesting ideas may not work and always need extra time.
4. Ensure full output by rigorous adherence to scheduled workday. Don't be late. Creative people sometimes remember their new ideas, but delay in working on them helps to dissipate them.
5. Insist that all plans go through at least three review levels before starting work. Review weeds out and filters innovation. More levels will do it faster, but three is adequate, particularly if they are protected from exposure to the innovator's enthusiasm. Insist on only written proposals.
6. Optimize each component to ensure that each, separately, be as near perfect as possible. This leads to a wealth of “sacred” specifications that will be supported in the mind of the creative person by the early “believe teacher” training. The creator will the reject any pressure to depart from the envisioned specifications.
7. Centralize as many functions as possible. This will create more review levels, and it cuts down on direct contact between people.
8. Strive to avoid mistakes. This increases the filter action of review.
9. Strive for a stable, successful productive organization. This decreases the need for change and justifies the opposition to it.

Companies can maximize the abilities of the innovation personnel by providing workers with a “line of sight” to the organization's strategic objectives and establishing processes to make this happen. When employees have a sense of awareness of the organization's direction and strategic goals, they make decisions based on the greatest importance to the firm (Boswell 2006) and (Crawford et al. 2006).

Effective decision making is an important characteristic of the innovation culture. Decision making should be structured and based on evidence and facts rather than seat-of-the-pants guesses. Employees should have a decision-making mindset, not just on making decisions but on how to contribute. Positive reactions and favorable results will occur when people understand the expectations.

Executive involvement in decision making may be essential because innovation isn't predictable. Management must demonstrate a willingness to support tradeoffs and adjustments when necessary. Management must also make it clear to innovation teams that they have a willingness to cancel projects when certain criteria are not met. The cultural environment must be failure-tolerant and without punishing people for their willingness to accept a great deal of risk and uncertainty.

Some cultures focus on command and control of the hierarchy. The result is that only the executives can initiate innovation activities and make critical decisions. The frontline workers have little or no authority and/or power to solve customers' problems in a novel way. Executives that are rewarded for meeting budgets and deadlines may be afraid of disruptions from innovation. Executives may not know how to overcome resistance to change resulting from an innovation.

Executives must decide which organizational structure would be best for the type of innovation. Typical options include:

• Functional teams
• Strong matrix teams
• Weak matrix teams
• Hybrid matrix teams
• Full-time co-located teams
• Virtual teams

The decision on what organizational form is best becomes more complicated when co-creation is taking place as well as with partnerships and joint ventures. Based on the organizational structure selected, executives may participate in selecting individuals for key positions. Some questions that need to be addressed include:

• How do we determine which people in a company have the mindset of an innovation project manager?
• How do we determine which workers have the mindset of an innovator?
• How do we determine if employees are in a comfort zone because they have been doing the same job continuously, are possibly technically obsolete, and are not in tune with the big picture?
• How do we know if workers near the bottom of the hierarchy know the strategic goal and objectives that can influence their decisions?

Miles and Snow (1978) identify the types of people that are commonly assigned to project teams. They include:

• Technical enthusiasts: appreciate innovation and can tolerate glitches
• Visionaries: focus on high-reward opportunities
• Pragmatists: risk-averse and want to see proven applications
• Conservatives: risk-averse, price sensitive, and want bulletproof solutions
• Skeptics: want status quo and resist new technologies

The meaning of “value” plays a critical role in establishing a culture. Good cultures create a mindset that value considerations are integrated in the way that project decisions are made. Some firms have value-driven cultures that focus on the delivery of business value rather than simply outcomes or deliverables from an innovation project.

There are, however, risks that need to be considered in any value-driven culture. They include possibly endless changes in requirements if the definition of value is not controlled, unnecessary scope creep while attempting to maximize value, having the definition of value made by different people over the project's life cycle, and stakeholders not believing the forecasted value.

The innovation culture thrives on the free flow of information. Some cultures struggle with information overload and have difficulty in evaluating the trustworthiness of the information. The more widely dispersed the project team is, the greater the need for effective communications and coordination. Effective communication and sharing of information creates synergy. In the project culture, the PM must communicate with senior management as well as stakeholders. This must be done within a climate of trust.

INNOVATIVE CULTURES AND CORPORATE LEADERSHIP

“As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. This requires considerable tolerance. Those men and women, to whom we delegate authority and responsibility, if they are good people, are going to want to do their jobs in their own way. Mistakes will be made. But if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it undertakes to tell those in authority exactly how they must do their jobs. Management that is destructively critical when mistakes are made kills initiative. And it's essential that we have many people with initiative if we are to continue to grow.”

– William L. McKnight

Executives are the architects of the corporate culture and drive innovation leadership.

As stated by Roland Bel (2010):

In surveys of most innovative companies, firms like Apple, Google, Microsoft, or Virgin regularly top the ranks, and stories of their emblematic leaders are recurring topics for management books and magazines. But what do Steve Jobs, Larry Page and Sergey Brin, Bill Gates, and Richard Branson have in common? What do they do that steers innovation in their companies? Are they the sole drivers of innovation leadership? And is there a direct link between the innovation capability of a firm and the charisma of its leader? After all, companies such as Toyota, 3M, Samsung, and Logitech are also recognized for their innovation capabilities, even though it would be more difficult to put a face on their innovation leadership.

Innovation leadership involves different roles and abilities across organization levels and strategic orientations, and along the organization and innovation life cycle. In most companies, the leadership is through an executive team rather than in the hands of one individual who may appear frequently in the media and the eyes of the public.

There are two critical activities that innovation leadership must consider: when to start and stop innovation without impacting the corporate culture. First, they must balance short- and long-term strategies. The intent of innovation is to create a long-term sustainable competitive advantage. However, this must be balanced without sacrificing short-term economic performance to appease investors. There must be a prioritization system for projects based on both short- and long-term strategic objectives. Not all strategic innovation projects can be funded.

Second, executives must be willing to cancel or place plans on the backburner. Pulling the plug on a potentially promising project is difficult. But it must be done if there are other more promising projects that require certain critical resources. Reasons for project termination must be explained to the workers so that the desire to be innovative is not dampened.

Project managers must understand that project termination is a way of life. In traditional project management, PMs tend to focus on the present rather than the future. In innovational project management, PMs must understand that executive leadership needs to balance the present with the future. Executives must make sure that the culture understands the reasons behind the decision and that project termination will not impact workers' performance reviews and career path opportunities.

IDEA GENERATION

“Steve Jobs gave a small private presentation about the iTunes Music Store to some independent record label people. My favorite line of the day was when people kept raising their hand saying, ‘Does it do (x)? Do you plan to add (y)?’ Finally Jobs said, ‘Wait, wait—put your hands down. Listen: I know you have a thousand ideas for all the cool features iTunes could have. So do we. But we don't want a thousand features. That would be ugly. Innovation is not about saying yes to everything. It's about saying NO to all but the most crucial features.’”

