Category Archives: Innovation

Innovation Strategy

With the Harper government signing the Canada-EU Trade Agreement which is expected to come into force in a year or two Canadian business leaders are reminded to assess their current strategy in anticipation of increased competitive pressure.  A major free trade agreement such as CETA will change market competition by allowing new entrants into Canadian markets but also give Canadian firms improved access to foreign markets. Business leaders need to decide if they need to up their innovation game in response to increased rivalry.

Canadian business competitiveness has been falling behind in recent years traced to Canada’s lagging productivity compared to the US. Canada’s lagging productivity has been linked to Canadian business leader’s failure to adopt innovation as a strategy.

What are some innovation strategies and how can business leader’s select the right strategy for their industry/market?

Innovation Strategies

In their quest for above average industry profits business leaders can choose to find better ways to deliver their services or offer better products. The essence of innovation is in creating and capturing new value measured in terms of higher industry profits, improved growth, and strengthened competitiveness. Innovation can result from better products, processes, marketing methods, and business structures.

There are several categories for innovation strategies but I prefer the following:

  1. Do Nothing Innovation Strategy – Management decides that their existing assets and competencies are appropriate to achieve acceptable returns in their markets. These markets are often protected in some form so competitive intensity is low.
  2. Adapt / Adopt Innovation Strategy – Firm’s imitate innovative business practices or acquire ‘off the shelf’ solutions that incorporate new methods or technologies to improve returns or defend returns. Business practices could include copying processes, marketing methods, and business structures used by rivals or leading firms in other industries. Acquired innovations could be embedded within capital equipment, tools, information systems. Acquired innovations could also include licensed technologies or methods.
  3. Incremental Innovation Strategy – Incremental innovation involves making improvements to existing products and services in terms of the relevant performance, cost, & quality measures for the market.
  4. Transformational Innovation Strategy – Transformational innovation involves making a step-change improvement to a product or service far beyond what incremental innovation can achieve also measured in terms of the relevant performance, cost, & quality measures for the market. A transformational innovation could also be demonstrated in a completely different way of structuring a business or a different way of marketing.
  5. Breakthrough Innovation Strategy – A breakthrough innovation involves creating a new-to-the-world market for a product or service.

Firms can choose to adopt the ‘do nothing’ innovation strategy or one/several of the other strategies. Tactical actions and investments then follow the implementation of the selected innovation strategies.

Innovation Strategy Market/Industry Alignment

How aligned is your innovation strategy with your market/industry? Porter’s five force model of competition is the gold standard for assessing industry competitive intensity. Innovation strategies provide a means for firms to create barriers to entry, maintain an edge against substitute products, and differentiate products all to create value and capture profits in attractive markets. Generally speaking the choice of innovation strategy is in response to competitive intensity of the market and can illustrated with the following diagram:

Innovation Strategy Options

Although this diagram is simplistic it does help to make a gross strategic assessment whether the firm is investing enough in innovation to sustain company profits.  As competitive intensity increases businesses need to invest more and take more risk to survive and thrive. First movers can gain a temporary market advantage with higher profits with increasing magnitudes and durations for incremental, transformational, and breakthrough innovations.

Normal progress in industries can see adapt/adopt innovations become the necessary cost of entry for an industry rather than the source of differentiations. These industries drive industry participants to continually invest in innovation faster than some nominal rate of progress. A study by Curry & Clayton in 1992 revealed that the majority of Canadian firms employed an adapt/adopt innovation strategy. Benchmarking Canadian innovation performance with OECD peers since then has not demonstrated any improvement.

Business Leadership Behaviour

Are your risk tolerance and innovation investments enough to keep up? Canadian business leaders are known to be risk adverse and underinvest in R&D (a proxy for innovation). Canada’s small market size, distance from global trade routes, proximity mainly to the US, business preference to remain local, low ambition, and trade protections result in mainly low competitive intensity in Canadian markets. Canadian firms who choose to export face higher competitive intensity.   As globalization continues and trade barriers fall, new competitors will enter Canadian domestic markets and Canadian firms have the option of exporting more. Domestic and export competitive intensity will increase with the CETA and other trade agreements so business leaders need to decide if their traditional risk tolerance and R&D investment commitment will sustain their business in the face of this increased competitive intensity.

