Systematic Innovation e-zine Issue 214, January 2020 In this month’s issue: Article – Design For ROI (D4ROI) Article – A (40 Inventive Principle) Pattern Language Not So Funny – Worst of 2019 Patent of the Month – Upcycling Of Agro-Food Industry Byproducts Best of The Month – How Innovation Really Works Wow In Music – Halleluwah Investments – Heteroanionic Metal Insulators Generational Cycles – The Grey Champion? Biology – Pummelo Fruit Short Thort News The Systematic Innovation e-zine is a monthly, subscription only, publication. Each month will feature articles and features aimed at advancing the state of the art in TRIZ and related problem solving methodologies. Our guarantee to the subscriber is that the material featured in the e-zine will not be published elsewhere for a period of at least 6 months after a new issue is released. Readers’ comments and inputs are always welcome. Send them to [email protected] ©2020, DLMann, all rights reserved Design For ROI (D4ROI) Here’s the third part in a two-part series on Return On Investment measurements relating to innovation projects. The main idea this time around is to demonstrate how an ROI calculation methodology can be used as a leading rather than a lagging measurement. It’s always nice to be able to quantify how successful a completed innovation project has been, but in many ways, it is much more important to be able to think about ROI at the very start of a project. Partly to see whether the project is worth doing at all, but also to help design the scope and focus of a potential project to maximise ROI. Or, in the words of the cliché, maximise innovation ‘bang for buck’. If we do things right, it ought to be possible to start any kind of innovation project with a target ROI in mind. This is one of the core ideas in what is very likely the current benchmark when it comes to methods for calculating innovation-related ROI, ‘The Value Of Innovation’ by the ROI Institute (Reference 1). The fact that this book is the benchmark is probably a good indication as to why the innovation world is as profoundly dysfunctional as it is. The book is full of frustratingly incomplete case studies, and irrelevances that in my thirty years of innovation would never be useful. Its biggest problem, however, (something we will encounter again in this month’s ‘Best Book’ feature, spoiler alert), is that it uses only a very partial definition of innovation. If your thinking acknowledges a creativity workshop as ‘innovation’, you’re going to include an awful lot of meaningless noise in your calculation. Reference 2 falls into pretty much the same logic black-hole. So much for industry benchmarks, At least the book plants some of the right seeds. And, perhaps, it is also useful in providing a case study we can use here as a way of detailing how we think a meaningful design-for-ROI exercise can be performed. The case involves a hospital in the US where a new design of central vascular catheter has been introduced. The new catheter has come accompanied with the highly undesirable side- effect of a large surge in patient infections. The basic premise is that a project will be conducted to reduce those infections. That, somewhat amazingly, is as far as the book takes the case study. Author, Jack Phillips, isn’t able to tell a more complete story because neither he nor the personnel involved in the project at the hospital had sufficient information to make any kind of meaningful ROI calculation around. Never mind have the possibility to design a project in such a way that it will have a chance of delivering a target level of ROI. For a start, Phillips doesn’t understand the importance of ‘pulse-rates’ in their innovation context. Nor does he exhibit any understanding of S-curves, discontinuous change or the need for different types of methodology, the value of which will vary wildly according to the prevailing innovation Capability of the enterprise. So, in order to make sense of the case study, and to demonstrate how a real Design-for- ROI procedure might work, we need to make a few assumptions. Obviously, if we were working with the actual hospital, we’d do the necessary investigative work to establish the facts. Anyway, for our purposes, we will make the following (hopefully, fairly realistic) assumptions: 1) The hospital, like every one we’ve ever encountered thus far, operates at ICMM Level 1. ©2020, DLMann, all rights reserved 2) As a Level 1 organisation, they are unlikely to know what the ‘pulse-rate’ of the catheterization process they use is. Their pulse-rate, therefore, is very likely to be driven by the pulse-rate of the higher level system in which their procedure operates. What that means in this case is the design and production of the catheters. And what we know as far as the medical devices industry is concerned is that the pulse-rate for ‘new’ products is typically around 5 years. So, what in effect happens is that, every five years, the catheter manufacturer produces a new product, which in turn causes the hospitals that use those catheters to potentially have to also pulse their operating procedures. 3) To make a meaningful calculation of the benefit side of the ROI calculation, we also need to know how long it will be until the next pulse takes place. We will make the assumption here that the new catheter was introduced nine months ago. Which in turn means that we shouldn’t expect another pulse for another four years and three months. Okay, now we should be ready to start. Albeit, it is worth bearing in mind that the process we’re about to describe is most likely to be both iterative and cyclical. The challenge might, at this stage, be seen as a classic ‘chicken and egg’ problem: there’s a lot that we don’t know, and when we do know, it will affect what we thought we previously knew. We have to start somewhere, however, and the easiest place to start is to make a decision about what level of ROI we would like to achieve. Whatever we decide here may well not be the level we end up with, but, strategically, a target ROI is a good place to iterate around because ultimately, the ROI we end up achieving will be the main measure (in ICMM Level 1 enterprises at least) that senior leaders will use to judge whether we have been successful or not. 1) Target ROI When the SI team is working with our clients on real projects, we usually start with a working target ROI of 10x the project investment. Figure 1 shows the achieved performance results for some of the healthcare related projects we’ve undertaken over the past few years (note: we also use, looking at the x-axis of the graph, ‘time to payback’ as a KPI, but that won’t be a part of this story): 1000 ResMed (Aus ) Nestle ( Aus ) NHS (WY CCG) 100 NHS (D&C) P&G NHS (Safeguarding) BMO KCI Woundcare ROI 10 LiveNation OUR DATUM NHS (Medway) 1 6 12 18 24 Time To Payback (months) Figure 1: Typical ROI & TTP Performance Of SI Client Projects ©2020, DLMann, all rights reserved A 10x ROI is quite ambitious, particularly for a Level 1 organisation, so in this case, we will decide to back off a little and settle for a 5x Return On Investment. 2) Target Mode Of Invention The hospital is ICMM Level 1, and so, in order to give ourselves the best chance of success, we should be looking at a Mode 1 innovation, per the Mode definitions used in last month’s ROI article. What this basically means is that our solution will involve possible revisions to the processes the hospital has assembled, and will preclude any modifications to the catheter or any other externally-procured materiel associated with the process. In this way, the hospital retains control over whatever the solution recommendations end up being. 3) Calculate Expected Benefits Time for more assumptions: here we say that the treatment of each infection costs the hospital, on average, £600 to treat, and that the hospital is currently experiencing 100 extra, beyond what would be expected, infections a year with the new catheter. This means an annual cost of £60,000. Hence, if we did nothing to fix the problem, the cost would be 4.25x£60,000 prior to the arrival of the next industry pulse, which, given that there is an infection problem, will hopefully do something to fix that problem. Actually, the cost will be a little bit more than this, because, when the next pulse arrives, there will be a transition period as the hospital switches to the new catheter design. Another trio of assumptions (ones that we might iterate later) is a) that our project will take 3 months to complete, b) that, because our solution will be Mode 1, we will be able to introduce it as soon as it is proven, and, c) will result in a process that reduces infections down to ‘normal’ (we’ll discuss that more in step 5)) levels and is no more expensive to operate than the current one. This third assumption is closely tied to what targets we set for the project, of course. If we were operating in purely ‘Operational Excellence’ thinking mode, we might allow ourselves to accept that whatever the improved process is, it will cost more to operate than the current one.