– Derek Sivers

Some cultures spend more time collecting and analyzing ideas than using them. This happens if the ideas lack supporting data. As a result, not all projects are brought forth immediately. Most people know that the more information they discover to support their idea, the greater the likelihood that the idea can become a fully funded innovation project. One way to get the supporting information, at least internally, is to begin with a bootlegged or stealth project. These projects are not recognized as “official” projects and do not have established budgets. The person with the idea tries to generate the supporting data while working on his/her other duties. If additional resources are needed, then the person with the idea must find people he/she knows and trusts to assist while keeping the project under the radar screen.

Bootlegged projects are done in secrecy because in most companies there is competition for funding and resources for other innovation projects. There may also be turf wars. Companies cannot fund or support all the ideas that come forth. Timing is everything. If the idea is released too early or if word leaked out about the idea, and without supporting data, there is a risk that the idea would be smothered by nay-sayers. These projects start in the stealth mode because you can delay or postpone the moment that the clock starts ticking for your idea (Miller and Wedell-Wedellsborg 2013).

When a project is done in secrecy, you may still need a sponsor to assist with getting resources and possibly some disguised funding. Generally, during the secrecy stage, you may be able to attract sponsors from middle management positions. Once the project is known, getting executive-level support may become essential because it gives you legitimacy, funding, and human resources. However, there is also a downside risk that your project is now in the spotlight and your career may be at risk.

SPINOFF INNOVATIONS

Regardless as to whether an innovation project appears as a success or failure, IPMs must look for possible spinoffs for the technology and intellectual property discovered. It is not uncommon for another innovation project to start up just for spinoff opportunities. A spinoff is an application for a product that is different from the original intent or original statement of work. The spinoff may be discovered immediately or even years later.

PMs must understand that spinoffs are part of innovation project management. Looking for spinoffs is often less costly than starting other projects and trying to reinvent the wheel. PMs must perform idea generation, creativity, and brainstorming for spinoff products even while they are managing a project. It is an ongoing process, not something that occurs just at project startup.

At one of 3M's innovation forums, an employee was speaking about how he was trying to invent a super-strong adhesive for the aircraft industry. But instead, he accidentally created a weak adhesive, but could not find an application for it. In the audience was another 3M employee, Arthur Fry. Fry sang in the church choir and had a habit of losing the bookmark in his hymn book. He soon discovered that the weak adhesive could replace the bookmark. The weak adhesive could be peeled away after use without leaving any adhesive substance on the page. Fry applied for and received funding for an innovation project to develop a product—which later became the Post-it Notes.

Companies that painted cars used a tape that either left some type of adhesive residue on the car or reacted chemically with the type of paint used. Richard Drew, an engineer at 3M, believed that he could solve the problem. Two years later, Scotch tape hit the marketplace.

A pharmaceutical company conducted a study on the 292 R&D projects they worked on over a 10-year period. A typical project had three life-cycle phases:

• Discovery or R&D: innovation project management
• Development: program management
• Commercialization: product management

Out of the 292 projects, the company developed 24 products, and 8 products were considered to be “home runs,” which generated more than $500 million each year in revenue. A typical project that completes the discovery and development phases can cost between $750 million to $1 billion and can take 3000 days or 10 years to complete. With the amount of time and money invested in pharmaceutical R&D, it is expected that all possible spinoff avenues for other applications would be investigated before a project is considered as a failure.

UNDERSTANDING REWARD SYSTEMS

When workers get assigned to a project, their first concern is “What's in it for me?” They expect to be rewarded for the work they do. The fairness of the reward system can change behavior and affect risk taking. Unfair reward systems can destroy an innovation culture.

Historically, reward systems were linked to cost-cutting efforts rather than innovations. This has now changed. There has been considerable research done on reward systems for product innovations (Jansen et al. 2006) and (Chen 2015). Reward systems generally follow two approaches. In a process-based reward system, which is often used in traditional project management practices, teams are rewarded based on how well they follow internal policies, procedures, and expected behaviors to achieve the desired outcome. In an outcome-based reward system, teams are rewarded based on the outcome of the project and the impact it may have on the bottom line of financial statements. There is significantly more pressure placed on the workers in an outcome-based reward system.

If compensation is tied to project outcomes, companies still seem to prefer to use existing well-established methods rather than seeking out new alternatives by trial and error. A better approach might be to tie the reward system to the risks that the project team must accept rather than entirely on the outcomes.

In radical innovation, workers are under a great deal of pressure to create innovative technologies for new markets using a highly uncertain development process that is accompanied by a multitude of risks. Individual motivation under these circumstances is critical (O'Connor and McDermott 2004). Employees must be trusted and given the freedom to experiment. However, boundaries must be set, and this can be done through goal setting (Pihlajamma 2017).

Regardless of the reward system chosen, there are fears that workers may perceive. In innovation project management, there is the chance that people might resign if the reward system is unsuitable, if they do not receive recognition for their performance, if there is jealousy from the rest of the organization and if the company has a low tolerance for failure. Reward systems must focus on retention of talent and the ability to renew the firm's competencies. The downside risk is that a linkage to reward systems may limit one's desire to take risks.

The rewards need not be monetary rewards but monetary equivalents such as giving teams members gifts from a catalog, theater tickets or a dinner at a nice restaurant. Some companies give people additional days of vacation or use of a company car. One company created a “wall of fame” display as people entered the company cafeteria showing pictures of the team members and describing their innovations. Companies such as 3M, Apple, and Disney have created societies to recognize the achievements of some of their talented and innovative employees.¹

In traditional project management, the PMs generally have no responsibility for wage and salary administration. This may change in IPM.

INNOVATION LEADERSHIP IN ACTION: MEDTRONIC

IPM SKILLS NEEDED

In traditional project management, our actions rely heavily on company policies and procedures. We may also have an enterprise project management methodology where the project manager simply instructs the team to fill in the boxes in the forms and checklists. With IPM, there will be different skills needed because the innovation project managers will be involved end to end in all the life-cycle phases.

Some of the critical skills needed for an innovation project manager include the following:

• Seeing “the big” picture
• Must know and relate to the team the firm's growth objectives
• Must know the firm's tangible and intangible assets (capabilities and resources)
• Get close enough to the customers to know what they will buy
• Good communicator
• Willingness to accept responsibility
• Willingness to work under more than normal stress, uncertainty, and risk
• Highly effective at building a team that includes external resources
• Proficient in the concepts of design thinking
• Able to get team members to accept accountability for their actions
• Possess good conflict resolution skills

As seen in Figure 4-3, many of the skills needed by innovation project managers are not the core skills or tools discussed in the PMBOK^® Guide, but are unique to an innovation project management environment.

