Hey there. Welcome to the second week of our innovation management course. In the first week, we introduced some key concepts, discussed the difference between incremental, radical innovation, and introduced the idea that uncertainty matters for innovation management. In this module, we'll take a deeper look at how we can manage incremental innovation projects. Let's get to it. Incremental innovation is, in many senses, the bread and butter of innovation management. It is the main activity of R&D departments in larger organizations, and it's responsible for most of the data work of innovation managers. However, we rarely read about it in the tech news and is not often discussed when they talk about innovation. Sure, the new 2023 model of a General Motors car may not be as exciting as the self-driving electric vehicles they're working on. But for the company, it is just as important. Let's begin, let's dispel in some myths. Incremental does not mean low tech. There is, as we have seen, more technology involved in developing a new state of the art smartphone than in creating the post it. A lot of technological progress takes place and is used for incremental innovation. Second, incremental innovation is what pays the bills while investing highly uncertain 10-year long radical innovation projects is important for the long-term survival of the company, it won't generate the money that it needs in the short run. Remaining competitive, and updating its products will do just that. This is why incremental innovation matters so much. It is the main way companies use to increase or at least maintain their cash flows. Third, incremental innovation's abundant. It outnumbers radical innovations in every larger organization that I know of. To give you a number, I will study the large Brazilian organization in the petrochemical sector that is highly innovative and has a huge R&D department. At the time, they were managing around 400 incremental innovation projects simultaneously, and they're around five radical innovation projects. Incremental innovation may not be that flashy, but it is responsible for around 90-95 percent of the innovation efforts of companies. This is true for a good reason. It makes sense that companies that are competing markets need to create the short-term profits that can later be reinvested in the radical innovation projects, which usually take a long time. By now I think, a formal definition is in order. We can define incremental innovation as a series of small improvements/product , service, or process. Often, it is related to increasing some technical attribute or decreasing the cost of production. It is intuitive to think about the smartphone market which excels at this type of innovation. Every year, small improvements are made to the new lines of projects. Eventually, these improvements accumulate over time though, and while there is little difference between a 2010 phone and at 2011 model, there's a lot of difference in technical attributes for a 2021 model when compared to for 2011 one. As we have seen, companies need to manage a lot of incremental innovation projects simultaneously. Therefore, this requires a well-structured process. If you have 400 projects to manage, you'll have to standardize how they're managed. This is exactly what happens in real life. Managing incremental innovation is what large companies are the best at. They do it following very strict project management protocols. While there are differences in the way organizations manage their projects, most, if not all, follow a similar structure. This is known as the Stage-Gate model for innovation management. In this figure, you can see the Stage-Gate model. It was first described by Professor Cooper in the 1980s after he conducted a rigorous research for the world's most innovative firms whose objective was to understand how they actually managed their innovation projects. He then consolidated all of that information into a simple to understand project management model. This model, or similar ones such as the Innovation Funnel approach, follow a very simple logic. Innovation management must be standardized. All projects must follow the same steps. Managers must make decisions on whether to kill the project or not, between each stage. There are stages where work gets done, usually developing a report on the quality and viability of the idea, gathering data on consumer preferences and estimated future cash flows. Then there are also gates where managers make decisions to continue with the project or abandon it. The problem is, to do so, you need data. To create a good financial projection about the viability of an innovation, your company needs to know how much of the market share to capture, what would be the cost of production, and so on. So it works great for managing incremental innovations where there are some risk, there is little uncertainty. Managing primitive innovation is at its core, managing risk. We can and should calculate the upside of the new version of this product, for example. We can also estimate the risks, technological and market-related that were faced. The more incremental innovation is, the more we can rely on financial projections to guide our decisions. This is what the Stage-Gate model is all about. Gathering data and using it to help us understand how viable the project is from the financial perspective. In the next lesson, we will discuss how we could use a risk management approach and apply it to incremental innovation projects. Let's get to it.
