Business Processes


Using Experience Curves to Set Realistic Project Objectives

Experience Curve for Product Performance Versus Years Product Is Been Manufactured

Experience curves are a good way set realistic targets for projects. This is especially true of incremental or next-generation projects where the performance is often times an extension of past improvements. Experience curves are typically generated by plotting the log of performance versus the log of the years since the attributes tracking began. The reason for plotting the log of the attribute versus long time is to obtain a straight line. This is most useful baggage of managing teams can visually extrapolate performance from straight-line plots. An example of this is shown in the “Experience Curve for Product Performance Versus Years Product Is Been Manufactured” figure.

In the “Experience Curve for Product Performance Versus Years Product Is Been Manufactured” figure we see three different product variations is shown in the yellow, green, and red dots. Yellow dots represent a first-generation technology in the slope with that line is less than has been provided by the green dots which correspond to a second-generation technical solution. What is clearly shown is that the third-generation solution possesses attributes that allows its performance versus cost to be improved in a much higher rate than previous generations. Such a graph shows a management team graphically how different the new technology is from the past technologies is seen and experienced. It’s also useful tool the plot targets that business unit might want. In this case of the red dots represented targets he would be easy for the technical group to show why a completely different technical or manufacturing process would be needed to create that performance is from the experience curve it would be many years before the drink green technology would achieve that level of performance.

Example Experience Curves

The “Example Experience Curves” figure shows how costs can decrease in a predictable manner by three different approaches. Note here that the x-axis is not time but log of the cumulative units produced. The cumulative units produced is often a good way to track the improvements being made to a next generation or breakthrough technology implementation.The y-axis is also log scale.

Experience curves are a quick way to see whether or not the proposed costs in a project plan are realistic. A rule of thumb when using the log cumulative units metric is at the slope for many manufacturing projects is approximately 0.85.

Using The Product Lifecycle To Explain Project Finances

Project Investment, Revenue and Profit Streams

Many financial executives that have experience in manufacturing or services tend to view cash flows as linear processes. Research and development projects this is not the case. The “Project Investment, Revenue and Profit Streams” figure shows the investment, revenue and profit streams coming from a new research project that flows into development and commercialization. The accumulated investment and ROI patterns are also shown.

Important attributes of the curve shown in the “Project Investment, Revenue and Profit Streams” figure are the nonlinearity aspects of these financial metrics. Is one moves from basic research into applied research and development investments escalate is more people and equipment is applied to the project as it approaches commercialization. It’s also important for the CEO in the communications team to understand the date at which they can start promoting their vision is revenues and profits start versus the CFOs view the break you haven may take many years after commercialization to be achieved. This chart is often a good one to use with new management teams to make sure that everybody is on the same page when it comes to financial expectations.

Using a Business Maturity Model To Assess Business Process Capabilities

Business Maturity Model Attributes

For companies whose top management understands the business maturity of their own organization, a double check can be done for new business development projects to ensure that the way in which they are done is consistent with the business maturity of the company undertaking them. A common model is to use six different levels of business maturity running from undifferentiated companies through those to provide platform leadership. The “Business Maturity Model Attributes” figure shows these levels in the attributes associated with each level.

The key to using the business maturity model shown in the “Business Maturity Model Attributes” figure is just to test if the intellectual property posture and focus is consistent with the level of business maturity a company has is seeking. If not organizational changes to improve the intellectual property management practices needs to be undertaken to get full business value from new business development projects.

Using an Innovation Quotient Inventory To Assess Business Process Capabilities

Another way for top management business teams to assess their ability to do business new business development projects is for them to use the Innovation Quotient Inventory developed by James M Higgins and Associates Incorporated in conjunction with the Center for Creative Leadership. The survey of 49 questions related to product and process development is completed by members of a company’s top management team in each functional area. For smaller companies the survey is also given to direct reports of the senior management team.