Everyone understands the importance of “leadership” in IPM, but there is not much published on how it is impacted by the different types of innovation. In radical innovation for example, technical expertise may be needed to determine the viability of the project and to identify possible derailments. Technical expertise may also be needed to coordinate the efforts of diverse technical groups. Technical expertise is needed for product innovations, whereas organizational expertise is needed for process innovations.

Innovation leadership must include the ability to provide directions to many diverse groups. Managing group diversity is not just coordinating the efforts of a team based on different race, religion, sex, or ethnic background. This is critical when considering co-creation efforts.

Creative problem solving is another critical skill and is used to direct the efforts of the team, encourage ideas, and provide alternatives and possible solutions. The person acting as the creative problem-solver directs the efforts but is not necessarily the key player.

There are three additional skills that both PMs and team members should possess, in an ideal situation involving innovation:

1. Emotional intelligence (EI). Recognize one's own and other people's emotions and use this information to guide thinking and behavior.
2. Business intelligence (BI). BI comprises the strategies and technologies used by the firm to provide historical, current, and predictive views of business operations and for decision making.
3. Data discovery. This is a user-driven process of using data mining and searching for visualized BI data patterns or specific items in a data set.

We tend to hire or assign technically competent candidates to fill innovation PM positions, even though they have no EI skills. This can create a serious problem with innovation projects where EI skills are necessary. Technical expertise is not the only ingredient for project success.

There have been articles that try to classify the types of innovation project managers according to skills needed. For example, Pedersen and Ritter (2017) identify innovation PMs as gamblers, prophets, executors, and experts. Each category has specialized skills that, when known, make it easier to align people to projects.

Organizations must have a firm grasp of the innovation-capable resources needed for competitive survival as well as the resources needed in the future for a competitive advantage. This can be accomplished by human resources using a talent pipeline that recognizes the competencies that are needed and their readiness to step in on short notice as backup talent.

The importance of the human resources group is often hidden, but it does have an impact on creating a corporate image and reputation that promotes innovation. This is accomplished by attracting talented technical people, giving them the opportunity to be creative, and ultimately increasing the public's confidence in the value and quality of the innovations.

DESIGN THINKING

Perhaps the most important skill for innovation project managers is design thinking. Design thinking is a structured process for exploring ill-defined problems that were not clearly articulated, helping to solve ill-structured situations and improving innovation outcomes. Design thinking can help resolve innovation challenges. “Design thinking helps structure team interactions to cultivate greater inclusiveness, foster creativity, deepen empathy, and align participants around specific goals and results” (Mootee 2013, 63).

Design thinking is a collaborating approach to creative problem solving in rapidly changing markets where breakthrough ideas may be necessary. Design thinking also mandates a close and trusting relationship with the team members and the stakeholders throughout the life of the innovation. The focus is on customer needs and “thinking outside of the box.”

As part of design thinking, you must know who your customers are or will be. This information may come from an understanding of competitive research such as a SWOT (strengths, weaknesses, opportunities, and threats) analysis and may include identification of:

• The most profitable and demanding customers
• The less demanding customers
• The new customers that are willing to accept a “good enough” product or service

Interviewing customers may be highly advantageous. The information can then be mapped as shown in Figure 4-4.

The team and the PM must also have a line of sight as to what are the strategic goals and growth objectives. There are no clear-cut tools or paths for identifying IPM goals. Some people argue that improper goal setting can change the intended direction for an innovation project, whereas others prefer to recognize the need for some ambiguity with the argument that it creates space for innovative ideas, more fallback options are available, and the team may have an easier time converting ideas to reality using design thinking. When deciding to “kill” an idea because the value is not there, you must first put yourself in the users' shoes and think about the first user, not yourself. Innovation PMs must know the firm's tangible and intangible assets (capabilities and resources). The design thinking approach to redefine value for the customers begins with people, not products.

Design thinkers seek to understand the cultures not only of others but also of themselves, recognizing that their own emotions, practices, and belief systems inform what, how, and why they do what they do.

Embedding design thinking into a business means embedding it into the company's strategy, corporate culture, processes and practices, systems, and structures. According to Mootee (2013, 60): “

Applied design thinking in business problem solving incorporates mental models, tools, processes, and techniques such as design, engineering, economics, the humanities, and the social sciences to identify, define, and address business challenges in strategic planning, product development, innovation, corporate social responsibility, and beyond”.

Unfortunately, most of these topics are not covered in traditional project management training programs but are a necessity for IPM activities.

There are several benefits to design thinking:

• Greater focus on the customers' needs
• Discover new customer insights (i.e., with engagement project management)
• More creativity through idea generation and prototyping
• Solutions created as quickly as possible
• Creates a culture of learning
• Better handling of ambiguity
• Better understanding of complex connections
• Incrementally little bets as we go along rather than big bets

There are also causes for design thinking failure:

• Not understanding the problem and/or lack of definition
• Lack of information
• Poor communication channels, especially with stakeholders
• Rushing into prototype development
• Expecting a final solution from using one prototype
• Looking for a quick solution
• Team members being closed-minded to the ideas of others
• Relying too much on history and past customer behavior
• Overthinking the information at hand
• Failing to consider parallel paths
• Corporate gravity (i.e., removal from comfort zones)
• Cynicism

Project managers face several challenges, beginning with the FFE. A well-managed FFE usually leads to better innovation outcomes. Unfortunately, because of up-front uncertainty and a need to make quick choices, especially based on incomplete information, managing the FFE is a challenge.

Prototyping is another challenge. In linear prototyping, which occurs in traditional project management, the prototype is developed near the end of the project. In nonlinear prototyping, which is most common in innovation, several prototypes are developed, beginning upfront during design thinking. “Fail fast, fail cheap, and fail early” must be replaced by “learn fast, learn cheap, and learn early.” Full validation of an innovation may require several prototypes and possibly world testing.

Organizational friction will occur during design thinking and can be advantageous and create internal competition surrounding intangible assets, such as the interpretation of intellectual property and the rationale for some decisions. People may then bring additional information to the table to support their position.

If the outcome of a project is to create customer value through innovation, then there is a need to bring design principles, methods, and these new tools into organizational management and business strategy development (Brown 2008). “Design thinking activities and project management are both evolving rapidly as transformation factors and processes in firms and the economic landscape change. Both fields are anchored in a practice characterized by methods and tools, but they are moving beyond that operational perspective toward a strategic one” (Ben Mahmoud-Jouini et al. 2016). A primary reason for this is because an output of design thinking may not be a product but instead a new business model that includes significant changes in customer management practices, innovation activities for the future, regulatory and social considerations, and organizational and financial considerations.