To evaluate their risk tolerance and level of sustaining R&D investments the industry competitive intensity diagram suggests that there is a minimum threshold necessary to survive for the current market competitive intensity. As competitive intensity increases the required level of risk tolerance and magnitude of sustaining R&D increases as illustrated below:

Innovation Strategy Risk Tolerance

Canadian businesses risk falling behind if they continue to be risk adverse and don’t spend enough on innovation to remain competitive with rivals.

Innovation Strategy Industry Change Alignment

How fast is your industry changing? The rate of industry change or industry dynamics provides insight into their time horizon to adopt innovation as a strategy. McGahan’s industry change diagram is useful to assess the magnitude of industry change and the degree of strategic response that may be required. The industry change model enables management to assess the degree of threat to the firm’s current core activities and core assets.

McGahans Industry Change Model

Normal progress is experienced in the progressive change box with neither core activities or core assets threatened because competitive intensity change is slow.  Adapt/adopt is often sufficient to survive in markets with progressive change. As industry change is directed towards improved processes and tools core activities and assets become threatened. The incremental innovation strategy is usually sufficient to remain competitive but management must take larger risks and invest more in R&D to keep up with the competition.  Radical change results if both the core activities and core assets of the firm are threatened such that the firm risks become obsolete rapidly. Transformative and disruptive innovation strategies are necessary to survive.

Canadian Industrial R&D Spending

Statistics Canada has released Industrial Research and Development: Intentions report summarizing R&D spending in Canada to 2013. The results echo the declining R&D investment trend reported in the Science, Technology, and Innovation Council 2012 State of the Nation report on Canada’s Science, Technology, and Innovation System report that has Canada falling from 16th of 41 countries in 2006, to 17th in 2008, and 23rd in 2011 in terms of gross domestic expenditure on R&D as a share of GDP. The Statistics Canada report results show industrial R&D in 2013 is anticipated to be down 2.8% from 2012 at $15.6B and remaining below the pre-recession peak of $16.8B in 2007.

R&D Spent By Size of Firm

These charts illustrate the % and amount of R&D (intramural R&D) spent by firm size (# employees) for 2007 to 2011 across all sectors from the Statistics Canada report.

Can R&D % Bar Chart

Can R&D % Line Chart

Can R&D $ Line Chart

Unfortunately the number of firms performing R&D by size was not provided to adjust these charts for this data set however the 2012 small business statistics reported that small businesses with 1-99 employees make up 98.2% of all firms, medium firms with 100-499 employees make up 1.6% of all firms, and large firms with greater than 500 employees make up 1.6% of all firms.

Canada Should Adopt The DARPA Model For Funding Key R&D

Canada, and other developed countries, need to improve their ability to drive prosperity through innovation yet this goal has been elusive. A recent article in Harvard Business Review “Special Forces” Innovation: How DARPA Attacks Problems written by Regina Dugan and Kaigham Gabriel provides some new insight into this problem and in particular how Stokes’ research model can help to make better R&D funding decisions.

Root Causes For Canada’s Poor Innovation Performance

There are many reasons cited for Canada’s poor innovation performance such as low competitive intensity due to the small population, low population density due to the large geographic area, low VC funding, risk aversion, lack of entrepreneurial spirit, and lack of ambition.

There is also no urgent necessity driving a need to innovate in corporate Canada. Experts often look at Finland’s commitment to an innovation-led economic strategy which ‘arose due to the severe economic crisis of 1991 and simultaneous impact of near collapse of the domestic banking system and massive export disruption du to the disintegration of the USSR’. Urgent necessity only exists in several localized areas: 1) youth who see lean software start-ups as their only choice for a good career, 2) clean tech for those who think that global warming is real.  Canada’s complacency stems from being a stable country, high wages, social safety net, stable food supply, affordable cost of living such that the majority of population are well off.  Also Canada came out of the financial crisis fairly well off. Canada also has no natural enemies to drive defence R&D similar to how the cold war fuelled Silicon Valley’s development before the emergence of venture capital funding.

