2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET)

Extending the Stage-Gate-System® Model to Radical Innovation: The Accelerated Radical Innovation Model

John A. Bers1, John P. Dismukes2, Diana Mehserle1, Christopher Rowe1 1Vanderbilt University, Nashville, TN USA 2University of Toledo, Toledo, OH USA

Abstract--For new product development in established polychromatic x-ray machines to protect radiation therapists organizations, the Stage-Gate model is a widely accepted method from x-ray exposure is unnecessary for monochromatic x-ray for managing the three key factors of time, resources and risk. machines [7]. But for radical innovation, which is further out on the time- Monochromatic x-rays can also be used to deliver much resource-risk curve and which may occur in either start-up or better diagnoses of breast cancer, the largest source of cancer established firms, the innovator must simultaneously navigate a more complex space comprised of four environments: market- death among women, than traditional, and notoriously societal, technological-scientific, business and organizational, unreliable, mammography. More reliable diagnosis means and the innovation ecosystem; and craft within this space a new that early-stage tumors can be treated when therapy has the business model, business systems and processes, a corporate greatest chance of success. strategy, an organization, and a value network. To address this Why haven’t most of us heard about this extraordinary more complex environment, the authors propose to extend medical advance? The primary reason is that today Stage-Gate with a new approach, Accelerated Radical monochromatic x-ray technology lies in shambles. The Innovation (ARI), which guides the innovator through the company formed to design and build it has been dissolved. Stage-Gate stages across these four environments. The model The team of scientists, engineers, and operations experts also builds in additional stages needed to accommodate the extended time frame of radical innovation, such as strategy assembled to run the company has been disbanded. The development, organizational design, and several periods of pre- working prototype machine has been disassembled and the inception and post-launch development. But to conserve the components sold off to buyers around the world. The patents innovator’s limited time/attention resources in this more are ticking away toward expiration. The pioneer who staked complex environment, the ARI modal preserves the his career and his assets on the technology has lost his entire fundamental premise of Stage-Gate – partitioning the investment and years of hard work. innovation process into stages so that downstream/second-order The demise of monochromatic x-rays can be attributed to activities are deferred until first-order issues have been resolved. many factors, ranging from the innate conservatism of the The theory and logic of ARI model is explained, and the model is medical community, risk-averse investors and manufacturers, now being tested through application to three ongoing radical innovations in the fields of medicine, environmental engineering, lack of government and institutional support, a thicket of and electronics, and in the design and development of a regulations that act to discourage adoption of innovation in university engineering management curriculum. health care, poor timing, inadequate business intelligence, and bad luck (such as being overtaken by the Great Recession I. THEORY OF THE EXTENDED STAGE GATE MODEL of 2008 just as a deal was being concluded with a major manufacturer). The innovation team could have overcome A. A Radical Innovation Tale most of these problems had they presented themselves in Dose to tolerance. That is the euphemistic expression used isolation, but it was the sheer crush of so many of them by oncologists to describe the level of radiation exposure a occurring at once that ultimately overwhelmed them [7]. cancer patient should receive. Because x-rays unfortunately Innovation scholar Clayton Christensen called don’t discriminate between cancerous tissue and the healthy monochromatic x-rays the quintessential disruptive tissue surrounding it, radiation oncologists must try to innovation.1 Its demise reminds us that even the most administer a dose of radiation that is lethal to cancer tissue promising radical innovations, directed at the most critical but doesn’t irreversibly damage surrounding tissue. It’s that problems, can fail as they confront harsh realities. It also primitive. challenges those in the innovation community to find ways to Of the many research efforts to finding a more apply what we know about how to manage processes like discriminating, humane approach to cancer therapy, one of new product development to the far riskier, more complex the most promising to have emerged in the past two decades domain of radical innovation, so that fewer promising radical is monochromatic X-rays. Unlike conventional polychromatic innovations end up on the scrap heap of history. That is our x-rays, monochromatic x-rays can be tuned to destroy purpose here. cancerous tissue but leave surrounding tissue largely intact. Studies have shown that the same radiation dosage can be delivered to the tumor, with 5-6 times less collateral damage to surrounding tissue. So harmless is this level of radiation to normal tissue that the shielding applied to conventional 1 Carroll, F. (MXISystems), Personal communication. 2007: Nashville, TN.

1649 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET)

B. The Cooper Stage-Gate System®Model which incorporates the extensions we believe are needed for The fruits of innovation are known to all - the advanced radical innovation environment. We call this extended model industrial and post-industrial economies, with the developing the Accelerated Radical Innovation model. economies following close behind. But the high risk and failure rates for technological innovation are also well 1. Recapitulation of the Stage-Gate System®Model known; the more radical or disruptive the innovation, the New product development is a high-risk, high-cost higher the risk and the greater likelihood that it will fail to endeavor that almost invariably takes far longer than meet expectations [31]. originally envisioned and often falls far short of companies’ The search for effective, generalizable, replicable, and expectations. The Stage-Gate model was conceived to reduce reliable innovation commercialization processes has the cost, time, and uncertainty of the new product consumed innovation scholars and practitioners for decades development process, while increasing its odds of success. [20].Of the models published to date, the one process that has The model consists of six stages, discussed below, for taking come as close as any to a general model is Robert Cooper’s an idea into creation within an established firm, as seen in Stage-Gate® model for new product development Fig. 1 [15, 16, 17, 18]. [15,16,17,18]. Cooper and colleagues first introduced Stage- Stage 1: Discovery. Discovery is the point at which an Gate in 1986 based on empirical findings of numerous innovator conceives an idea and brings it to others for studies. By 2009, about 70% of product developers in North evaluation. During this stage, the company decides which America reported using the Stage-Gate® model or a similar projects the company would like to take further. Idea system to take a product from concept to market [17]. generation is prevalent and many brainstorming sessions are Our intent here is to further build upon the Stage-Gate held. model – to extend it to the more chaotic, challenging During the discovery phase the company begins to narrow environment of radical innovation. First we shall recapitulate down its ideas and work with lead users to try to determine the original Stage-Gate model [15]. We’ll then move on to which projects are the best to follow. Inevitably, many discuss the key challenges that the model encounters when product concepts are discarded as more promising concepts applied to the realm of radical innovation in the twenty-first are identified and pursued (Gate 1). century. We’ll then set forth the extended Stage-Gate model,

Stage 1 Discovery

Gate Idea 1 Screen

Second Go To Go To Go To Screen Development Testing Launch

Stage Gate Stage Gate Stage Gate Stage Gate Stage 2 2 3 3 4 4 5 5 6

Scoping Business Development Testing Product Case and Launch and Validation Plan

Post Launch Review

Figure 1. A Schematic Illustration of a Six-Stage, Five-Gate Stage-Gate® System For Major New Product Development Based on Cooper [15,16,17,18].

