Collaborative framework for assessing risk

Knowledge Transfer 2.0 (KT 2.0) is less concerned with the development of a rigid methodology than with assessing that the methodology of its partners is adequately robust. Given the collaborative nature of the process, if the external entrepreneur-consultant brings a more fitting methodology to the particular project that's fine. As a yardstick, however, in order to judge alternative assessment models that may be brought in by the external consultant, KT 2.0 looks to simple yet effective methods such as the Schrello Screen (detailed below) to evaluate individual projects. The purpose here is two-fold:

Firstly, the introduction of a working framework, to be used at the earliest stages of the development process, conveys to both external business development consultants and to academic stakeholders the parameters by which the potential for their project can best assessed by the KTO office. It sets out the guide for project selection. And as such it needs to be robust.

Secondly, in a competitive tendering situation, the assessment of respective framework acts as a form of filtering tool that can be used as a means to allow the KTO to compare alternative proposals for a specific project, at the point when tenders are being considered for a project. It acts as part of the process for consultant selection. The stakeholders involved need to be aware of how their approach will be judged by the KTO in order to ensure the right team is appointed to the right project.

The Schrello Screen

Sometimes known as Real:Win:Worth, versions of this screen have been used by a range of large corporate R&D firms to assess their innovation portfolios and as a business case filtering tool such methodologies can be used as a heuristic to help both development teams and KTO managers to gauge the balance between risk and opportunity. This tool is simple in format and is built on a three sets of questions about the 'innovation idea'; its market, its ability to outcompete existing solutions and its potential to return profits appropriately on the investments made in it. It is not a spreadsheet model to pump figures into in order to get a go/no go decision, but the three sets of questions, when addressed by the project team will allow them and the KTO organisation to identify the strengths and weaknesses of the business case or at least its potential at the very earliest stage of the project.

There are three sets of linked questions each team will address in its proposal and continually downstream in the development activity. The resulting answers will help to clarify the thinking of the team in the critical areas of the eventual business case. Clearly, in answering these questions at different points of the development continuum, there will be varying levels of 'evidence' to support the answers available to the teams; this is fine as long as the team and the KTO are aware of the quality of 'evidence' and are confident in making decisions based on that evidence. The questions are described below.

Question 1: Is it Real?

Here we are interested in determining if the development team's thinking about both the market opportunity and product/service idea is 'Real (or realistic)' and to answer this the following questions are asked:

A. Is the market real?

Which market is being targeted?
What is the size of the market and its growth trend?
What is the motivation for the customers in this market to adopt this solution?
Will the customer buy this product?

B. Is the product real?

What need does this product address?
Can the product be made?
Why is this solution superior to existing solutions?
Will the customer buy this product?

This is the first question the KTO would like teams to address. For obvious reasons a technology without a market won't ultimately be investable or commercially viable. It is often less problematic to create even a complex technical solution than it is for a market to adopt that new solution, this can be seen in classic 'technology push' failures like the Iridium satellite telephone network developed by Motorola.

Available evidence suggests that the majority of new venture launches fail principally due to the failure to understand the market's ability or willingness to adopt the innovation rather than because the innovation itself does not work. Equally, by asking questions like: 'can the product be economically made?' we are asking the team to consider the critical issue of realising the supply chain to deliver the finished product. In a project initiated from a university environment, any supply chain would most likely be sourced externally, so an early emphasis on thinking through the realities of building a new supply chain or accessing existing supply chains is important given the potential impact this could have on both the business case and technical solution.

In placing the emphasis on the external development team to address questions around both the market concept and the technical concept simultaneously, at the earliest stage of activity questions, it's hoped to maintain the pace of development activity whilst grounding it in the reality of markets and customers. Conclusions need to be based on sound evidence of how inherent risks are managed at the early stage of innovation projects without burdening participants with too many hurdles to jump. Ultimately, as Eric Ries comments:

'Old management methods are not up to the task. Planning & forecasting are only accurate when based on long, stable operating history and a relatively static environment. Start-ups have neither'

So methodologies such as Schrello are not proposed as alternatives to gaining early market feed back using minimally viable products or discouraging entrepreneur-consultants from progressing projects that they want to back. It it used to establish the competence of the external partner and to establish the risks that need to be managed. It is not a means to inject endless business-planning loops. Again, as Ries powerfully argues:

'Delay prevents start-ups from getting the feedback they need.'

Question 2: Can we Win?

If the development team has confidence from their deliberations that their target market and product concept are both 'real' they must now assess the ability of the innovation to compete and win appropriate market share. The target market may already have a range of solutions available or a major incumbent - either way, the new innovations concept will need to displace incumbents in order to become the solution of choice. The question set in this section concerns itself with determining the potential for success. Questions asked would typically include:

Can the Product be competitive?
Does the concept have a competitive advantage?
Can this advantage be sustained?
Can the enterprise (start-up, spin out or any other option decided on) be competitive?
Does the enterprise have sufficient resources?
Does the enterprise have appropriate management resources?
Does the enterprise have the ability to understand and respond to the market?

When asking 'Can the Product be competitive?' the team is really being asked to consider why the customer would choose this solution over the others available. At the early stage of a development project there may be a tendency to focus on perceived advantages from technical features, superior performance, etc. However, the key issue to address should centre on the wider consideration - which competitive advantages does the team feel it can achieve and sustain over other solutions? A competitive advantage could derive from the technical performance alone or it could come from a mix of other attributes. Either way, the key here is to determine what the customers' value demands are and then gauge whether the innovation can satisfy them in a superior way.

Question 3: Is it Worth it?

Here we are interested in understanding the potential to make a positive return on investments in the proposition being developed. Again, determining at this very early stage of the activity whether a return is likely, and to what level, is problematic; but we are trying to encourage development teams to build a rounded, realistic business case for developing the idea whilst at the same time, enabling the KTO to make comparisons between vying proposals for a specific IP opportunity. A team can only answer this question if they have defined the market focus, determined the key value propositions and the potential of the offer to be selected over incumbent solutions.

The questions asked at this stage include:

Will the product be profitable?
Are forecasted returns greater than costs and to what level?
Are the risks associated acceptable?

Given the challenges of producing financial forecasts especially for a 'new to the world' project, the KTO's emphasis on considering this question should centre on identifying the quality of the forecasts and the thinking behind it rather than the specific numbers themselves. In a competitive proposal situation it could be tempting for a team to be overly optimistic about possible returns so judging the quality and assumptions behind these figures is critical.

In summary, by ensuring that the external consultants use the Schrello Screen tool - or similar - at the earliest possible stage of the KT 2.0 development activity, (even as part of the tendering process for potential development team selection), the KTO isn't trying to cast anything in stone, it is too early for that. What they are trying to do is ensure that the team selected to progress the project both works in a realistic way and their thinking is visible to the KTO, thereby establishing a way of working that is acceptable. The methodology is also trying to ensure that the KTO has a means by which competing teams and projects can be assessed in a meaningful way at the earliest stage of development and in doing so place resources and projects where they stand the best chance of realising their potential.