Canada’s Approach to R&D

Another leading reason often cited for Canada’s poor innovation performance is the approach used to fund R&D does not lead to economic benefits. Canada is an outlier in several respects when it comes to how R&D is funded namely:

1) Due to the absence of many large firms, R&D funding is driven by the government and directed to universities who don’t have a good track record when it comes to commercialization of the R&D funding; and

2) R&D funding is provided to firms indirectly through R&D tax credits as opposed to direct funding.

Industry does not fund more R&D because 98% Canadian firms are SMEs who can’t afford to invest much in innovation.  Most Canadian SMEs have no ambition to grow being content with selling to their local markets. There are also a lack of mid sized firms in industries who could commercialize R&D being undertaken in Canadian universities. 527 mid-sized companies reportedly vanished between 2007 and 2010 representing a drop of 3.6 per cent compared with a rise of 2.6 per cent of the overall number of new Canadian firms according to numbers compiled by the Business Development Bank of Canada (BDC).

There is also a lack of industrial strategy aligned with Canada’s strengths and misalignment between business and universities. No sustained plan to target new emerging industries is evident and large research endeavours tend to lose focus and attention as multiple competing agenda’s erode economic exploitation. So it is difficult to build momentum with misalignment, lack of focus, bureaucratic complexity, geography, lack of large firms, etc.  My own study in Alberta’s innovation system revealed the lack of focus and low return on investment from R&D investments made in Alberta universities over the last decade.

Dugan and Gabriel’s paper use Stokes’ research model to explain DARPA’s success. Stokes’ research model is very useful to understand why Canada has not fully benefited from the significant investments in R&D spent at Canadian universities over the last 15 years.

Stokes’ Research Model

Princeton’s political scientist Donald E. Stokes proposed the following 2×2 diagram to categorize research and naming each quadrant with a leading historical researcher who exemplifies each approach:

Stokes Research Model

Each quadrant categorizes research by answering whether the research has practical use and whether it is a quest for fundamental understanding. The answers to these questions defines four categories:

  1. Pure Basic Research (Bohr Quadrant) – Curiosity driven research that is directed at seeking foundational knowledge without consideration of practical use characterized by the work of Niels Bohr.
  2. Pure Applied Research (Edison Quadrant) – Pure applied research that is directed at finding a solution to a real problem with no interest in explaining the underlying scientific phenomena characterized by the work of Thomas Edison.
  3. Use-Inspired Basic Research (Pasteur Quadrant) – Research that is directed at expanding basic scientific knowledge in order to meet pressing societal needs characterized by the work of Louis Pasteur. DARPA is a leading example of an organization that has adopted this type of research with results demonstrated by their achievements as described in Dugan and Gabriel’s article.
  4. Unnamed Quadrant – Research that is neither scientifically interesting or useful was left unnamed.

Stokes’ model suggests that Canada’s approach to R&D funding at universities tends towards Bohr’s quadrant which is not clearly driven by practical use – although eventually it may be commercialized it is not at the speed-to-market demonstrated by DARPA in Dugan and Gabriel’s article.

Reorienting Canada’s NRC

The Canadian federal government has begun to make changes by reorienting NRC to focus on commercialization and is working to consolidate the many government R&D funding programs. This is akin to emphasizing Pasteur quadrant research in the Stokes’ model.  Also the federal government is seeking to leverage defence procurement through key industrial capabilities for better economic outcomes. Although far from a DARPA model this approach is linking a need to the drive research.