1650 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET)

Stage 2: Scoping. Scoping is the point at which the company to more broadly gauge market acceptance product idea is thoroughly evaluated. Many of the weakness (economics, ease of use, impact on customer operations, and strengths are identified and addressed. Potential markets unintended consequences). If it performs poorly in the test, are identified, the nature and intensity of competition within the company can choose (Gate 5) to not take it to the next these markets is determined, and a home is identified within stage of the stage gate model. the organization for the product if the organization decides to Stage 6: Product Launch. It is here where the organization take the product to the next stage, culminating in Gate 2. puts the marketing strategy into place. Prices are set, Stage 3: Business Case and Plan. This stage consists of personnel throughout the supply chain are trained, and four separate sub stages: product definition and analysis, distribution channels are activated. building the business case, building the project plan, and feasibility review. Post Launch Review: This is a critical review step to develop Stage 3a: Product Definition and Analysis. In this sub lessons learned for project participants and sponsors. stage the bulk of the analysis is conducted. Markets are The gates referred to above are assessment, correction, or analyzed for size, segmentation, rate of growth, and other redirection points run by the project’s sponsors. A critical trends. Technological feasibility is demonstrated during this gate, Feasibility Review, occurs between the Business Case stage, and early product prototypes are produced. and Plan stage and the Development stage, when resource Stage 3b: Building the Business Case. Here the results of commitments may expand by a factor of ten or more. In the the product definition and analysis are distilled into a Feasibility Review, managers use all the analysis completed business case. Legal and regulatory requirements are through Business Case and Plan to take an unbiased view of addressed and assumptions about the project are made to the project and its rationale. At this point, the organization create a business case. Stage 3b culminates with the approval can decide if it is the right project to continue to pursue. of the business case before moving any further in the Stage-Gate assumes that the organization holds a portfolio innovation process. of such self-contained innovation projects and that not all of Stage 3c: Building the Project Plan. The plan here refers them will or should survive. Stage-Gate helps managers to to the scheduled lists of events that are organized and put into manage and prune the project portfolio - flagging projects action. Personnel, time, and financial resource requirements that are falling short of expectations, so that they can be are laid out in the project plan. discontinued and their funding can be reallocated to other, Stage 3d: Feasibility Review. During this sub stage of more promising projects whose funding needs are expanding. Stage 3, the rationale for the project is reviewed. The For Stage-Gate to work, it must be a funnel, not a tunnel, information that is gathered from the business case is whose gates have “teeth” [16, 17, 18]. evaluated to create an unbiased view of the actual project. From this point, the organization can decide if it is an 2. Implementation of Stage-Gate appropriate project to continue pursuing (Gate 3). In its original formulation, the Stage-Gate model was Stage 4: Development. This stage involves the execution addressed to established organizations that were funding the of the business plan. All of the processes and requirements development process and intending to take the product to that are needed to be met are put into operation. The product market itself (or to a downstream player in the supply chain); goes through simple tests of the product and selected that is, the innovation is self-contained and the organization is consumers test the product. the stakeholder. As noted above, Stage-Gate also assumes The marketing and production plans are formulated in the that the projects held in its portfolio are independent, so that Development stage. The layout for launch specified. Later on the company can cancel one without affecting the others. in the development stage, additional resources are assigned to As Stage-Gate has gained acceptance over the past two the project and a working prototype is developed, concluding decades, practitioners have adapted it to increasingly with Gate 4. diversified and challenging innovation settings. As the Stage 5: Testing and Validation. Testing and validation is technical complexity, scale, and interrelatedness of divided into three categories, near-testing, field testing, and innovations has grown, companies have come to appreciate market testing. Near-testing addresses the early stage testing that certain innovations just don’t fit neatly within their which is where many of the early bugs in the prototype are strategic focus, their competence, their time-horizon, their exposed. Near-testing is carried out by in-house staff. tolerance for risk, or their financial resources. Many have Field testing involves early trials with selected customers turned to open innovation models. In an open innovation (beta testing), providing vital initial market feedback on setting, individual innovations are embedded in a web of technical performance. This stage usually consumes innovation, requiring concurrent innovation processes in considerably more time than in-house near-testing. At this several organizations, multiple investors, and ecology of point, the product fully resembles its planned launch suppliers, partners, distributors, and other value-adding prototype. entities [9, 10, 33]. Market testing is an optional stage. This takes quite a bit Well-established practitioners of Stage-Gate such as of time and is a simulated market test. This allows the Kimberly-Clark, Air Products and Chemicals, and Proctor

1651 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET) and Gamble have adapted the Stage-Gate model to open breakthroughs, established companies tend to tread warily, innovation settings [17]. They have simply narrowed the favoring much safer and shorter-term incremental innovation scope of their Stage-Gate processes to the proportion of the and process innovation [6, 25]. In the meantime they’re total innovation life cycle that they choose to control, starting content for others who don’t bear their financial constraints, with the inputs they acquire from external sources and such as technology starts-ups, universities, government concluding with the innovation outputs that they hand off to agencies, research institutes, etc., to pick up the slack [31]. other entities for further innovation. The core principle of Stage-Gate is preserved – a company still manages a portfolio b) Disruptive Innovation of projects that it drives through a set of gates, weeding out Disruptive innovation, the term first used by Christensen the non-performers and freeing up the resources they in 1995, may or may not also be a technological consume for more promising projects that require escalating breakthrough, but its main impact on established industries is levels of commitment. The company can maintain its focus, to disrupt their business models even if they could manage avoid domains outside its competence or strategic intent, or the technological transition. A prime example is digital commitments beyond its financial resources, and still manage technologies: digital photography overwhelmed Kodak’s to add value and reap returns on its investment. film-based photography (the KodaChrome film line was Yet even as the company is operating in an open finally discontinued in December, 2010); MP3 files have innovation environment, it is confined to a microeconomic decimated the record labels; providers of IP telephony (such (company-level) perspective on the innovation it has taken as Skype and Vonage) have cut deeply into the traditional on. For those streams of innovation that can be parceled into toll-based telecommunications carriers; social media, blogs, pieces that fit within established companies’ strategic and web-based publishing are rapidly overtaking the horizons, this micro-perspective is sufficient. But radical traditional print-based news media, web-based shopping sites innovations have a way of defying established companies’ have undermined the pricing power of bricks-and-mortar carefully nurtured strategic boundaries. Established retailer, etc. Other disruptive innovations include mini-steel companies may miss the wave because to them such mills, which have cut into the profits of the traditional large innovations don’t look like a good strategic fit. steel mills [11], stock index funds, which have undercut traditional actively managed mutual funds, and “big-box” C. Extending the Stage-Gate Model– the Accelerated Radical discount stores, who have wrought havoc on full-price Innovation Model retailers. 1. Radical Innovations– Innovations that defy To an even greater extent than technological Established Companies’ Strategic Boundaries breakthroughs, disruptive innovation is viewed as threatening For our purposes radical innovation includes four kinds of by established companies, and so they are unlikely to innovation that upset established company and industry embrace it until improved performance, economics, and boundaries -- technological breakthroughs, disruptive market acceptance force it upon them. Established firms are innovation, system innovation, and interconnected more likely to counter disruptive innovation by redoubling innovation. their investments in the innovation that gave them their leadership in the first place (“sustaining innovation”) [11, 12, a) Technological Breakthroughs. 31]. Many of the significant advances of the twentieth century Stage-Gate models can strongly favor sustaining in power, transportation, communications, and computing innovation over breakthroughs or disruptive innovation. originated with technological breakthroughs followed by a When they first arise, their performance is likely to be multi-decade path of incremental innovation. Established markedly inferior to that of the incumbent technology – in all companies are likely to resist breakthroughs for two reasons, the respects that matter to mainstream markets – the risk they entail and the threat they may pose to their performance, quality, reliability, and economics – they are current technology base. unlikely to survive the first gate of a Stage-Gate process. Often a breakthrough may be perceived as a threat to the They only reach the mainstream market indirectly, through organization’s existing competencies, such as when jet low-end disruption (offering a lesser quality than the aircraft (Boeing, McDonnell-Douglas, GE, Pratt and mainstream will accept but that other markets will) and new Whitney) displaced piston engines (Curtiss-Wright), the market disruption (offering to an entirely new market that microprocessor (Intel) displaced vacuum tubes (RCA, GE, incumbent players have ignored) [12]. It is their potential for GTE-Sylvania, Westinghouse), client-server systems (DEC, massive improvements on all these attributes after their Hewlett-Packard) displaced mainframes (Sperry-UNIVAC, launch (estimated to account for over 80% of their Burroughs, NCR, Honeywell, Control Data), and personal performance potential) that allows them to ultimately and computers (Apple, IBM, Compaq) displaced minicomputers permanently overtake the incumbents. Examples include the (DEC) [1,31]. automobile (vs. trains and horse-drawn vehicles) and the Out of a well-founded fear that they can’t manage the risk, telephone (vs. telegraphy) [44], jet aircraft (vs. piston- the duration, and the unpredictable cost of technological powered aircraft) [52], and personal computers (vs.