There are more than 100 tools that can be used as part of design thinking (see Kumar 2013). Some common design thinking tools include:

• Storytelling (providing narrative info rather than dry facts)
• Storyboards (depicting the innovation needs through a story with artwork)
• Mind maps (connecting all the information)
• Context maps (uncover insights on user experience)
• Customer journey maps (stages customers go through to purchase the product and use it)
• Stakeholder maps (visualizing stakeholder involvement)
• Personas (who are the users and nonusers)
• Metaphors (comparison with something else)
• Prototyping (testing different ideas)
• Generative sessions (looking at stakeholder experience)

There are numerous textbooks that go into detail on each of these tools. See, for example, Keeley (2013), Kumar (2013), Tidd and Bessant (2013), and Luchs et al. (2016). Only a few of these tools will be discussed in detail later in this chapter.

BRAINSTORMING

Brainstorming capability is another critical IPM skill, but some researchers disagree. The argument is that creativity usually precedes innovation and the innovation project manager may not be involved this early on. Creativity is where brainstorming takes place, and the role of innovation is to bring the creative ideas to life. Innovation ideas can come from several sources such as industry and market changes, demographic changes, new knowledge, and unexpected events. Innovation requires people to use both sides of their brain to take advantage of an opportunity. The people must demonstrate diligence, persistence, and commitment regardless of their knowledge and ingenuity.

Creativity is the ability to think up ideas to produce something new through imaginative skills, whether a new solution to a problem or a new method or device. Innovation is the ability to solve the problem by converting the idea into reality, whether it is a product, service, or any form of deliverable for the client. Innovation goes beyond creative thinking. Creativity and innovation do not necessarily go hand in hand. Any problem-solving team can come up with creative solutions that cannot be implemented. Any engineering team can design a product (or a modification to a product) that manufacturing cannot build.

Innovation is more than simply turning an idea into reality. It is a process that creates value. End-of-the-line customers are paying for something of value. Whatever solution is arrived at must be recognized by the customer as possessing value. The best of all possibilities is when the real value can be somehow shared between the customer's needs and your company's strategy. The final alternative selected might increase or decrease the value of the end deliverables, as seen by the customer, but there must always be some recognizable value in the solution selected.

Because of constraints and limitations, some solutions to a problem may necessitate a reduction in value compared to the original strategic objectives of the project. This is referred to as negative innovation. In such cases, innovation for a solution that reduces value can have a negative or destructive effect on the team. People could see negative innovation as damage to their reputation and career.

If the innovation risks are too great, the project team may recommend some form of open innovation. Open innovation is a partnership with those outside your company by sharing the risks and rewards of the outcome. Many companies have creative ideas for solving problems but lack the innovative talent to implement a solution. Partnerships and joint ventures may be the final solution.

It is possible that after evaluating the alternatives the best approach might just be a combination of alternatives. This is referred to as a hybrid alternative. Alternative A might be a high risk but a low cost of implementation. Alternative B might be a low risk but a high cost of implementation. By combining alternative A and B, we may be able to come up with a hybrid alternative with an acceptable cost and risk factor.

Sometimes, creativity is needed to develop alternatives. Not all people are creative, even if they are at the top of their pay grade. People can do the same repetitive task for so long that they are considered subject matter experts. They can rise to the top of their pay grade based on experience and years of service. But that alone does not mean that they have creativity skills. Most people think that they are creative when, in fact, they are not. Companies also do not often provide their workers training in creative thinking.

In a project environment, creativity is the ability to use one's imagination to come up with new and original ideas or things to meet requirements and/or solve problems. People are assigned to project teams based on experience. It is impossible for the project manager, and sometimes even the functional managers, to know whether these people have the creativity skills needed to solve problems that can arise during an innovation project. Unless you have worked with these people previously, it is difficult to know if people have imagination, inspiration, ingenuity, inventiveness, vision, and resourcefulness, all being common characteristics of creativity.

All ideas discussed during brainstorming sessions should be treated as intellectual property and recorded as part of a larger knowledge management system. Idea management is a component of knowledge management. Even if a company has idea screening criteria, all ideas should be recorded. What might appear as a bad idea today could end up as a great idea tomorrow. The drawback for a long time has been that innovation is a stand-alone process and not seen as part of any knowledge management system.

There is a valid argument that everyone assigned to the innovation team should possess brainstorming skills. Walt Disney's Imagineering division, which has the responsibility for designing theme parks around the world, is an example of how everyone throughout the life of the innovation project is expected to have brainstorming skills. At Disney, the term “Imagineering” is used, and it is defined as a combination of IMAGINation and enginEERING. Everyone in the Imagineering division, from executives to janitors, call themselves Imagineers and can participate in brainstorming sessions (Kerzner 2017). The culture in the Imagineering division is totally supportive of brainstorming and innovation. Titles and silos are not considered during brainstorming efforts.

With projects requiring traditional project management practices, brainstorming may be measured in hours or days. The membership of the brainstorming group may be large or small and may include marketing personnel to help identify the specific need for a new product or enhancement to an existing product, and technical personnel to state how long it will take and the approximate cost. Quite often, in traditional project management, a mistake is made whereby the innovation project managers may not be assigned and brought on board until after the brainstorming sessions are over, the project has been approved and added to the queue, and the goals established. At Disney's Imagineering division, brainstorming may be measured in years and a multitude of Imagineering personnel will participate, including the innovation project managers.

Brainstorming can be structured or unstructured. Structured brainstorming could entail thinking up an attraction based on a newly released animated or non-animated Disney movie. Unstructured brainstorming is usually referred to as “blue sky” brainstorming. Several sessions may be required to come up with the best idea because people need time to brainstorm. Effective brainstorming mandates that we be open-minded to all ideas. And even if everyone agrees on the idea, Imagineers always ask, “Can we make it even better?” Unlike traditional brainstorming, it may take years before an idea comes to fruition at the Imagineering division.

Disney is an exception whereby everyone in the Imagineering division may participate in brainstorming. This is not the case in all companies. There may be industry-specific skills that may be difficult to teach in a classroom. The skills needed by the Imagineers can include:

• The ability to envision a story
• The ability to brainstorm
• The ability to create a storyboard and build mock-ups in various stages of detail
• A willingness to work with a multitude of disciplines in a team environment
• An understanding of theme park design requirements
• Recognizing that the customers and stakeholders range from toddlers to senior citizens
• An ability to envision the attraction through the eyes and shoes of the guests
• An understanding of the importance of safety, quality, and aesthetic value as additional competing constraints
• A passion for aesthetic details
• An understanding of the importance of colors and the relationship between colors and emotions
• An understanding of how music, animatronics, architecture, and landscaping must support the story (Kerzner 2017)

The purpose of storytelling in innovation is to help the team visualize the need for innovation from the perspectives of other people and have the team build a shared meaning and understanding for the situation.

