Management of early innovation phases with cost management tools : benchmarking methods used in business
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Journal Title
Journal ISSN
Volume Title
D4 Julkaistu kehittämis- tai tutkimusraportti taikka -selvitys
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Author
Date
2007
Major/Subject
Mcode
Degree programme
Language
en
Pages
52
Series
Report / Helsinki University of Technology, Laboratory of Industrial Management, 2007/3
Abstract
Executive summary This report shows how companies handle uncertainties in early innovation phases using cost management tools and gives recommendations regarding the implementation of several practices. Seven international companies' methods were benchmarked and analyzed. Overview The report proceeds with an introduction discussing cost management techniques of early innovations. Next, the scope and methodology are described. Then, the challenges of early innovation phases companies are facing are explored. Discussion then considers how these problems can be tackled, before an overview lists all the methods found in the benchmarked companies. The report next focuses on several, selected tools. For each set of tools, a literature-based introduction is given, after which the methods adopted in the companies is described. Each section includes empirical examples allowing a management overview (these are located in grey boxes embedded in the main text). Finally, a discussion is given on how to arrange the described methods. Additionally, the different roadmapping practices described in the findings are aligned to a coherent method. This method can be seen as a precursor to target costing in early innovation phases, and is referred to as: 'directional costing'. Summary of findings There are several challenges that companies are facing in the early innovation stages. One of them is that information is more valuable the earlier it is available, especially before decisions with lock-in effects have to be made. These lock-ins result out of uncertainties that are usually imminent to early innovation phases. A response to these challenges is to proceed more efficiently in the very early stages of innovations. This can be done by dealing with uncertainties in a professional manner. Furthermore, information gathered with the help of good cost management methods can lead to lock-in effects underpinning good development and design, as managerial decision making is made less problematic. The tools described in this report are not standalone methods, but have to be used as a set of tools, bringing additional information to the mosaic of early innovation. The base is established through high-quality intelligence work which is anchored in good knowledge management practices and the use of expert opinion, e.g. in a cross-disciplinary expert network. Companies are using scenarios in several ways during early innovation stages. Good practices around their use are, for example, to use them to identify different alternatives, to analyze them and to study different drivers for success. Additionally, scorecards can help to make discussions more objective, as they connect values or estimates to a specific situation or development idea under discussion. The created results of scenario analysis and scorecards can be used together with roadmapping in early innovation stages. In an advanced case, trend analysis can be used to understand the dynamic development of the performance and cost of different technologies in the roadmapping work, as a preliminary target costing effort. (This effort is labeled 'directional costing' in this report.) As developments can take several years until market launch, it is important to know how the costs connected to certain technologies will develop over that time. In this instance, a studied company uses the expertise and experience of senior employees to estimate the dynamic cost behavior of technologies over the time. Additionally first cost models are developed already in the front-end of innovation. This cost modeling uses the information gathered during the basic research and later R&D activities. Finally, another interesting set of tools, is the cost capability estimation of new technologies, together with 'perfect waste-free' product cost calculations. In this approach, calculations of the theoretical minimum of costs to fulfill a function are made to evaluate different new, potential production technologies. As previously discussed, all these methods have to be seen as a set of methods that contributes information towards right decision making during the early phases of innovation. A recommendation when to use different tools is shown in Figure 1.Description
Keywords
innovation management, cost management, technology management, target costing, New Product Development, front end of innovation