1652 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET) minicomputers and mainframes) [11].To assure attention to Google, Research-in-Motion, Nokia, Amazon, Facebook, and these massive improvement opportunities, we will propose in of course, Microsoft. the next section that the Stage-Gate model be extended to Interconnectedness has been characteristic of most of the incorporate the post-launch periods in the innovation’s life great radical innovations of the past century. Consider the cycle. This will extend the Stage-Gate model time frames automotive ecology, which gave rise to dealerships, service from 3-5 years for incremental product innovation to as much stations, infrastructures of roads and fuel distribution, motels, as 10-25 years. fast food restaurants, and whole new industries to service the complex automotive supply chain. Similar patterns unfolded c) Systemic Innovation. with the dawn of the age of commercial jet travel, electrical Systemic innovations require the integration of a web of power, the financial services industry, and modern health separate but interdependent innovations – systems or arrays care. of innovation [46], whether low-tech (such as large Interconnected innovations have a dynamic of their own; infrastructure construction projects), or high-tech (such as nobody is “in charge” – no company, no professional society, missile defense or advanced air traffic control systems). They no industry association, and no government can control their are also almost inevitably beyond the capabilities and pace. Digitization, for example, draws in disciplines from resources of a single organization. Their interdependence information technology to electronics to nanotechnology and violates the independent project condition of Stage-Gate - one material science, physics, chemistry, and mathematics. In the innovation cannot be terminated without affecting others. process, whole industries are being overturned – Boeing, for example, doesn’t have the option of terminating entertainment and the creative arts, publishing, education and any major subset of the innovation projects comprising the training, national security, manufacturing, retailing and next-generation 787 Dreamliner jet. distribution, the practices of medicine and law, and all the information-intensive service industries. d) Interconnected Innovation (value ecologies) Many of the players in value ecology can operate An increasing proportion of twenty-first century independently without affecting the whole – the withdrawal innovation is taking place in complex global ecologies of of one application developer or even one hundred will not players, none of whom have the full set of competencies and affect the ecology of Apple’s AppStore. For these entities the resources to shepherd these innovations to fruition. Stage-Gate model for new product development will work Interconnected innovations are widely distributed across fine. But many value ecologies operate as so-called scale-free organizations, disciplines, industries, and national networks, networks that look like airline route maps with a boundaries. The commercial realization of the automobile a few large hubs connecting many nodes [3, 34].Scale-free century ago ushered in interconnected innovations and networks have been observed in the creative industries, complex supply chains in oil refining, road building, a repair biotechnology, the scientific research community, and in real infrastructure, finance, and insurance. In modern times this networks such as power grids and computer and form of innovation became particularly relevant with the communications networks [4]. If a project occupying a hub in advent of the information age [43, 49] (Andrew Grove, CEO a scale-free innovation network is canceled, the effects ripple of Intel, then called this horizontal innovation [32].), but now through the value ecology, just as the breakdown of a hub extends to biotechnology [40], microelectronics [51], energy, airport disrupts air traffic over a whole region. For these and national security, reaching even to such “low- critical projects, the independent project condition of Stage- technology” sectors as agriculture and extraction [42]. Gate is violated, but even more importantly, the project In these loosely-knit coalitions, economic value arises cannot be understood except in the context of the network as from the ecology itself. The digitization of information over a whole. the past twenty years has followed an ecological path. Digital content is created, processed, transmitted, and displayed D. Extending the Stage-Gate Model– the Accelerated Radical through multiple technologies over a diversity of wired and Innovation Model wireless communications networks to an increasing range of Where do these emerging trends in radical innovation smart devices mediated by a variety of application software leave the Stage-Gate model? And if radical innovation operating on an increasing assortment of operating system proceeds on a course of its own, regardless of corporate, platforms. For example, the value ecology that was created disciplinary, industry, and national boundaries, what would by one company, Apple, in the digital media space includes the Stage-Gate model look like if it were designed around the Apple’s own products and services (the iPod, the iPhone, the radical innovation itself rather than any particular entity’s iPad, iTunes, and the AppStore) but also the recording and new product development process? publishing industries, the three hundred thousand (as of year- We believe the core principles of the stage-gate model end 2010) applications developed for the AppStore, apply to radical innovation, but we argue that if Stage–Gate is manufacturers of peripheral hardware, and the wireless and to be applied to these more complex forms of innovation, it cable communications carriers. Other hub companies seeking must be embedded in a more generalized holistic framework. to create their own value ecologies in this space include

1653 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET)

The framework we propose is the Accelerated Radical key roles in enhancing the rapidity and success rate of Innovation (ARI) model. progressing an innovation concept to profitable commercialization, Development and application of this 1. Precursors of the ARI Model model independently, yet with a format similar to the Stage- Efforts to extend the Stage-Gate model to radical Gate® System model, illustrates the phenomenon of innovation began as early as the mid1980’s. simultaneous research on important topics by different investigators, unknown to each other. a) The Single Phase Innovation Model One key bottleneck to successful radical innovation b) The Two Phase Innovation Model commercialization that was recognized early on is the The initial Single Phase Model was further improved by difficulty of accurate real time identification of all factors the fourth author, at the University of Toledo since 1996, to a crucial to success. A second key bottleneck was the serial Two Phase Model, Fig. 3, incorporating an initial Science nature of the Stage-Gate model, which dragged radical Assessment (SA) Phase, followed by a sequential innovation out well beyond the host organization’s financial Engineering Development & Commercialization (EDC) time horizon. The need was recognized for a new model for Phase. This 2-Phase Model, developed at Exxon in 1995, but accelerated commercial development by factors of 2-10 over unpublished until 2003 [20] at the PICMET03 Conference, that achieved by current best new product development incorporates known Stage-Gate System® project development practices [20]. and innovation process criteria to progress a Science Concept A pioneering Exxon program effort from 1985-1989, first to an Engineering Idea, and then to a Commercial illustrated in Fig.2 [50], overcame both these bottlenecks and Product. During this time, simultaneous developments at the proved crucial to reducing risk of failure and thereby Industrial Research Institute [36] and at Exxon [13] also accelerating the path from idea to commercialization. This recognized the need for the Science Assessment Phase, which visionary effort, predating open publication of the Stage- they designated as the “Fuzzy Front End”, to convert a Gate® System model [15,16,17], demonstrated that effective Science Concept to an Engineering Idea. information retrieval, assessment and recommendation play