While the government is moving the right direction there has been significant push-back from university researchers who feel that pure basic will be harmed by focusing more on commercialization. Ongoing pressure by the Alberta government to change the university research system to foster more commercialization is running into increasing resistance from academics. Unfortunately the government-university debate is highly emotive and often presented as a black or white, either-or type situation by the university researchers. The Stokes’ research model suggests that Canada could take a more holistic view of allocating research funds. The Stokes’ research model also provides a means to take a more balanced approach by establishing how university R&D research investments would be allocated between the three quadrants.

Recommendations

Viewing Canada’s poor innovation performance using Stokes’ research model suggests several recommendations:

  1. Canada needs more Pasteur quadrant research and bring clarity/balance to how R&D investments are allocated to each of the Pasteur, Bohr, and Edison quadrants.
  2. To implement recommendation 1 a balanced team of leading thinkers and public/industry engagement should create and prioritize a list of pressing needs whose solution would create economic benefits and national/societal good for Canada.
  3. National priorities and industrial strategies should be aligned as previously discussed on this blog.
  4. Several grand challenges (not solutions) be selected from this list that should receive significant funding employing a DARPA style approach.
  5. Innovation performance metrics that measure time to market should be incorporated into the current innovation scorecard that has deficiencies.
  6. Adopt the DARPA approach (described very well by Dugan and Gabriel) to achieve faster-time-to-market results for Canada’s pressing needs identified in recommendation 2.

In terms of a balanced portfolio of R&D investments in Canadian universities more work is needed to determine what the optimum balance should be between Pasteur, Bohr, and Edison quadrants.

2013 Top Innovative Firms

BCG released their 2013 Most Innovative Companies survey results and their list of the top 50 firms (registration required to access). Focus is on large multinational brands. Several of the main observations.

Five Key Attributes of Innovation Leaders

The survey identifies five key attributes that the leading innovative companies adopt noting that strong firms adopt all five. The five key attributes are:

  1. Top management commitment to innovation as a competitive advantage.
  2. Firms leverage their IP in both defensive and offensively to strengthen their competitive advantage.
  3. Firms effectively manage a portfolio of innovative initiatives.
  4. Firms have strong customer focus.
  5. Firms insist on strong innovation processes that leads to strong performance.

Transportation Industries

The report observed the advancement of many of the leading automotive firms in the rankings as the firms strive for higher fuel efficiency, higher safety standards, and mobile device integration. Notably aircraft and aircraft engine innovators who are also striving for higher fuel efficiency in air transportation were not mentioned. Although Boeing and GE makes the list at #13 and #32 respectively Airbus and Pratt & Whitney do not make the list.

Canadian Industries

There are no leading Canadian brands on the list although several top 50 firms access Canadian knowledge talent with branch plant operations for example – Google (#3), IBM (#6), GE (#10), P&G (#23), and Shell (#26). Canada’s weak product development mindset and poor independent innovation performance remain underlying problems. Shell and ExxonMobil were the only energy leaders making the list.

Key Innovation Performance Trends

Several key innovation performance trends were observed:

  1. 85% of strong innovators expect to spend more on innovation and new product development than last year.
  2. Leaders are focusing and making smarter investments.
  3. Fewer firms reported changing directions once started.
  4. Firms are improving their innovation process performance.
  5. Judgment of senior management for determining which ideas to move to product development was adopted by two thirds of firms.
  6. Strong innovators listen to customers.
  7. The importance of firms leveraging their IP for competitive advantage was growing.

Innovation Investment Behaviour by Large (>$100M) Firms

Insight into the innovation investment behaviour by large (>$100M) firms was recently revealed in a report by Accenture who surveyed 519 firms in US, UK, and France representing Banking, Capital, Retail, Electronics, High Tech, Health Providers, and Consumer Goods & Services. Data was provided comparing innovation performance in 2009 with data from 2012.

