Controlling of Innovation

Value based management of innovation

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

The importance of innovation

206/05/2010

DAX in the start in 1988

Of the 300 leading listed [US] companies for 1996, 10 years later, 64 are no longer on the list.

Of the Fortune 500 companies in 1970, in 2005 just 190 are left in the market.

Names marked in red are no longer included in the current DAX.

Mortality rate: 2,5% per year

Mortality rate: 2,1% per year

Mortality rate: 1,6% per year

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

The importance of innovation

306/05/2010

Each company normally insures against existential risk of 2% or more!

Innovation Management is an insurance against going out of business.

The insurance fee is not sunken cost but investment!

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Every year, German companies waste 150 Billion Euros in projects.

Source: Munich University of Applied Science: Studie Projektmanagement 2004

The value of innovation management

406/05/2010

Efficient (31%)

Not efficient (69%)

Adding value (43%) 13 % 30 %

Not adding value (57%) 18 % 39 %

More than one quarter of the projects are

launched with insufficient financial

and human resources.

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Every year, German companies waste 150 Billion Euros in projects.

Source: Munich University of Applied Science: Studie Projektmanagement 2004

The value of innovation management

506/05/2010

Efficient (31%)

Not efficient (69%)

Adding value (43%) 13 % 30 %

Not adding value (57%) 18 % 39 %

More than one quarter of the projects are

launched with insufficient

financial and human

resources.

16%

38%

46%

Projects that were stopped or failed

Projects that were only partially successful

Projects that were successfully

Source: IBM Global CEO Study 2006

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

When and where to innovate

606/05/2010

As long as the strategy holds up in the market => How to stay/become better than my competitors?

If the current strategy can’t any more successfully be pursued in the market=> which new strategy can successfully be implemented with my means and resources.

Yield of strategy

time

Tactical innovation = Optimisation of strategy implementation

Strategic innovation = Development of fundamentally new business opportunities

Yield of strategy

time

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Tools: Life cycle analysis of strategyGAP AnalysisSWOT-AnalysisCost-benefit-analysis

Controlling the innovation process

706/05/2010

• Analysis of innovation needsCompetitive position

Potential improvements by optimizing

Life cycle position of the current strategy

Comparison of present and future yields

Yield

time

Strategic gap

Tactical gap

Plan

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Controlling the innovation process

806/05/2010

• Analysis of innovation needsCompetitive position

Potential improvements by optimizing

Life cycle position of the current strategy

Comparison of present and future yields

• Decision-making: profit versus investment in innovation

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Controlling the innovation process

906/05/2010

• Analysis of innovation needsCompetitive position

Potential improvements by optimizing

Life cycle position of the current strategy

Comparison of present and future yields

• Decision-making: profit versus investment in innovation

• Distribution of the innovation budget on strategy and tactics

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Controlling the innovation process

1006/05/2010

• Analysis of innovation needsCompetitive position

Potential improvements by optimizing

Life cycle position of the current strategy

Comparison of present and future yields

• Decision-making: profit versus investment in innovation

• Distribution of the innovation budget on strategy and tactics

• Draft project portfolio proposal referring to the requirements of the business and availability of resources

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Controlling innovation

1106/05/2010

Operation

Expenses Revenue

Primary costs

Labour costs Sales

Material costs

Secondary costs

License Fees Allocated costs for performance in projects

Profit

Innovation

Expenses Revenue

Primary costs

Labour costs

Material

Secondary costs

Allocated costs for performance in projects

License fees

ProfitEntire company

Expenses Revenue

Primary costs

Labour costs Sales

Material costs

Profit

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Approach to evaluation of the benefit of innovation

1206/05/2010

These figures don’t need the accounting accuracy of the legal accounting system!

Creating Enduring OrganisationsLIFELONG LEARNING PROGRAMME - Leonardo da Vinci

Tasks for the controller

1306/05/2010

Support