Science Push Iterative Information - Enhanced Innovation

Innovation Program Experimental Potential Technology Commercial Development Concept Definition Investigation Innovation Assessment Application

Enhanced Information Inputs Market Pull

Retrieval Assessment Recommendation

Fig. 2. Information Enhanced R&D’s Role in Innovation. This single phase model emphasizes the key role of information enhanced feedbacks at each development stage, in achieving effective “concept-to-commercialization acceleration.” The diagram shows information inputs of diverse content, ranging from science and technology. [50]

1654 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET)

Project Development & Innovation Process * Commercial (Integrates SA and EDC Phases) Product

Engineering Development & Commercialization (EDC) Science Assessment (SA) Post-Launch Review

Science SA PHASEEngineering EDC PHASE Concept Idea Preliminary Detailed Commercial Assessment Assessment Development Validation Launch

Gate Gate Gate Gate Stage Gate Stage Gate Stage Start Stage Gate Stage Stage Stage Stage 2 3 4 A A B B C C Gate 1 1 2 3 4 5 Partnership Research Research Initiated Initial Within Plan Screen Second With Customer Decision To Entry To Launch Organization Approval (Business/ Screen Engineering & Develop Validation Decision Science By Management Business Technology Plan Organizations Collaboration Approved Advance Research Plan Research Advance Research To Scientific Strategy To Technical Feasibility Feasibility PDIP = Project Development & Innovation Process * J.P Dismukes, unpublished results, KEY EDC GATE PASS CRITERIA Gate Gate Gate Gate Gate Exxon Research and Engineering, Start 1 2 3 4 Corporate Research Laboratory,1995. Strategic Fit x x x x x Market Attractiveness x x x x x Technical Feasibility x x x x x No Killer Variables x x x x x Profitability x Performance Targets x Regulatory Compliance x Launch Plan x

Fig. 3. The Project Development & Innovation Process [21], incorporating sequential Science Assessment (SA) and Engineering Development & Commercialization (EDC) Phases. This 2-Phase Process documents the sequential identification of a Science Concept, Phase 1, and its conversion to an Engineering Idea, Phase 2, as a basis for developing the Engineering Idea into a Commercial Product.

2. Stage-Gate for the Twenty-first Century - The facing new product development, but societal, Accelerated Radical Innovation Model business/organizational, and innovation ecology Following these preliminary efforts an international group challenges (Step 3). of innovation scholars and practitioners was convened in 4. A Competitive Intelligence Framework. At the heart of the 2004 to develop a generalized model of radical innovation, ARI model is a competitive intelligence framework that the ARI model [22, 23, 24, 5, 6, 7, 8]. The intent of the ARI helps the innovator identify innovation undertaken model is to take up where the Stage-Gate model leaves off, elsewhere that could take years off the innovation effort or focusing on the unique characteristics of radical innovation lead to fruitful collaboration (in the center of the figure). that have made it so problematical for innovators and so 5. Innovation Value Network. Recognizing the dependence likely to be abandoned before reaching fruition - its long time of radical innovation on many different stakeholders and frame (ranging potentially into decades), its high risk, and its potential collaborators, the ARI model explicitly includes high, unpredictable cost. The ARI model is built on seven the organization of key stakeholders into a value network guiding concepts. (Step 7). 1. Life-cycle Framework. To accommodate the decades-long 6. An Extended Probe-and-Learn Process. Because the effort required, ARI operates over a six-period life cycle realization of the innovation’s ultimate potential is not of the innovation (Fig. 4 and explanatory note below), going to be achieved at launch, the ARI model from the emergence of underlying scientific and societal incorporates an extended period of experimentation, a trends, through initial concept, commercialization probe-and-learn process, both before and after launch (adoption), maturity (societal impact) and obsolescence. (Step 8). (Stage-Gate operates over only Periods 2 and 3.) 7. A Compelling Vision, Business Model, and Roadmap. If 2. Crisis Orientation. To overcome the long odds facing the innovation team is to attract the required resources radical innovation, the ARI model builds in a key (human talent, capital, etc.) and keep them on board for inflection point, the recognition of a major external crisis the duration of the project, the stakeholders must be to serve as an impetus and focal point for the innovation persuaded that there is a clear, compelling vision, a sound process (Step 1 in Fig. 5 below). business model (a mechanism for extracting profit), and a 3. Up-front Recognition of Multidimensional Challenges. roadmap to success - a process for driving the innovation The ARI model focuses on the early identification and forward along the technology life cycle (Step 6). (In this resolution of not just the technical and market challenges respect, the ARI model and Stage-Gate are in agreement.)

1655 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET)

Fig. 4. Proposed 6-Period Innovation Lifecycle Activity Framework representing recognition of a potential radical innovation as a crisis (threat/opportunity) at the Initial Concept (Period 1) through sequentially to Obsolescence (Period 6). The ordinate shows two representations of innovation activity as Innovation Process (i.e. degree and type of innovation) and Innovation Product (i.e. a quantitative measure of the output of the innovation process). The abscissa measures the elapsed calendar time.

Explanatory Note: Period 1 represents the formulation stages of the innovation as science and technology, before a conscious effort in response to a threat or opportunity is applied to progress the recognized potential innovation to a useful innovation artifact (i.e. product, process, service). Periods 2 and 3 comprise the ARI Methodology Dynamics illustrated in Fig 5. We propose application of this framework to study and model qualitative and quantitative factors that influence progression of an innovation through each of six stages (periods) from concept to obsolescence, in a variety of companies and industries. The Glass Industry is one example of a well-defined, well recognized and established industry worthy of further study. Periods 5 and 6 represent time periods named by Theodore Levitt in his pioneering model framework of innovation [37]

Figure 5. The Ten-Step ARI Methodology Framework, covering Periods 2 (Inception) and 3 (Implementation) of the Six-Period Innovation Life Cycle.

1656 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET)