Important observations from 2012 were:

  • Innovation as a Strategy – Fully 70% of the firms responded that innovation was one of their top 5 priorities with 18% being the top priority. 44% of manufacturers reported that innovation was extremely important to respond to “persistent change”. Only 34% firms believe they have a well defined innovation strategy in spite of 70% reporting that innovation was a top 5 priority.
  • Innovation Investment Mix / Emphasis – 48% new product or service, 26% new process or business model (down from 30% in 2009), and 24% improvement or modification of an existing service (up from 17% in 2009) leading to the conclusion that large firms are taking a more cautious approach to innovation than 2009.
  • Investment Levels – 51% firms responded that they increased funding devoted to new products and services with 74% of manufacturing firms increasing innovation investment levels.
  • Innovation Performance – Only 18% believe their innovation investments are delivering competitive advantage. Only half of management from the large firms feel their innovation system is effective. Better performance was achieved by firms with formal innovation systems in place with 51% of such firms being first-to-market as opposed to only 17% with those with no such system.
  • Innovation Shortfalls –  46% firms have become more risk adverse (shying away from breakthrough innovation and preferring incrementalism).  Firms with formal innovation systems tend to pursue breakthrough innovations more than incrementalism and report 50% more likely to see innovation deliver competitive advantage.
  • Challenges to Innovation – 30% firms noted predicting future trends as a challenge. 27% firms reported achieving cost containment as a challenge. 26% firms reported securing ongoing budget support as a challenge. 26% reported leveraging new technology as a challenge. 24% reported transforming new ideas into marketable products and services as a challenge.

Not reported though were growth performance over this period for firms with formal innovation systems to determine if such firms that have adopted innovation as a strategy are edging ahead of firms that have not. The data provide interesting benchmarks to compare with SMEs firm populations.

Innovation Diffusion From University R&D

R&D in Canada is conducted primarily in universities as opposed to industry. In fact Canada is an outlier in OECD countries in this respect. Canadian industry on the other hand is below average on R&D spending. This situation has created a significant up hill battle to move investments in university R&D to industry supply chains delaying economic benefits years into the future. Canada’s time to market performance commercializing new technology is far too long. Why is this and what are the implications for Canada?

Industry Supply Chain Innovation Diffusion

Outcomes from university R&D moves through two slow innovation diffusion processes: research commercialization (measured by Technology Readiness Levels); and industry supply chain adoption. Both innovation diffusion processes can be illustrated by this diagram:

Industry Cluster Innovation

From an industry supply chain perspective products purchased and used by consumers, businesses, or governments are sold by the Original Equipment Manufacturer (OEM) at the “system level” in the top right. Whether they be cars, aircraft, smart phones, refrigerators, the product is an assembly of parts purchased from a supply chain (into the diagram) and constructed in a unique way by the OEM to satisfy customer needs. The assembly of parts are based on building blocks starting with materials, components, subsystems, up to the complete system (seen as series of steps in the diagram). Software may be embedded at the component, subsystem, and/or system level. New technology can be leveraged for competitive advantage in all levels of the product hierarchy in an industry.

Industry Supply Chain Adoption

Product industries led by competing OEMs are supported by supply chains typically composed of four tiers below the OEM: Tier 1 major system integrators; Tier 2 components & sub assembly suppliers; Tier 3 machine shop service providers; and Tier 4 materials & special process service providers. Assembly and integration is performed at each level in a value adding process starting with basic materials. Examples of industry supply chains include aerospace, automotive, ships, and consumer electronics.

Product development, process/manufacturing development, and continuous improvement is performed at each level in support of business strategy and competitive forces. New technologies compete with existing proven technologies to demonstrate improved performance, quality, reduced cost, and time savings. Each tier therefore presents an adoption period before new technologies are accepted into high volume production and customer use. Customers in this case not only means the end user of the product but also each successive tier as the customer for the next lower tier. Supply chain adoption time is therefore based on development, sales, demonstration, and qualification, and experience from in-service use stages lasting 3-5 years at each tier on average although the adoption time can be much longer in conservative industries and shorter in hyper competitive industries.