According to Luchs et al. (2016, 89–90):

In a design thinking product development process, stories allow concepts to be visualized and experienced before they have been designed and developed. Initially, the development team builds the stories and then shares them with the other stakeholders in the product development process. Stakeholders may include end users and potential partners.

The function of stories within the product development process is to create shared definitions of the types of problems to be solved, the contexts in which the problems occur, and the types of solutions that could resolve the problems. Stories allow quick communication within the complete product development team, its intended customers, and its extended stakeholder chain.

The user's or customer's point of view is the basis of the story narrative. Stories told from the viewpoint of the end user of the product are the foundation of business-to-consumer concepts. Business-to-business stories require creation of many variations of a story, each from the narrative points of view of the various customers within a value chain.

A good product development story informs its audience about the functional activities and interactions among people, products, and systems. It also reveals the emotional and rational needs of the people in it. Understanding these things allows the audience of the story to feel empathy for the people within it and develop a “feel” for how credible interactions within the described context could work.

PROTOTYPES

A prototype is an early or incomplete model of a product built to test a concept or process. Prototypes are tangible communication tools that share information with everyone. Prototypes are most commonly used during product development innovation but can be used for service and process innovations as well. Over the life cycle of an innovation project there may be several prototypes built at different intervals. Prototyping serves to provide specifications for a real, working system rather than a theoretical one. In some design workflow models, creating prototypes are the steps between the evaluation of an idea and commercialization of a product.

There are several purposes for creating prototypes, six of which are identified below (Luchs et al. 2016, 131–133):

1. Initial explorations of an idea
2. Determining the appropriate direction
3. Attract funding
4. Garner feedback
5. Define patents
6. Facilitate the manufacturing process

Prototypes are used to explore different aspects of an intended design:³

• A proof-of-principle prototype serves to verify some key functional aspects of the intended design, but usually does not have all the functionality of the final product.
• A working prototype represents all or nearly all the functionality of the final product.
• A visual prototype represents the size and appearance, but not the functionality, of the intended design.
• A form study prototype is a preliminary type of visual prototype in which the geometric features of a design are emphasized, with less concern for color, texture, or other aspects of the final appearance.
• A user experience prototype represents enough of the appearance and function of the product that it can be used for user research.
• A functional prototype captures both function and appearance of the intended design, though it may be created with different techniques and even different scale from final design.
• A paper prototype is a printed or hand-drawn representation of the user interface of a software product. Such prototypes are commonly used for early testing of a software design, and can be part of a software walkthrough to confirm design decisions before more costly levels of design effort are expended.

In general, the creation of prototypes will differ from creation of the final product in some fundamental ways:

• Material. The materials that will be used in a final product may be expensive or difficult to fabricate, so prototypes may be made from different materials than the final product. In some cases, the final production materials may still be undergoing development themselves and are not yet available for use in a prototype.
• Process. Mass-production processes are often unsuitable for making a small number of parts, so prototypes may be made using different fabrication processes than the final product. For example, a final product that will be made by plastic injection molding will require expensive custom tooling, so a prototype for this product may be fabricated by machining or stereolithography instead. Differences in fabrication process may lead to differences in the appearance of the prototype as compared to the final product.
• Verification. The final product may be subject to several quality assurance tests to verify conformance with drawings or specifications. These tests may involve custom inspection fixtures, statistical sampling methods, and other techniques appropriate for ongoing production of a large quantity of the final product. Prototypes are generally made with much closer individual inspection and the assumption that some adjustment or rework will be part of the fabrication process. Prototypes may also be exempted from some requirements that will apply to the final product.

Engineers and prototype specialists attempt to minimize the impact of these differences on the intended role for the prototype. For example, if a visual prototype is not able to use the same materials as the final product, they will attempt to substitute materials with properties that closely simulate the intended final materials.

It is important to realize that by their very definition, prototypes will represent some compromise between the initial idea and the final production design. Due to differences in materials, processes, and design fidelity, it is possible that a prototype may fail to perform acceptably whereas the production design may have been sound. A counterintuitive idea is that prototypes may perform acceptably whereas the production design may be flawed, since prototyping materials and processes may occasionally outperform their production counterparts.

In general, it can be expected that individual prototype costs will be substantially greater than the final production costs due to inefficiencies in materials and processes. Prototypes are also used to revise the design for the purposes of reducing costs through optimization and refinement.

It is possible to use prototype testing to reduce the risk that a design may not perform as intended; however, prototypes generally cannot eliminate all risk. There are pragmatic and practical limitations to the ability of a prototype to match the intended final performance of the product and some allowances and engineering judgement are often required before moving forward with a production design.

Building the full design is often expensive and can be time-consuming, especially when repeated several times—building the full design, figuring out what the problems are and how to solve them, then building another full design. As an alternative, rapid prototyping or rapid application development techniques are used for the initial prototypes, which implement part, but not all, of the complete design. This allows designers and manufacturers to rapidly and inexpensively test the parts of the design that are most likely to have problems, solve those problems, and then build the full design.

CREATIVITY AND INNOVATION FEARS

All workers are under some form of stress and pressure in the workplace; in some companies/ industries more so than others. The stress creates fears such as doing things wrong, unpredictable events, not abiding by instructions, and possibly a loss of employment. These fears can be compounded in an innovation environment where people are asked to be creative but are afraid of the unknowns resulting from what they might say or do, such as being ridiculed or laughed at.

Sweeney and Imaretska (2016, 52–53) identify four symptoms of fear:

1. When an organization asks people to embrace a sense of frugality and expense reduction, I often see people fearfully translate that into drastically decreasing the number of ideas they produce—because they could cost money.
2. Sometimes I see leaders accidentally condemn the past when their intention is simply to energize and celebrate the future. That sometimes can affect the people they lead into thinking that all their previous hard work wasn't innovative.
3. There's the old standby that since the ultimate metric of whether our innovation was good or bad will be its return on investment, we should simply not waste any time considering ideas or innovations that won't make us money. That approach often blinds us to the benefits of the idea not associated with ROI, which could be very profitable in another form.
4. Many groups are frightened to learn what a truly different and perhaps conflicting set of ideas will do to their innovation. They simply dub themselves content experts, which allows them to be insulated from something that could drastically change their path or strategy. Voice of the customer (VOC) is a prime example of how listening to an outside perspective can help innovation.

Organizations must create a culture where people are not fearful of contributing their ideas, whether good or bad.

INNOVATION GOVERNANCE

Proper innovation governance can alleviate many of the fears described in the previous section. Unfortunately, assigning the right person to an innovation governance position has challenged executives for some time. The most common solution is to assign someone from the senior levels of management, most frequently from R&D or marketing. Many times, these individuals have progressed up the organizational hierarchy without ever having managed projects or been involved in innovation. These individuals then make the mistake in believing that innovation governance is the same as organizational governance and end up providing the wrong type of governance to innovation projects.