The 10-step framework depicts two periods of the full six- more expansive, inclusive innovation process, the ARI model period ARI life-cycle, Period 2 (the Inception Period, adds four new stages to the Stage-Gate model (see Fig 6). comprised of Steps 1-6 and concluding with a system vision Two of the new stages occur within the model – an and business plan), and Period 3 (the Implementation Period, innovation strategy development stage (to allow business beginning at Step 7 with the creation of a value innovation strategy to be reformulated around the innovation) and an network plan and concluding at Step 10 with organizational design stage (to ensure that the organization is commercialization of a standard design). Not shown in Fig 2 designed or redesigned around the innovation and to are the pre-inception period (1: Concept), and the post-launch complete the innovation ecosystem). The other two stages periods, 4: Commercialization, 5: Maturity, and 6: occur at either end of the Stage-Gate model – a pre-inception Obsolescence; as well as two steps that subsequently have stage (that explicitly incorporates the period of been added to the ARI model, Strategy and Organization experimentation and turmoil preceding the Discovery stage), (following Step 6: Establish Innovation Vision). and a post-launch stage (to build the extended period of post- The stages of the Stage-Gate model map onto the steps of launch incremental innovation into the innovation process). the ARI model, as shown in Table 1 below. The mapping in Table 1 suggests the extensions that the a) Strategy Development ARI model supplies to Stage-Gate: We have observed that radical or disruptive innovation,  The need for two additional stages within Stage-Gate rather than supporting or reinforcing companies’ product (Strategy and Organization); strategies and business models, is likely to upend them.  Additional stages surrounding Stage-Gate (pre-Discovery Rather than trying to accommodate the innovation to a and post-Launch periods). company’s existing strategy, the ARI model adds an explicit  A second dimension to encompass the simultaneous grand stage between Stages 2 (Scoping) and Stage 3 (Building the challenges confronting radical innovation Business Case) – the formulation of a strategy– not a (business/organizational and value network in addition to corporate strategy, but a strategy for the innovation itself. market/societal and technological/scientific) (Step 3 of But if the entity that formulates a strategy is a company, Fig 5). not an abstraction called value ecology, how is a strategy for  In addition we argue that the extended time frame and the innovation itself to be formulated? Companies in value multiparty involvement in radical innovation require a ecology can no longer afford to divorce their own strategy process for economic valuation of the innovation at from the needs of the ecosystem. When a company operates various stages to facilitate hand-offhand collaboration as a part of a value ecology, its own fate is tied to the success across participants. of the ecology as a whole; it is unlikely to thrive if its value ecology fails [41, 34]. In the next section, we propose that for 3. Additional stages to account for radical, disruptive, innovations embedded in an ecosystem, the Stage-Gate model and interconnected innovation should include an explicit track to align the company’s As we have seen, radical, disruptive, and interconnected innovation process with the evolution of its value ecology. As innovations take on a life of their own -- free-floating, for its own strategy, the company should organize itself as a disconnected from corporate, disciplinary, industry, and complex adaptive system, able to respond to shifts, national borders. Companies participate in the innovation opportunities, and threats arising from the value ecology process, but they no longer own it. To accommodate this itself [34].

TABLE 1. MAPPING OF STAGE-GATE ONTO THE ARI MODEL. Stage Gate Model Stages ARI Steps Period 1: Concept Period 2: Inception 1. Crisis Identification Discovery 2. Breakthrough Innovation Vision Scoping 3. Grand Challenges Identification 4. Hurdles Determination 5. Hurdles Assessment Business Case and Plan 6a. Establish ARI System Vision Period 3: Implementation 6b. Strategy* 6c. Organization* 7. Innovation Value Network Development 8. Accelerated Innovation Prototyping Testing and Validation 9. Launch ARI Prototype Design Launch 10. Launch ARI Standard Design Post-Launch Periods: Period 4. Commercialization Period 5. Maturity Period 6. Obsolescence * Not shown in Fig 5.

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Strategy and Development

Stage 3 Stage 5 Stage 1 Stage 2 Stage 4 Gate 1 Gate 2 Building a Gate 3 Gate 4 Testing and Gate 5 Stage 6 Discovery Scoping Development Business Case Validation Launch

Inception Organization Period Design Post Launch Review

Figure 6. A Schematic Illustration ot the Extended Stage-Gate Model, comprising the Six Innovation Stages and Post Launch Review from Figure 1, and three proposed additional Stages in red (Inception Period, Strategy and Development, and Organizational Design).. b) Organization Design process but the culmination of a long period of technological When it first emerges as a concept, a radical innovation ferment [1], scientific assessment, the explication of a “need” may not have an organizational home. It may be no more than and the search for a potential solution. In the six-period ARI a set of partially formed ideas floating among engineers, life cycle model, this is Period 1 (Concept). Companies and entrepreneurs, potential users, investors, and other interested innovators can take a number of steps to accelerate the period parties. If the concept is seen to have merit, somebody in that of fermentation, such as an active process of technology and entrepreneurial community is likely to pick it up and run with business intelligence, as depicted in Fig 5 above. it – an entrepreneur, a seed-stage company, a new-venture unit of an established company, an incubator, a university or d) Post-Launch period government laboratory, a spin-out, a venture investment firm, As discussed earlier, it is characteristic of radical and etc. Among their first orders of business will be to build an disruptive innovations that at the outset, their performance organization around the innovation concept (one of their lags significantly behind the performance of the incumbent advantages over incumbents is that they have nothing to lose technology – and may even be unacceptable to the – the innovation becomes their raison d’être) [30]. mainstream market. For the innovation to succeed, massive It is also possible that the core innovation has a corporate improvements (both incremental and generational) in design, home but that no company exists to fulfill certain critical performance, reliability, manufacturing and service roles. New players may need to emerge to fulfill them. This is processes, economics, and other attributes must be achieved. often the case for companies that build “platform” In the Stage-Gate model, “launch” is the final stage, but for technologies – the value of the platform isn’t realized until radical/disruptive innovation, the ARI model recognizes others step in to build applications for it, as with Apple’s Launch as the point at which this extended multi-decade iPhone, videogame consoles, and media players of all kinds. period of improvement commences. It is in these post-launch As a strategy for the innovation is emerging, these periods that innovation is converted into established practice - organizational gaps will become apparent. To ensure that learning from early experience; routinization; and ultimately, organizational formation becomes an explicit part of the incorporation into business practices, social institutions, and innovation process, the ARI model includes a second new personal behavior. This long a time horizon is likely to stage to Stage-Gate, Organizational Design, to follow the outlast individual careers, so succession and organizational Strategy Development stage. continuity planning must be built into the organizational design. c) Pre-Inception Period For radical or disruptive innovation, Discovery (Stage 1 of the Stage-Gate Model) is not the initiation of the innovation

