Evaluating a Project for Innovation Funding in the Public Sector

It is important to determine whether an idea is worth the effort of projectisation. Ideas is the source of projects that ensures that the pipeline of solutions never dries up. Solutions that bring us the promised breakthroughs are innovative. The end result is the creation of new value that replaces or supplements the old. On the other hand, failures, while create opportunities for learning and growth, break the company.

Therefore, deciding whether an idea is worth working on, provided for, and protected against, is serious a business and cannot be taken lightly.

However, ideas are not innovations. In idea, the phases of trials and pilots have not been established and implemented. In fact, there is no known prototypes of the idea yet. Therefore, we cannot determine if there is a market for the adoption and diffusion of the innovation. So, the typical means of measuring projects using KPIs and ROIs cannot be applied. They kill ideas.

So, how do we determine if an idea is worth the risks, resources, and preferences of everyone?

Well, there are 3 determinants. These are:

• Degree of Innovativeness
  
• Depth of Creativity
  
• Propensity to Build

Let me define all these three and expand them progressively.

Degree of Innovativeness

Organisations are no longer finding it important to engage in protracted discourses on whether a concept is innovative or otherwise. They are now more interested to uncover if a design concept has the potential of upsetting the traditional structures that hold the market together. Therefore, they are looking for the market disruptions that the concept could potentially bring. The more future-oriented the concept is, the likelihood the concept will deviate from its evolutionary roots, and this is the source of new value for the organisations and their customers.
Currently, there is a debate on whether Apple’s iPhone is an industry disrupter.

According to Christensen, disruptive innovation is the mechanism by which industries get transformed and prior market leaders are toppled. Christensen described disruptive innovation as:

A disruptive innovation is a new product or service or a new business model that doesn't attack the core market by bringing a better product to established users in direct competition with the leaders in an industry, but rather it comes into the low end of the market, either through a business model that can compete at much lower costs, can compete profitably at lower costs, or it brings to the market a product or service that is so much more convenient and simple to use and affordable, that a whole new population of people who previously couldn't afford or didn't have the skill to own and use a product can now own one.

iPhone is a combination of four things: function, possession, emotion, and access. These are value dimensions that were not properly addressed together. Apple has created a value delivery model that so far no one else has successfully duplicated. This combination brings a totally different experiencing to the users and we should watch for its disruptive potential over time.

To determine if an idea could become a new-market disrupter, try this litmus test:

• Is there a large population of people who historically have not had the money, equipment or skills to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?
• To use the product or service, do the customers need to go to an inconvenient, centralised location?

Here are some questions to help you decide whether an idea has the potential for a low-end disruption:

• Are there customers at the low end of the market who would be happy to purchase a product or service with less, but good enough, performance if they could get it at a lower price?
• Can we create a business model that enables us to earn attractive profit at the discounted prices required to win the business of these over-served customers at the low end?
• Is the innovation disruptive to all of the significant incumbent firms in the industry? If it appears to be sustaining to one or more significant players in the industry, then the odd will be stacked on these players, and the new entrant introducing the new product or service is unlikely to win.

(Christensen, C. M. & Raynor, M. E. (2003) The Innovator’s Solution, Creating and Sustaining Successful Growth, HBS Press, Boston, Mass. pp 49-50)

Depth of Creativity

In the long run, all competitive firms will only acquire normal profits. This means a firm will enjoy a short period of substantial profits and growth up to the point its competitors enter the market. Therefore, the duration for supernormal profit is determined by how long the firm could defend its market. So, we should not measure the uniqueness of the design concept but how that uniqueness helps the firm sustain its market position. The higher the defensive potential the concept could offer, the greater it is differentiated from the rest and longer the time the firm draws supernormal profits.

In 1985, Time magazine declared Post-it Notes as one of the best products of the previous twenty-five years. But what would have happened if Post-it Notes had been introduced in, say, 1940, or even 1960? They probably would have still been a hit, but they wouldn’t have been so indispensable, so perfectly timed, so culturally apt. “The digital age generates so many documents, and they all look the same,” said Art Fry. “How do you organize all that material?”

Indeed, as workers tried to keep pace with all the new technologies invading offices in the early 1980s, the quickest to master them is to menace their colleagues with a punishing blizzard of reports, memos, spreadsheets, newsletters, proposals, presentations, and white papers. Functionally, Post-it Notes were a useful tool to manage such information overload. Not only could you highlight the material that was most important, you could also document, via a quick little note to yourself, why you thought it was worth highlighting.

Nearly two decades later, in 2004, the product is still earning raves and remains highly profitable for 3M. New York’s Museum of Modern Art featured it alongside the white T-shirt, the incandescent light bulb, and 121 other icons of beautiful everyday design in its “Humble Masterpieces” exhibit.

When looking for indication of defensive power, we may want to use the following questions to guide us:

• Are there similar products or services similar to yours currently in the market?
• Are there companies, which are serving in other markets, capable of adapting or extending their products or services into your market?
• Are there companies, which have the capabilities and capacities to create a similar product or service offering like yours?
• Is the concept easily copied and manufactured at a cost lower than yours?
• How early is the first competitor going to enter your market?
• How long you think the rate of production will exceed the rate of demand?
• Do you have an improved version ready for launch in the next 6 months?

Propensity to Build

Most innovative solutions have no known precedents. This means there is little hindsight and past experience to inform on the success of the solution in the market. Investment in this kind of innovation is fully based on faith. Not blind faith though. We can measure the conversion power of an idea and prototype into a workable innovative solution that generates true value to the stakeholders by looking at the quality of the team and the resources available to it. The more quality they reveal, the higher is its conversion power, and its propensity for good returns in the investment.

When looking for indication of conversion power, we may want to use the following questions to guide us:

• How complete is the plan to prototype the idea and test it?
• What is the experience of each team member in translating ideas into commercially viable innovations?
• Does the collective capability of the team provide it the wisdom to see the project through?
• Is the team in an environment of space capacity?
• Is the team widely connected to networks of resources and what is the quality of these networks?
• Does the team have a mentor or coach and what is the quality of this mentor or coach?

News Network (CNN) was the world's first twenty-four-hour cable television news channel when it was established in 1980. CNN was founded by Georgia businessman Ted Turner. In the 1970s Turner took advantage of the increasing availability of communications satellites to begin broadcasting his independent UHF station, Atlanta’s Channel 17, which he had acquired in 1970.

From its home in Atlanta, CNN has extended its reach around the world, becoming a dominant force in national and international journalism. Along with its subsidiary channels and the competitors it helped inspire, the network has changed the way information flows throughout an increasingly connected world.

However, the idea almost did not take off. When Ted Turner started talking about establishing a network that only ran news, a channel which he believed would become a democratising force around the world, people thought he was mad. Everyone from the network union ridiculed CNN and they used to just call it ‘Chicken noodle news’.

Because Ted Turner was unorthodox and visionary, he attracted investors and partners who believed in him and helped him bring CNN to the market.

This article was 1st written on 30 April 2007, and subsequently updated on 22 Sep 2008 and 14 Jan 2009.

Copyright 2007, 2008 & 2009. Anthony Mok. All rights reserved.