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We are often asked whether the best way to structure for innovation is top-down or bottom-up. Bottom-up approaches work well for incremental (keeps you in the game) innovations. Breakthrough (changes the game) innovations, contrary to popular belief, need a top-down approach. They must also be willing to see value in absurdity.
In The Innovator's Guide to Growth we suggested that companies should create one-page "Idea Resumes" that capture the essence of an idea on a single PowerPoint slide. If you don't have an innovation strategy , go and create one.). Note what isn't part of the decision: an idea's netpresentvalue or return on investment.
The concept of open innovation has moved from business phrase to business reality over the last ten years. When PARC became a for-profit subsidiary of Xerox to practice open innovation in 2002, Henry Chesbrough had not yet published his book Open Innovation and the concept was not well understood.
For years, AWS has invested in driving developer and company adoption of its platform by driving down prices and introducing low cost features to make developer’s lives easier. This has led to high levels of AWS specific investment from innovators like CloudHealth Technologies, Qubole, Mapbox, and the like. So is Facebook.
To do this, we combine two separate frameworks: the first is the Three Horizon strategic model developed by McKinsey. The other is a process called Opportunity Engineering (OE) that instills a different way to look at value. We call this the Opportunity Value (OV) of an asset.
In these circumstances, strategies that generate faster growth create more value for most companies than those that improve profit margins. The Refresher: NetPresentValue. In these settings, investors should value strategies that accelerate growth over those that improve margins (see the chart below).
Business students have traditionally considered netpresentvalue, payback period, and hurdle rates as necessary tools to determine which project to select. Furthermore, the operating managers cannot take their eyes off day-to-day operations to focus on innovation. Traditional companies therefore rely on two strategies.
Next, ALL's CEO assembled a cross-functional team to develop simple rules for prioritizing capital spending. Once they understood the rules and their underlying rationale, ALL's employees generated a series of innovative proposals based on what they had to work with. reuse existing resources. Adapting to local circumstances.
Many people do not typically think of metrics and accounting as roadblocks to innovation, yet you call these out as potential problem areas. Many conventional metrics we use to estimate value are based on faulty assumptions. Netpresentvalue [NPV] is a case in point. Consider leaving a comment!
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