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4. Adding a second dimension to the extended stage gate Organizational; and The Innovation Ecosystem. Each track model – the four grand challenge tracks proceeds concurrently through the extended set of stages as From the outset, the Stage-Gate model was conceived as seen in Fig. 7. an unfolding process. In the initial Discovery stage, an opportunity is identified and matched to the technological a) Market/Societal means to address it. The innovator then enters the Scope The Stage-Gate model already is heavily focused on up- stage, where the opportunity is confirmed quantitatively. front market research. One of Cooper’s conclusions [15] is Only then does the innovator turn to detailed product that new product development efforts often fail to invest definition, including the development of early prototypes. enough at the front end on product-market research that could And only at that point, when it is assumed that the product guide subsequent development, leading to misdirected effort, can be realized, is the innovator ready to build a detailed delays, and misfires at the back end. We concur, but the ARI business case and plan. Development, testing, validation, and model makes two additional allowances for radical launch come only after the innovation has survived a innovation. feasibility review. The intent is to surface the potential First, front-end market research may not be as productive “showstoppers” as early in the process as possible so that with radical innovation because adopters have little or no resources may be directed or redirected to where they are experience or knowledge in the market space; even the needed the most. Complex as the journey through these customers’ need for the innovation may not be apparent to multiple stages is, the unfolding process (the gates between them at this point. In extending Stage-Gate, the ARI model the stages) has guided new product developers in a logical, explicitly incorporates rapid prototyping, a more productive economically efficient path along a linear track, while way to hone in on what the market will accept. Innovators use helping the host organization manage its new product rapid prototyping to develop relatively primitive, simple, portfolio. inexpensive versions of the innovation early in the But with radical, disruptive, and interconnected development cycle (well before launch) and use them to innovation, the number of issues and the number of potential probe the market space [33, 38], learn how the market “showstoppers” multiplies. We have seen that we need to responds, and use what they have learned to quickly generate build not just a product development plan but a strategy new versions. The resources expended in any one iteration of around a system or ecology of innovations; that we may need the process are so low, and the time consumed by the process to innovate the business model alongside the product; that so small, that misfires are easily affordable, producing there may be major organizational gaps in the innovation valuable market intelligence that more than offsets their cost ecology that need to be filled; and that a long post-launch to the innovator. period of improvement and refinement will be needed before Second, when the innovation is radical, it is going to take the mainstream market will adopt the innovation (and how do more than an “unmet customer need” to overcome all the we survive until then?). And other issues crowd in upon us. social inertia and institutional resistance the innovation is For example, can something as radical as this be likely to encounter. A cornerstone of the ARI model is that manufactured, delivered, and serviced with the methods nothing short of a “crisis” is sufficient to propel a radical currently available to us? Can all the elements of a systems or innovation forward. If a clear and present crisis cannot be interconnected innovation be designed to come together demonstrated, the innovation process should be interrupted seamlessly at the point of ultimate use? until conditions are more favorable [7]. In the ARI model we In this complex an environment, a single linear track introduce additional research to determine whether a crisis is breaks down. The number of potential showstoppers and present, assess the readiness of a society for the innovation, other critical issues overwhelms the innovator’s time, and identify specific social enablers and inhibitors to the attention, and capacity to manage the complexity. As innovation. described at the beginning, the ultimate demise of a particularly promising radical innovation – a cancer treatment b) Technological/Scientific that promised to increase the effectiveness of radiation Technical considerations (including design, engineering, therapy by a factor of six -- was not attributable to any lack of and manufacturing) in new product development are at the clinical promise or lack of dire market need – the innovator core of the Stage-Gate model, and they must be at the core of was simply overwhelmed by the sheer number of critical a radical innovation project. Two issues in this track come to issues attending a radical/disruptive innovation [7]. the fore for radical innovation, system considerations and To manage this complexity, to make the showstopper intellectual property strategy. issues more explicit at the earliest possible stage, and to As discussed earlier, radical innovation may be system- provide some discipline to the way innovators manage their level or deeply interconnected with other innovation in a time and attention, the ARI model partitions the Stage-Gate value ecology. The extended Stage-Gate model includes a model into four conjoined tracks corresponding to the Grand provision for design of a system architecture where Challenges of ARI Step 3. The four tracks are necessary. Market/Societal; Technological/Scientific; Business/

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Market/Societal

Pre‐ Strategy Business Gate Gate Gate Gate Gate Inception Discovery Scoping Formula‐ Case and Technological/ 0 1 2a 2b 3a Scientific Period tion Plan

Business/ Organiza‐ Testing Post Organizational Gate Develop Gate Gate Gate tion and Vali‐ Launch Launch 3b ment 4 5a 5b Design dation Period The Innovation Ecosystem

Fig.7. The Four Proposed Tracks of the ARI/Extended Stage-Gate Model.

More so than with new product development, the key  Will the new entity be permanent, or will it require a economic asset created by radical innovation may be planned exit? intellectual property. In an open innovation regime, intellectual property that the innovation team needs may be These issues arise and must be dealt with at key stages of sought from external sources, while intellectual property that the innovation process, sometimes very early on. Their it creates it may choose to hand off to others to convert to centrality to the innovation process occupies a separate downstream products. For radical innovation to be Business/Organization track in the ARI model, where they commercially viable, intellectual property rights and can be raised and resolved at appropriate points in the boundaries must be carefully defined and safeguarded. The innovation life cycle. ARI model places a stronger, more explicit emphasis on intellectual property analysis and strategy. d) The Innovation Ecosystem As we’ve discussed, a defining characteristic of many c) Business/Organizational radical innovations is that they cannot be fully realized In conventional new product development within standing alone; they are embedded in a value ecology of established organizations, the overall corporate strategy and participants and stakeholders, each of whom must play their direction, even the existence of the organization, are part for the whole to work. These interdependencies add a assumed. The new product development effort is unlikely to significant new dimension to the innovation process for any raise fundamental decisions about the business itself. But as participant in the ecosystem. This dimension warrants a we discussed, this is not necessarily so for radical innovation. fourth track in the ARI model, involving important activities Established organizational arrangements may need to be at every stage of the innovation process. rethought and redesigned, including the possibility of creating In the Discovery stage, the focus is on mapping the entirely new organizations around the innovation. A myriad ecosystem – who are the players – suppliers, distribution of issues going to the heart of the business may arise, channels, complementors, competitors, and indirect including: influences, such as regulators and government agencies, key  What business is the company in? investors, industry associations, standards bodies,  What are its core competencies? foundations, advocacy groups, other non-profit organizations,  Where are its strengths and limitations (e.g., technology etc. Moving to the Scoping stage, the innovator assesses the leadership, marketing, operations, etc.)? players. What role do they play? What are their capabilities?  What are the company’s risk tolerance, its time horizon, What would be their posture vis-à-vis the innovation and its commitment to the innovation? (enabler, inhibitor, competitor, regulator, etc.)? In the  How will the innovation change the character of the Strategy Formulation stage, the innovator turns to the company (e.g., its business model, its market, its business question of what sort of relationships are desirable: what focus)? capabilities or cooperation need to be acquired from external  What key activities should the company undertake vs. sources; what role could various entities play in addressing what should be turned over to others (e.g., manufacturing, our needs; and what role could we play in addressing theirs? supply chain, distribution, customer support, etc.)? In the Business Case and Plan stage, the emphasis shifts to  Can the innovation be managed by the current company, determining the types of collaborative arrangements that or would it be better handled by a new entity? would be desirable, and how to approach potential partners. In the Development stage, collaborators join in joint system  If a new entity is to be created, how should it be organized architecture design and other collaborative arrangements are (legal structure; capitalization; composition of board of consummated. In the Testing and Validation stage, directors, senior management, and workforce; production capacity; policies; business model; etc.)?