Innovation governance requires an understanding of the following:

• Governance personnel must understand that the way that governance is applied will vary from the fuzzy front end to commercialization at the speedy back end.
• The fuzzy front end focuses on exploring opportunities, idea generation, idea selection, and developing creative solutions. A knowledge of brainstorming practices may be mandatory.
• Governance personnel must create or support a culture where all ideas, whether good or bad, are valued. This may require the removal of cultural inhibitions and fears that can stifle innovation creativity.
• Governance personnel must make sure that all creative solutions are aligned with strategic corporate objectives. Governance personnel must keep the team focused and, at the same time, recognize that spinoff opportunities may exist.
• Governance personnel must demonstrate a willingness to pull the plug on projects that do not satisfy strategic requirements.
• Governance must create or support a culture where risk taking is encouraged and failure is acceptable without any form of punishment.
• Governance must demonstrate a passion for the innovation process and encourage team members to feel the same passion.
• Governance must be able to identify individuals with innovation capabilities and encourage them to perform at the best of their abilities. This may require identification of untapped talent.
• Governance personnel must demonstrate a willingness to experiment and test possibly multiple prototypes. This may involve new technologies.
• Governance personnel must interface with numerous groups outside of the company such as stakeholders, end-of-the-line customers, partners and open-source team members.
• Governance personnel must understand the importance of a speedy back end to commercialize the products and reap the benefits as soon as possible

TRANSFORMATIONAL GOVERNANCE

There have been numerous books written on effective project management sponsorship and governance. Most books seem to favor situational governance and leadership, where the leadership style that is selected is based on the size and nature of the innovation project, the importance of the deliverables, the skill level of the innovation project team members, the project manager's previous experience working with these team members, and the risks associated with the project.

In the past, governance personnel were expected to provide leadership in a manner that improves the team's performance and skills and allows the employees to grow while working on project teams. Today, governance personnel are also being asked to function as the leaders of organizational change that may result from certain innovation projects, such as the creation of a new business model. Organizational change requires that people change. This mandates that governance personnel possess a set of skills that may be different than what was appropriate for managing an organizational hierarchy. This approach is now being called transformational governance. Not all innovation projects will require transformational governance.

There are specific situations where transformational governance must be used and employees must be removed from their previous comfort zones. As an example, not all projects come to an end once the deliverables are created. Consider a multinational company that establishes an IT project to create a new, high-security company-wide email system. Once the software is developed, the project is ready to “go live.” Historically, the person acting as the project manager to develop the software moves on to another project at “go live,” and the responsibility for implementation goes to the functional managers or someone else. Today, companies are asking both the project manager and the governance personnel to remain on board the project and act as the change agent for full, corporate-wide implementation of the changeover to the new system or business model.

Transformational leadership and governance is heavily focused on the people side of the change and is a method for managing the resistance to the change, whether the change is in processes, technology, acquisitions, targets or organizational restructuring. People need to understand the change and buy into it. Forcing change on people is an invitation for prolonged resistance, especially if people see their job threatened.

BALANCED SCORECARD

The balanced scorecard, popularized by Kaplan and Norton (1996), is a performance management tool that tracks components of the business strategy which may include innovation. It is an essential tool for innovation portfolio governance. The balanced scorecard focuses more so on tracking performance than formulating strategy. It is a set of measures that provides a comprehensive view of the business based on actions taken. It complements other measurements such as customer satisfaction, financial measures, and innovation activities that drive future performance. The purpose of the report is to alert managers when performance deviates from expectations. It is not a replacement for traditional financial or operational reports.

The original thinking behind a balanced scorecard was for it to be focused on information relating to the implementation of a strategy, and over time there has been a blurring of the boundaries between conventional strategic planning and control activities and those required to design a balanced scorecard. This is illustrated by the four steps required to design a balanced scorecard included in Kaplan and Norton's writing on the subject:

1. Translating the vision into operational goals
2. Communicating the vision and link it to individual performance
3. Business planning; index setting
4. Feedback and learning, and then adjusting the strategy accordingly

These steps go far beyond the simple task of identifying a small number of financial and nonfinancial measures but illustrate the requirement for whatever design process is used to fit within broader thinking about how the resulting balanced scorecard will integrate with the wider business management process or business model.

The first generation of balanced scorecard designs used a “four perspective” approach to identify what measures to use to track the implementation of strategy, originally proposed by Kaplan and Norton (1992):

1. Financial. This perspective encourages the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question, “How do we look to shareholders?” Examples: cash flow, sales growth, operating income, return on equity.
2. Customer. This encourages the identification of measures that answer the question, “What is important to our customers and stakeholders?” Examples: percent of sales from new products, on time delivery, share of important customers' purchases, and ranking by important customers.
3. Internal business processes. The third perspective encourages the identification of measures that answer the question, “What must we excel at?” Examples: cycle time, unit cost, yield, and new product introductions.
4. Learning and growth. This encourages the identification of measures that answer the question, “How can we continue to improve, create value and innovate?” Examples: time to develop a new generation of products, life cycle to product maturity, time-to-market versus competition.

The idea was that managers used these perspective headings to prompt the selection of a small number of measures that informed on that aspect of the organization's strategic performance. There are now later generations of the balanced scorecard.

STRATEGY MAPS

A strategy map is a diagram used by innovation project managers to document the primary strategic goals being pursued by an organization or management team. It is most commonly associated with the balanced scorecard. The strategy map is important in innovation activities because traditional measurement of the success of an innovation strategy has been based on tangible assets that appear on the company's balance sheet. Today, tools such as the balanced scorecard and strategy maps exist by which we can measure intangible assets, such as knowledge-based assets, and their impact on the balance sheet. These tools allow us to better translate a strategy into operational terms and align performance against strategic business objectives. The strategy map is the architecture for designing the framework for the strategy. The strategy map shows how intangible assets can be converted into tangible outcomes. It is a flowchart of the business strategy.

The Kaplan and Norton approach to strategy maps has these features:

• An underlying framework of horizontal perspectives is arranged in a cause-and-effect relationship, typically financial, customer, process, and learning and growth.
• Objectives are within those perspectives. Each objective as text appears within a shape (usually an oval or rectangle). Relatively few objectives (usually fewer than 20) are used.
• Vertical sets of linked objectives then span the perspectives. These are called strategic themes.
• Clear cause-and-effect relationships exist between these objectives, across the perspectives. The strategic themes represent hypotheses about how the strategy will bring about change to the outcomes of the organization.

The balanced scorecard helps managers focus their attention more closely on the interventions necessary to ensure the strategy is effectively and efficiently executed. One of the big challenges faced in the design of balanced scorecard–based performance management systems is deciding what activities and outcomes to monitor. By providing a simple visual representation of the strategic objectives to be focused on, along with additional visual cues in the form of the perspectives and causal arrows, the strategy map has been found useful in enabling discussion within a management team about what objectives to choose, and subsequently to support discussion of the actual performance achieved.