Product and Service Innovation

The results of the survey are segmented into the traditional seven “S’s” of building a corporation. These are strategy, structure, systems, style, staff, shared values, and resources. Typical graphic output for product and service innovation is shown in the “Product and Service Innovation” figure and for process innovation in the “Process Innovatio” figure.

Process Innovation

For this example company the firm has a strong start on innovation both in product / service and process innovation. It has made substantial progress in four of the seven S’s. At first glance this firm, with all factors being equal, is probably innovative in the technology area and therefore probably competitive. Such a conclusion is however subject to the innovativeness of other firms in the industry. For example, this firm may need to improve its innovation areas outside technology, especially if other firms in this firm’s industry are already doing this.

Competitiveness Through Innovation Matrix

The “Competitiveness Through Innovation Matrix” figure shows a Competitiveness Through Innovation chart. This chart plots as one point the combination of all product/service and process scores. It gives an organization a rough idea of its competitiveness competencies compared to other organizations that have taken such tests. The simple metric gives senior management teams a visual assessment of where they need to improve in order to be effective as a firm.

Using a Value Innovation Quotient To Assess Business Process Capabilities

Summary Value IQ Score Sheet

Another tool for assessing business process capabilities was developed by members of the Research On Research group of the Industrial Research Institute. It was a Value Innovation Quotient tool based on a survey of 10 elements. These 10 elements were an open culture, value creation passion, articulating compelling business cases, organizational learning processes, catalyze breakthrough options, external focus, address the full company value chain, robust decisions, incentives, implementing in the face of risk and uncertainty. These 10 elements in the value innovation are based on a concept introduced by David and Jim Matheson. In their book The Smart Organization they introduced a self-assessment tool called the organizational IQ test. They provided the content, a format and a methodology and interpretation scheme it was very powerful.

The “Summary Value IQ Score Sheet” figure shows a summary value IQ score sheet used to rate organizations. It is a summary of the 50 questions and statements that rate a company using descriptors on a seven point scale. Like the other tests it highlights areas of strengths and weaknesses for company’s senior management team to address when undertaking new business development projects.  This tool is used by reading the question or statement for each principal and reviewing the 2 descriptors provided (for the conventional and value innovation organization). Your company’s is rated using these descriptors on a 7 point scale (-3, -2, -1, 0, +1, +2, +3). If the descriptor for the conventional organization described company then insert a -3 in the score column. When you’ve completed scoring the 50 questions and statements, translate the results into the summary table “summary value IQ score sheet” figure.

Following and shown in the “Open Culture”, “Value Creation Passion”, “Articulating Compelling Business Cases”, “Organizational Learning Processes”, “Catalyze Breakthrough Options”, “External Focus”, “Address the Full Company Value Chain”, “Robust Decisions”, “Incentives” and “Implementing In The Face Of Risk And Uncertainty” figures are the individual assessment questions associated with the value IQ score sheet. This tool and questions were stimulated by the many papers and books all by W. Chan Kim, Renée Mauborgne, C. K, Prahalad, Gary Hamel, and Constantinos Markides. It was believed by the members of an ROR subcommittee of the Industrial Research Institute that these self-assessment tools were the best way to communicate value innovation best-practices. Its purpose was to allow any organization or company to determine where it is positioned today and to identify those areas were cultural and or process changes are required to increase success rates in catalyzing significant increases to market capitalization.

Open Culture & Value Creation Passion
Articulating Compelling Business Cases & Organizational Learning Processes
Catalyze Breakthrough Options & External Focus
Address the Full Company Value Chain & Robust Decisions
Incentives & Implementing In The Face Of Risk And Uncertainty

Sources, References and Selected Bibliographic Information

1. “Innovation Quotient Inventory”, by James M Higgins and Associates Incorporated, shared at CCL AMI meeting, October 1998.
2. “The Smart Organization”, by David Matheson and Jim Matheson, Harvard business school press, 1998.
3. Many papers and books all by W. Chan Kim, Renée Mauborgne, C. K, Prahalad, Gary Hamel, and Constantinos Markides.