1660 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET) operational processes are put in place and initial activities get E. Branch logic within the ARI/Extended Stage-Gate Model under way. If considered altogether, the ARI/extended stage-gate model presents the innovator with an overwhelming number 5. Threading of the key issues through the stages and of issues. The separation of the innovation process into stages grand challenge tracks reduces the number that must be considered at one time. But One of the deep conundrums of radical innovation is that the number can be reduced considerably further by using as particular issues arise, they have unpredictable ripple branch logic across the stages. Responses to earlier stage effects on other parts of the innovation process, both within challenge questions logically preclude certain future paths, the host company and across the value ecology. The two- while pointing the innovator down other paths -- the dimensional structure of the ARI model addresses this phenomenon of path dependence [45]. For example, if the conundrum by establishing explicit linkages across stages and innovation is classified in the Discovery stage as software, tracks for key issues, so that key threads are not lost in the the innovator needn’t address subsequent questions about tumult of the innovation process. With threading, issues are manufacturing in later stages. Similarly, if the innovation will taken up at the earliest point necessary (but no earlier), sur- occur in an established organization, the innovator won’t facing show-stoppers early and focusing the innovator’s need to address many of the questions in the Organizational attention at the points where it is needed. Design stage concerning the form of the organization, Consider one such issue that is part and parcel of radical composition of the board of directors, etc. innovation -- intellectual property (IP). Almost no innovation emerges out of whole cloth. Even breakthrough innovation F. Keeping score - Valuation in the Extended Stage-Gate depends in large part on the recombination of other Model innovations, and itself enters the pool from which other Central to any stage-gate model is that at each “gate,” a innovators will draw [2]. A robust intellectual property decision must be taken on whether it is worth making the economy has emerged to support the exchange of intellectual incremental investment needed to take the innovation to the property among innovators and users of innovation [44]. next gate. As a rule, the decision is based on whether the Intellectual property issues first arise in the Discovery innovation has achieved pre-specified performance stage along the Technological/Scientific track, when the milestones (technical, manufacturing, market, cost, etc.) and question is – what is the prior art in this field. Patent search whether the original assumptions underlying the innovation delineates the IP boundaries within which the innovation still hold. The decision choices at that point are limited to go, must proceed. Are there key patents that cover what the hold, or kill–proceed with the next stage, allow additional innovator is trying to accomplish? How broad and strong are time in the current stage in hopes of resolving shortfalls, put these patents? Are we risking patent infringement if we the innovation on hold until more favorable conditions proceed? Are there patents that could be licensed to emerge, or simply shelve the innovation and reallocate the accelerate the innovation process? investment funds to other innovations that show more IP issues resurface in the product Development stage – promise. what sort of IP do we need to create as part of this This limited set of options may be sufficient in the innovation? Can it be patented? How broad can we make our “closed” setting for which the original stage-gate model was patent claims? Are they enforceable? intended. But if the radical innovation is taking place in an At the Strategy Formulation stage along the open innovation setting, involving concurrent innovation by Business/Organization track, new questions emerge: What is several organizations, funded by multiple investors, and our IP strategy – how do we enforce our patents? How can supported by an ecology of other value-adding entities, a we use patents to create a strong appropriability regime simple go-hold-kill decision by one organization gives that around our innovation [48]? Apart from incorporating the IP organization a veto over the entire project, which would be we create in the innovation itself, what else can we do to unacceptable to the other players. monetize it? In this more complex environment, more options than go- In the Business Case and Plan stage, as we approach hold-kill are needed. Suppose the organizational host for the investors, how will we address a major concern for investors innovation wants to advance the innovation to a certain stage -- that our IP position is strong and defensible? and then hand it off to or collaborate with another player in In the Building the Project Plan stage along The the ecosystem (through licensing or sale of the patent or some Innovation Ecosystem track, intellectual property is at the other form of collaboration)? Suppose a major investor core of the discussions and negotiations among potential chooses to exit and wants to liquidate all or part of its stake? partners. What IP will we and our partners share? What IP Or suppose that the innovation looks promising enough that will we develop jointly? How will the ownership of that IP be another investor or player wants to assume a financial stake at structured? this stage? For any of these transactions to occur, the innovation needs to be assigned an economic value that transacting parties can agree upon. The typical valuation technique is

1661 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET) discounted cash flow. But discounted cash flow values the various forms of organization, a capital and deal structure, innovation at the point when it has reached the conclusion of and such fundamental decisions as whether to build or source. the innovation process, producing a single value for a single (A “virtual” organization has a much different valuation than scenario going forward, offering the investor a now-or-never, a bricks-and-mortar organization with real physical assets and take-it-or-leave-it decision that doesn’t account for the financial liabilities.) possibilities that may unfold during and beyond the Once the basic organizational decisions are made and the innovation project. What is needed in a complex, multi- innovator turns to building a detailed project plan, budgets stakeholder open innovation environment is an asset and schedules are formulated, leading to a more realistic valuation that can be recalculated as the innovation process valuation. With the project plan, the innovator moves to a unfolds, and in particular at each stage where a handoff of a crucial gate – the Feasibility Review. At this point decisions financial stake might be considered. are made about whether and how to proceed with A useful tool for valuation of a project that unfolds over development, a process involving perhaps an order of time is a financial modeling technique known as real options magnitude greater investment, and a set of highly divergent analysis (ROA) [19, 29]. To estimate the value of an choices about the role of the innovator’s organization vs. innovation at any gate, real options analysis requires two sets other organizations in the future of the innovation. For of estimates, the estimated economic value of the completed current investors, potential investors, and prospective innovation, and the probability of successfully completing partners, an accurate set of real options valuations for the each subsequent stage assuming successful completion of all different scenarios under consideration is a precondition for prior stages. ROA is sufficiently robust and flexible for the moving forward. dynamic open innovation environment. At any gate an ROA ROA is applied at each of the succeeding stages (Testing model can be updated to take into account changes in values and Validation, Launch, and Early Growth) as the financial or assumptions that may have occurred to that point, and it stakes continue to escalate, as outstanding technical and can accommodate any number of potential future paths that market uncertainties are resolved (changing the probabilities may have been revealed. of subsequent outcomes), and as new scenarios for expansion, Accurate valuation using ROA introduces its own market entry, product and technological evolution, challenge – estimating the probability of occurrence of each collaboration, and financial ownership unfold. possible scenario under consideration. There is enough subjectivity in these estimates that a sensitivity analysis is II. APPLICATION OF THE EXTENDED STAGE-GATE called for [29] to learn how much the probability of a MODEL scenario may vary before the order of the scenarios in relative attractiveness shifts. Fortunately in many cases, the ordering A. Application to Innovation Projects is relatively insensitive to changes in probabilities, so the To test the utility and value of the ARI/Extended Stage- preferred course of action doesn’t change. Gate model in actual practice, we are applying it to three radical innovations currently under development by 1. Application of ROA to the ARI Model Vanderbilt University faculty: a home health monitoring How would the ROA valuation technique fit into the system, a system for delivering therapies to the pericardium ARI/Extended Stage-Gate Model? In the first three stages of (outer layer of the heart), and a system for modeling the the model (Discovery, Scope, and Product Definition), there effects of radiation on electronic devices. Teams of students is insufficient information to estimate the ultimate economic enrolled in Vanderbilt’s senior engineering management value of the innovation. Moreover, the cost of these three capstone course are using the model to help the faculty stages is insignificant relative to the costs incurred, so there is develop comprehensive strategies that will guide further not much at stake for an investor to make ROA worthwhile. development through and beyond the launch stage. Results of ROA begins to assume meaning and value at the point these projects will be reported in a future paper. where resource commitments escalate, starting with the Strategy Formulation stage. At this stage, explicit options are B. Application to Engineering Management Education considered, such as whether to pursue the innovation or to The ARI/Extended Stage-Gate model is also being applied exit, and if it is pursued, whether to build, outsource, or form to the analysis and restructuring of Vanderbilt’s Engineering some sort of partnership. For exit and collaboration strategies, Management program. The Engineering Management the value of the intellectual property to be created must be program is designed to prepare undergraduate engineers to determined, whereupon the innovator can use ROA in the assume leadership positions (both thought leadership and business case to value different scenarios. organizational leadership) in the global innovation economy. If the business case is approved, the valuation changes – The concept of innovation as an academic term is there is now more equity and there are more stakeholders garnering much attention in recent years but also much behind the innovation, and so the valuation of future options question. How does one teach innovation? Or, more must be updated. ROA can again be applied during the importantly perhaps, can one teach innovation? At the Organizational Design stage as the innovator considers undergraduate level these questions become extremely