Supply chains today are global with some national or regional industry clusters where local supply chains have agglomerated at several levels in the past. Canada’s industry supply chains are largely fractured except in certain industries where the country has invested heavily and developed world class “system level” product companies that can exert market pull to the develop local supply chain. Leading examples are Bombardier for commercial aircraft and rail or Blackberry for mobile devices. Unfortunately Canada also has difficulty maintaining a lead as world class “system level” product companies fall from grace such as Nortel or as Blackberry slips.

Research Commercialization

Any part that makes up the end product is based on existing technology with occasional introduction of new technology in hopes of achieving a competitive advantage. Improved product performance, quality, or cost can be achieved through technology advances for any tier in the supply chain. Firms at any level of the supply chain can secure sustained competitive advantage if they take steps to protect their new technology by patents.

Technology advances in Canada are primarily based on research conducted in universities and follows a long road to commercialization as it passes through a series of readiness levels such as the technology readiness level scale illustrated below:

Technology Readiness Levels

The technology readiness scale reflects the notion that the earlier stages are big “R” with small “d” with the emphasis moving to small “r” and big “D” in the latter stages. New technology is formulated and validated in the research lab before moving to prototyping in simulated environments and the real world.  Uncertainty and risk is reduced at each level until ultimately the technology is proven in the real world.

New technology can take 8-10 years to move through the technology readiness scale. Technology complexity and novelty can add time to this time delay. There are few short-cuts although firms that perform more of the steps internally have better control of the commercialization process, with fewer changes of hands, and achieve faster outcomes. Unfortunately the trend in most developed economies is that firms did perform much of the process internally are outsourcing the earlier research steps.

Research Commercialization Chasm

Lab researchers are unfortunately often far from the market pull of the product end user particularly in today’s global economic structure leading to a “commercialization chasm” as illustrated below:

Commercialization Chasm

University research focuses on lab work which is effective in bringing ideas to proof-of-concept stage. In today’s complex, fast changing world the jump to the real world is very large where lab prototypes are far from ready particularly for demanding operating environments or discerning/fickle consumer markets.

A key problem today is that Canadian universities are highly disconnected with industry except in a few rare cases. While geographic separation from Canadian industry clusters or international supply chains is a major source of commercialization delay the leading delay remains due to the commercialization chasm.

Implications For Canada

The implications of long diffusion time from university research commercialization and supply chain adoption are significant for Canada and the leading reasons behind the countries poor return on R&D investment. Should Canada’s economic growth begin to stagnate renewed focus on commercialization performance will take center stage as it is today in Europe and US.

As a resource based economy new technology in materials research is an obvious choice to drive growth. Unfortunately material research has the longest path to travel to commercialization because it must progress through both the technology maturity scale and be adopted by industry supply chains in Canadian clusters and global supply chains. The “bottom up” approach to commercialization will not yield timely return in investment to support economic growth.

A “top down” approach could be taken but Canada has few “system level” product world leaders to pull from Canada’s university R&D investments and bring alignment to fractured supply chains / clusters. While there is a strong desire for Canadian suppliers to access global supply chains a coherent and integrated industrial strategy amongst the levels of government and plethora of funding programs does not appear to exist. Canada’s small domestic market size and regional politics continue to hinder supply chain efficiency and effectiveness sufficient to align with a dispersed university R&D approach. Canada must get better at developing industrial strategy to maximize return on investments in developing competitive supply chains even if the top supply chain levels are foreign. The National Shipbuilding Procurement Strategy (NSPS) and national energy strategy debate are attempts at forming several new coherent and aligned strategies where none exist today but other industries would benefit such as agriculture, food processing, pharmaceuticals, medical devices, and clean energy. The importance of leveraging national industrial strategy to export trade for a country that depends on exports for its prosperity cannot afford to be lost in the regional political debate.

Canada’s university spin-off performance could be better. Simulation technology has advanced dramatically in recent years and pilot prototype facilities are increasingly available the cost for these stages are often not included in Canadian R&D funding programs. University spin-offs and start-ups often cannot obtain funding for these stages which is a leading reason underlying the “valley of death” barrier experienced by many Canadian start-ups.  This simulation/prototyping shortfall therefore presents a major barrier or “commercialization chasm” further delaying adoption by industry supply chains. Recent restructuring and repurposing of Canada’s National Research Council is directed at solving this problem but Canada remains weak in developing clear industry strategy to align all the players for better economic outcomes.