The strategy map is a device that promotes three stages of conversation during the strategy development, implementation, and learning process:

1. Capture a strategy from a management team. To promote discussion amongst that team on the strategy, so they all leave the room telling the same story of their strategy.
2. Communicate the strategy, focus organization efforts, and choose appropriate measures to report on an organization's progress in implementing a strategy.
3. Provide a basis to review and potentially revise the strategy (not simply the measures or targets) and support conversations and decision making, as the team learn from the strategy's implementation.

Strategy maps align processes, people, systems, and innovation to shared strategic goals and objectives. The maps identify clear cause-and-effect relationships and how the strategy will bring about change to the outcomes of the organization.

INNOVATION PORTFOLIO MANAGEMENT

There is growth in the literature for an innovation portfolio project management office (IPPMO) dedicated just to projects requiring innovation. The reason for the IPPMO is that innovation may require a different form of organization governance than is used to manage the day-to-day business. IPPMOs are critical for continuous innovations and can influence end-to-end IPM performance. There can be other project management offices (PMOs) dedicated to other functions, including strategic projects that may not require radical innovation of sorts. Unlike many other forms of portfolio management, innovation portfolio management is a complex decision-making process characterized by an elevated level of uncertainty. It deals with constantly changing information about opportunities internal as well as external to the firm (Meifort 2015).

The IPPMO provides the necessary governance to link projects to strategic objectives. Innovation benefits the entire company and therefore portfolio decision making should be emphasized over silo decision making. Analysis-paralysis situations should be avoided. Finally, the gaps between the project team, various functional groups, governance personnel, and stakeholders should be reduced through effective communications.

Almost all projects require tradeoffs, and in most cases the decisions about the tradeoffs are made by the project team. In innovation projects, the IPPMO may have a very active role and may be required to approve all tradeoffs as well as identifying the need for tradeoffs because of the impact it may have on the business strategy and the need for change management. The IPPMO may have a better understanding of the changes in the marketplace and possess proprietary data related to strategic planning. Typical reasons for tradeoffs on innovation projects include:

• Loss of market for the product
• Major changes in the market for the product
• Loss of faith and enthusiasm by top management and/or project personnel
• The appearance of potentially insurmountable technical hurdles
• Organizational changes (i.e., new leadership with different agendas)
• Better technical approaches have been found, possibly with less risk
• Availability or loss of highly skilled labor
• Risks involving health, safety, environmental factors, and product liability

The IPPMO must insulate the innovation team from internal and external pressures. Some of the pressures include:

• Shortening development time at the expense of product liability
• Stockholder pressure for quick results
• Cost reduction
• Rushing into projects without a clear understanding of the need

Highly creative people thrive on recognition and want to show that their idea had merit and was achievable even if the market for their deliverable has changed. They do not like to be told to stop working or change their direction. As such, they may resist change and need to be monitored by the IPPMO if readjustments to the project are necessary.

The IPPMO's involvement in projects will be based on the type of project and the type of innovation. This is shown in Figure 4-5. The greater the unknowns, risks, and uncertainties, the greater the involvement by the IPPMO.

Existing PMO literature focuses on the execution of projects that are reasonably well defined. Therefore, the roles and responsibilities of the membership in the traditional PMO can be reasonably defined. The IPPMO must serve as the bridge between innovation needs, business strategy, the organization's culture and resource capabilities. Therefore, the roles and responsibilities of the IPPMO membership are more complex. Perhaps the most significant role of the IPPMO is in the front end of innovation where they must identify target markets, customer needs, value propositions, expected costs, and functionalities (Wheelwright and Clark 1992, Bonner et al. 2002).

As stated previously, culture often plays a significant role in how companies create a portfolio of projects that includes innovation. Some cultures try to minimize risk and focus on improvements or modifications to existing ideas whereas more aggressive cultures pursue fundamentally innovative ideas with the goal of becoming a market leader rather than a follower. There may also be a national-level culture that influences project portfolio development (Unger et al. 2014).

Barreto (2010, 271) identifies four responsibilities for the IPPMO: (1) sensing opportunities and threats; (2) making timely decisions; (3) making market-oriented decisions; and (4) changing the firm's resource base. Sicotte et al. (2014, 60−61) add to the list topics such as intrapreneurship, proactive adaptability, strategic renewal, and value chain and technical leadership.

An important item that is frequently not discussed in the literature is the IPPMO's responsibility for nondisclosure, secrecy, and confidentiality agreements. This affects innovation project management more so than traditional project management. The IPPMO, working with top management, must develop a policy on how to handle transfer of confidential information regarding innovation and technological developments to outside sources, including stakeholders.

Some of the significant differences in the role of the IPPMO versus a traditional PMO include:

• Setting up boundaries related to the strategy so that reasonable goals can be established for the projects
• Dealing with constantly changing information and opportunities
• Monitoring the enterprise environmental factors
• Making sure that innovation specialists are assigned to the IPPMO to support opportunity-seeking behavior
• Supporting dynamic capabilities by determining if the organization must gain or release resources to match or create a change in the marketplace
• Looking for ways to renew and vitalize the firm's competencies
• Balancing the tension for resources between the ongoing business needs and the staffing for innovation projects
• Monitoring the slack in the firm's resources because there is an associated cost, and too much slack may allow bad projects to survive
• Understanding that resource allocation decisions are challenging because not all contingencies are known, and estimates and economic conditions are uncertain
• Monitoring the performance of the projects to avoid design drifts

Critical success factors (CSFs) can be identified for effective innovation cultures including IPPMO roles (Lester 1998). Typical CSFs include:

• Visible support and commitment by senior management
• Having an effective wage and salary program that rewards achievements by individuals and business units
• Proper staffing and training for innovation personnel and support teams
• Encouragement for new product ideas to be generated

INNOVATION SPONSORSHIP

The IPPMO exists for the management of a portfolio of projects. But sometimes, members of the IPPMO function as sponsors for individual projects in the portfolio. When this happens, the role of the project sponsor or project champion includes the following:

• Demonstrates management's willingness and ability to assist in performing tradeoffs on time, cost, quality, and scope
• Assists with working relationships between innovation and other groups such as marketing
• Demonstrates management's willingness to cancel projects if necessary
• Explains management's attitude toward risk taking
• Assists in assessing opportunities and threats
• Knows the team's strengths and weaknesses
• Demonstrates confidence in the team's ability, trusting the talent assigned and holding them accountable
• Assists teams with:
  • Assessment of customers' needs
  • Assessment of market needs
• Performs an economic evaluation of the project

THE INNOVATION TEAM

The six major players on an innovation team are shown in Figure 4-6. For innovation regarding products and services, the business owner could be internal to the firm, such as marketing, or customers. A co-creation team could be considered as part of the team and the future business owners.