1662 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET) difficult to answer due to many issues surrounding the Conversely academic topics are usually transferred by some students’ lack of industrial experience, project experience, governing factor such as a textbook or commonly accepted critical knowledge of specific technologies, knowledge of the set of principles that dictate what is taught in a specific competitive environment, etc. However, students of course. This disconnect led the faculty to pay close attention engineering, engineering leadership and engineering to how and when innovation was taught in the context of management would be expected to have some knowledge of other management concepts that may not be explicitly these areas if they are to be expected to contribute in their identified in the stage-gate model. For instance, a vital companies shortly after their graduation. component in any business venture is the human capital In order to determine what concepts are taught and when strategy, negotiation and goal-setting activities. they are taught as a matter of routine, the engineering Understanding how to form and operate within teams using a management faculty at Vanderbilt University underwent a systematic, data-driven approach, how to reward them and thorough analysis of all courses offered in an academic year. disassemble them are not easy concepts to figure out alone or Upon further discussion it was realized that in order to lay in a short amount of time. Do these concepts lead to some initial groundwork for systematically teaching technology innovation? Indirectly, certainly. Should they be innovation a link would need to be made to some existing, addressed in an innovation leadership program or even an well-vetted conceptual structure that can map technological engineering management program? Definitely. innovation. The extended stage-gate model lent itself well to An outcome of this exercise in regard to the behavioral this analysis due to its logical and easy-to-understand flow. science concepts presented is the notion that rather than teach The existing curriculum is largely project-based where behavioral science toward the end of the curriculum, it might industrial sponsorship is provided whenever possible. best serve the students to teach it earlier in order for students Each course in the curriculum was passed through the to gain experience in applying the knowledge throughout stage-gate model to determine which innovation concepts their course work, project teams and extracurricular activities were presented and how they rationally fit into the such as student organizations. Upon further inquiry, focus technology innovation rubric. The purpose of engaging in groups of senior-level students agreed that this course would such a systematic inquiry of the curriculum is to determine better serve them earlier rather than later in their academic what is currently done in order to know what should be done careers. Another concept that did not fit neatly into the stage- next in normal curricular evolution. If the goal is to create an gate model is an international component to innovation innovation leadership program, which it may be, then through global business channels and how to conduct knowing what is currently being taught in terms of business internationally. As a result it was determined that technology innovation and engineering leadership is valuable while some limited exposure to global business practices is in order to chart a course to achieve that goal [52]. included in the current curriculum, it is clearly a deficit that In the process of concept mapping the engineering may need addressing in the near future. Teaching students management curriculum to the stage-gate model several the intricacies of intellectual property strategy is also issues arose. First, the faculty realized that mapping a course something that the program provides but the stage-gate model structure to a model that may not necessarily be linear in did not directly address, which was also evident from practice is very difficult since the curriculum does not (and performing this type of examination. perhaps should not) progress linearly. Courses rather than Understanding what the curriculum currently offers is curricula typically proceed in a linear fashion for 7 to 14 necessary for future development and improvement [52]. weeks in an academic term with limited contact hours Mapping an engineering management curriculum to the between the faculty and the students. Even in the most stage-gate model is not perfect nor was the model intended sophisticated programs where multiple courses advance in for this purpose, but provides a theoretical bridge between the concert with each other for an intended purpose courses still academy and industry that students will have to traverse advance somewhat linearly. In practice, technology when embarking on a career. The value-added component of innovation is iterative in some regards with a sense of trial- this exercise is the ability to demonstrate that an academic and-error, if even on very small scales. In this manner program which means different things to different curriculum design suffers from the institutional structure of constituencies is strongly linked tithe innovation process. its host. Iteration in the academy can happen only as fast as Further, mapping a curriculum to a widely-accepted, the academic term lengths and the frequency of offering industry-vetted model would add validity to what is being happen. This phenomenon strengthens the need for a taught and provide a method for determining if important capstone experience that draws the concepts together in a concepts are not being taught. The knowledge gained is real-world application to determine students' proficiencies in marketable to students who aspire to management positions applying knowledge presented in potentially disparate shortly after graduation and critical to the employers who are courses [35]. looking to hire competent knowledge workers with strong Additionally, technology innovation does not conform to management potential. any true static model consistently. The stage-gate model is a Based on an internal benchmark study, there appears to be roadmap to guide innovation rather than govern it. no real standard structure for engineering management

1663 2011 Proceedings of PICMET '11: Technology Management In The Energy-Smart World (PICMET) education and most schools have grown their programs based to full fruition. Third, because it defies established industry on their local culture and core competencies of the faculty. boundaries, its commercial realization will require new By mapping a curriculum to an industry model that works as ecologies of companies. a guide for technology innovation, it may seem fitting that if From these premises the ARI model builds new stages and the mapping exercise is successful (meaning that there are new dimensions onto the Stage-Gate model. The first is a many direct linkages and few 'outlying' concepts) then the stage of strategy development, not the company but around curriculum could in and of itself be a standard for an the innovation itself. The second new stage is organizational engineering management curriculum with an emphasis on design – literally designing organizations around the innovation leadership. The value that engineering innovation. The other stages include a pre-discovery period management programs already provide students is and three post-launch periods, which provide for the extended diversification of knowledge in an engineering curriculum. experimentation and incremental improvement required of Many students choose an engineering management program radical innovation. To address the vastly more complex set of to either side-step traditional engineering disciplines for challenges facing radical innovation, additional dimensions specific reasons or to enhance a traditional engineering have been added to Stage-Gate: a macro-societal component education with knowledge and skills that set them apart from to the market dimension; a scientific component to the their peers. In any case the contents of the engineering technological dimension; a business/organizational management programs should complement engineering dimension; and an innovation ecosystem (value network) education for specific purposes [52]. When successfully dimension. The other major addition to Stage-Gate is the mapped to an innovation model such as the stage-gate model, application of a real options approach to valuation of the an engineering management curriculum becomes an effective innovation, to facilitate entry, exit, and collaboration by innovation leadership program. multiple interdependent organizations over the course of the innovation’s life cycle. III. CONCLUSIONS The ARI model is now being applied to radical innovations currently under way at a major research Starting in the 1980’s, the Stage-Gate model has emerged university and to the design and development of the as a proven, well-established process for established university’s undergraduate engineering management companies shepherding new products through development. program. Underlying the Stage-Gate model are several assumptions. ACKNOWLEDGMENTS One is that each innovation is discrete and self-contained within a host company’s portfolio, and so can be discontinued This paper was inspired by Dr. Frank Carroll, the pioneer without affecting its other innovations. Another assumption is of monochromatic x-ray technology, who gave his all to a that the innovation isn’t interdependent with complementary radical, exceptionally promising health care innovation that innovations occurring beyond the company’s walls – the ultimately failed in the market place. We proudly and company is in control of the innovation’s destiny. Still respectfully dedicate this paper to him. another is that the innovation supports the company’s overall strategy and it sustains and reinforces the host’s established REFERENCES competencies and business model. Finally, it is assumed that the innovation fits within the boundaries of established [1] Anderson, P. and M.L. Tushman; "Technological discontinuities and dominant designs: a cyclical model of technological change," industries, populated by companies competing on known Administrative Science Quarterly. 35(4): 604, 1990. bases of defined products, features, performance, and price. [2] Arthur, W. B.; The Nature of Technology: What It Is and How It But for an increasingly important class of innovation -- Evolves. New York: Free Press, 2009. radical innovations that are technological breakthroughs, [3] Barabási, A.; Linked: the New Science of Networks. 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