The Fuzzy Front End of New Value Creation

The ‘Fuzzy Front End’ of business is a firm’s new value creation nursery. The ‘Fuzzy Front End’ is the process that starts with the identification of an unmet customer need and the convergence on the optimum solution that a firm can repeatably produce and sell profitably in new or competitive markets. It is also the least understood, most unpredictable, and uncertain business operating process. Firm’s that do this well exploit the new value creation process for sustained growth and new sources of competitive advantage. Firm’s that don’t have an effective new value creation process struggle to survive. Risk adverse managers avoid strategic options that involve business investments in the ‘Fuzzy Front End’.

A key question for management then is how to setup and efficiently/effectively operate a new value nursery that reliability generates sustained growth and new sources of competitive advantage for the firm?

The Fuzzy Front End

The ‘Fuzzy Front End’ is where new opportunities are born, developed, assessed, nurtured, and begin their life as a source of value for the firm. New opportunities are born when an unmet customer need is identified. Often vague or poorly articulated ideas, the unmet customer need requires further development to clarify the new opportunity. Once clarified, a multi-functional team of specialists comprising marketing, product engineering, and designers set about to develop a solution to satisfy the unmet customer need in terms of price, quality, performance, and other appropriate characteristics. The ‘Fuzzy Front End’ is fuelled by creativity, innovation, insight, and customer awareness.

An efficient/effective ‘Fuzzy Front End’ requires the integration of marketing, product development, and business processes. While marketing processes are well understood product development and engineering is often not well understood. The lean engineering framework provides a repeatable process for product engineering to align with the marketing process. Together integrated marketing/lean engineering framework forms an innovation process.  The challenge in achieving an efficient/effective ‘Fuzzy Front End’ rests in the fact that the start and end points are subject to ambiguity. The ambiguity in start and end points is what differentiates the ‘Fuzzy Front End’ process from all other repeatable business processes. Understanding the nature of the start and end points is a critical first step in setting up an efficient/effective new value nursery.

Ambiguous Start Point

Viewed in the context of the lean engineering framework the start point for the ‘Fuzzy Front End’, the unmet customer need, is subject to ambiguity in that a priori the firm can’t be certain that the need is valid or even exists. Sources of ambiguity in the unmet customer need include unstated wants, values, or needs that the customer did not even know that had because no product exists currently in the market today.

Timothy Schipper and Mark Swets in their book Innovative Lean Development say that the goal at the starting point is to express stated/unstated customer needs “accurately and in a form that the design team can understand and directly apply to the project….and this requires a method that allows the team to use the same vocabulary as the users when expressing the values that the solution must apply. The method must also expose the gaps between the problems and potential solutions.”  Schipper and Swets see the ‘Fuzzy Front End’ as a process of closing the user gaps.

Ambiguous End Point

The end point, convergence on an optimum solution, involves decisions, trade-offs, and selection from amongst multiple (if-not infinite) alternatives. The resulting optimum solution is also subject to ambiguity in that a priori the firm can’t sure that the solution with be desired by customers. Sources of ambiguity leading to the convergence on an optimum solution include what price the customer is willing to pay, what combination or set of features hits the customer’s sweat spot, what technologies and building blocks should be selected to form the product, how the product should be manufactured, and how the product should be delivered and services along the entire product life-cycle.

The Process In-Between

The ‘Fuzzy Front End’ process between the ambiguous start and end points is knowledge based work that involves risk, uncertainty, novelty, experimentation, complexity, creativity, and non-routine work. As much as possible the goal is to establish an effective/efficient process although at the detail level may not be as repeatable as operations execution processes that exist in production or service. Various lean product development methods are available for an effective/efficient ‘Fuzzy Front End’ process.