Some projects will require a harvesting team and a sustainment team. The harvesting team has the responsibility or taking the outcome or deliverable created from the innovation project and extracting the expected benefits and value. The benefits and value may be defined in monetary terms. The harvesting team may be sales, marketing, and partners that have a financial interest in the outcome. Members of the innovation team can also be members of the harvesting team.

The sustainment team is usually assigned to process innovations. As an example, let's assume that a company develops a new business model. The harvesting team might be responsible for informing people about the new business model. But if there is a risk that people will be removed from their comfort zone and may try to revert to the “old” way of doing things, then the sustainment team tries to prevent this from happening.

VIRTUAL VERSUS CO-LOCATED INNOVATION TEAMS

Much has been written about the use of virtual and co-located teams using traditional project management practices where the statements of work and other requirements are well-defined at the onset of the project. Project managers are reasonably comfortably working in both environments.

On innovation projects, the PMs are faced with new challenges which may dictate whether co-located teams may be favored over virtual teams or vice versa. Some of the questions that may influence the decision include:

• How complex is the innovation?
• Will the sharing of information by the team members be an issue?
• Will face-to-face communication be needed to enforce collaboration?
• Are trusted relationships between the team members an issue?
• Can the confidentiality of the information be safeguarded?
• Will the need for continuous prototyping and testing be a problem?
• Are there different union agreements at each location?
• How can we guarantee that all employees receive the same training if necessary?
• Can each location have a different wage and salary administration program and different incentives?
• Can each location have different reward systems?
• How close must the innovation be to supply chain partners?

Some companies establish worldwide R&D and/or innovation centers to create new products and services. These centers may have permanently assigned co-located teams but, based on the type of innovation, may also use virtual teams.

THE NEED FOR PM 2.0 AND PM 3.0

The traditional approach to project management has worked well for decades and will continue to be used in certain industries and for certain types of projects. But for others, change to a more flexible approach where rigid methodologies are replaced with frameworks will take place. The change may not impact all forms of innovation. The greatest impact will most likely occur with process innovations, such as business model innovation.

The idea for PM 2.0 came primarily from those project managers involved in software development projects where adding version numbers to project management seemed a necessity because of the different tools now being used and different project needs. Over the years, several studies have been conducted to determine the causes of IT project failures. Common failure threads among almost all the studies included lack of user involvement early on, poor governance, and isolated decision making. These common threads have identified the need for distributed collaboration on IT projects, and eventually led to the development of Agile and Scrum approaches. From an IT perspective, we can define PM 2.0 using the following formula:

Distributed collaboration is driven by open communication. It thrives on collective intelligence that supports better decision making. Distributed collaboration is the driver for co-creation teams and open-source innovation practices. Traditional project management favored hierarchical decision making and formalized reporting, whereas PM 2.0 stresses the need for access to information by the entire project team, including the stakeholders and those people that sit on the project governance committee. This is a necessity for an effective innovation environment.

The need for distributed collaboration is quite clear:

• Stakeholders and members of governance committees are expected to make informed decisions based on evidence and facts rather than just any decisions.
• Informed decision making requires more meaningful metrics.
• The metrics information must be shared rapidly.

Collaboration through formalized reporting can be a very expensive proposition, which is why PM 2.0 focuses heavily on new project management metrics, key performance indicators (KPIs), and dashboard reporting systems. This increase in collaboration leads some people to believe that PM 2.0 is “socialized project management.”

Agile project management is probably today's primary user of PM 2.0. However, there is criticism that the concepts of PM 2.0, accompanied by the heavy usage of distributed collaboration, cannot be used effectively on some large projects. This criticism may have some merit. There still exists a valid need for traditional project management, PM 1.0, but at the same time there are attempts to blend together the principles of PM 1.0 and PM 2.0.

Some people argue that PM 2.0 is just a variation of traditional project management. Table 4-2 shows many of the differences between PM 2.0 and PM 1.0. When reading over Table 4-2, we must keep in mind that not all projects, such as those utilizing an agile project management methodology for process innovations, will necessarily use all the characteristics shown in the PM 2.0 column.

Project managers in the future will be given the freedom to select what approach will work best for them on their project. Rigid methodologies on some types of projects will be replaced by forms, guidelines, templates, and checklists. The project manager will walk through a cafeteria and select from the shelves those elements/activities that best fit his/her project. At the end of the cafeteria line, the project manager, accompanied by the project team, will combine all the elements/activities into a project playbook specifically designed for a given client or innovation project. Client customization will be an essential ingredient of PM 2.0. Rigid methodologies will be converted into flexible methodologies or frameworks.

PM 2.0 is not a separate project management methodology appropriate just for small projects. It is more of a streamlined compilation of many of the updated practices that were embodied in PM 1.0 to allow for a rapid development process. The streamlining was largely due to advances in Web 2.0 software, and success was achieved when everyone on the project team used the same tools.

Although PM 2.0 has been reasonably successful on small projects, the question still exists as to whether PM 1.0 is better for large projects. The jury has not delivered a verdict yet. But some of the publications that discuss how PM 1.0 and PM 2.0 can be combined offer promise. The expected benefits are proactive rather than reactive management, more rapid decision making, quicker problem resolution, and a better working environment.

PM 3.0 focuses heavily on project management as a recognized business process responsible for the delivery of outcomes necessary to meet strategic business objectives. Heavy emphasis is placed on benefits realization and value management practices with the expectation that bad projects either will not get into the portfolio or will be cancelled early on. Table 4-3 shows some of the differences with PM 3.0.

IMPLICATIONS AND ISSUES FOR PROJECT MANAGERS AND INNOVATION PERSONNEL

Perhaps the biggest challenge facing project managers, especially experienced project managers, is understanding that innovation projects may require a completely different set of tools than they have been accustomed to using. Project managers may have to undergo training in:

• Using design thinking tools
• Conducting brainstorming sessions
• Building different types of prototypes throughout a project
• Creating balanced scorecards and strategy maps

Project managers must understand that the way they managed and mitigated risks on traditional projects may not work as well on innovation activities because of increased levels of ambiguity, complexity, uncertainty, and the possibility of crises occurring. Risk mitigation may be more complex.

Project managers must understand the differences between the innovation and traditional project management environments. This includes an understanding of the following:

• There are different types of life-cycle stages and phases.
• The activities in the fuzzy front end of a project are important.
• There is a need for a line of sight to senior management.
• Organization reward systems can impact how people perform on a project.
• Organizations must have strategies to overcome the fears that people possess when assigned to innovation projects.
• If the culture does not support innovation, this can be detrimental to the chances of innovation success.
• There are differences between traditional and innovation project governance.

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