Assignment No-5

Q. What are the evaluation criteria of benefits of innovation for

bussiness.

Ans Choosing performance measures is a challenge. Performance measurement

systems play a key role in developing strategy, evaluating the achievement of
organizational objectives and compensating managers. Yet many managers feel
traditional financially oriented systems no longer work adequately. A recent survey of
U.S. financial services companies found most were not satisfied with their measurement
systems. They believed there was too much emphasis on financial measures such as
earnings and accounting returns and little emphasis on drivers of value such as
customer and employee satisfaction, innovation and quality.
In response, companies are implementing new performance measurement systems. A
third of financial services companies, for example, made a major change in their
performance measurement system during the past two years and 39% plan a major
change within two years.
Inadequacies in financial performance measures have led to innovations ranging from
non-financial indicators of “intangible assets” and “intellectual capital” to “balanced
scorecards” of integrated financial and non-financial measures. This article discusses
the advantages and disadvantages of non-financial performance measures and offers
suggestions for implementation.
Advantages
Non-financial measures offer four clear advantages over measurement systems based
on financial data. First of these is a closer link to long-term organizational strategies.
Financial evaluation systems generally focus on annual or short-term performance
against accounting yardsticks. They do not deal with progress relative to customer
requirements or competitors, nor other non-financial objectives that may be important in
achieving profitability, competitive strength and longer-term strategic goals. For
example, new product development or expanding organizational capabilities may be
important strategic goals, but may hinder short-term accounting performance.
By supplementing accounting measures with non-financial data about strategic
performance and implementation of strategic plans, companies can communicate
objectives and provide incentives for managers to address long-term strategy.
Second, critics of traditional measures argue that drivers of success in many industries
are “intangible assets” such as intellectual capital and customer loyalty, rather than the
“hard assets” allowed on to balance sheets. Although it is difficult to quantify intangible
assets in financial terms, non-financial data can provide indirect, quantitative indicators
of a firm’s intangible assets.
One study examined the ability of non-financial indicators of “intangible assets” to
explain differences in US companies’ stock market values. It found that measures
related to innovation, management capability, employee relations, quality and brand
value explained a significant proportion of a company’s value, even allowing for
accounting assets and liabilities. By excluding these intangible assets, financially
oriented measurement can encourage managers to make poor, even harmful,
decisions.
Third, non-financial measures can be better indicators of future financial performance.
Even when the ultimate goal is maximizing financial performance, current financial
measures may not capture long-term benefits from decisions made now. Consider, for
example, investments in research and development or customer satisfaction programs.
Under U.S. accounting rules, research and development expenditures and marketing
costs must be charged for in the period they are incurred, so reducing profits. But
successful research improves future profits if it can be brought to market.
Similarly, investments in customer satisfaction can improve subsequent economic
performance by increasing revenues and loyalty of existing customers, attracting new
customers and reducing transaction costs. Non-financial data can provide the missing
link between these beneficial activities and financial results by providing forward-looking
information on accounting or stock performance. For example, interim research results
or customer indices may offer an indication of future cash flows that would not be
captured otherwise.
Finally, the choice of measures should be based on providing information about
managerial actions and the level of “noise” in the measures. Noise refers to changes in
the performance measure that are beyond the control of the manager or organization,
ranging from changes in the economy to luck (good or bad). Managers must be aware
of how much success is due to their actions or they will not have the signals they need
to maximize their effect on performance. Because many non-financial measures are
less susceptible to external noise than accounting measures, their use may improve
managers’ performance by providing more precise evaluation of their actions. This also
lowers the risk imposed on managers when determining pay.
Disadvantages
Although there are many advantages to non-financial performance measures, they are
not without drawbacks. Research has identified five primary limitations. Time and cost
has been a problem for some companies. They have found the costs of a system that
tracks a large number of financial and non-financial measures can be greater than its
benefits. Development can consume considerable time and expense, not least of which
is selling the system to skeptical employees who have learned to operate under existing
rules. A greater number of diverse performance measures frequently requires significant
investment in information systems to draw information from multiple (and often
incompatible) databases.
Evaluating performance using multiple measures that can conflict in the short term can
also be time-consuming. One bank that adopted a performance evaluation system using
multiple accounting and non-financial measures saw the time required for area directors
to evaluate branch managers increase from less than one day per quarter to six days.
Bureaucracies can cause the measurement process to degenerate into mechanistic
exercises that add little to reaching strategic goals. For example, shortly after becoming
the first US company to win Japan’s prestigious Deming Prize for quality improvement,
Florida Power and Light found that employees believed the company’s quality
improvement process placed too much emphasis on reporting, presenting and
discussing a myriad of quality indicators. They felt this deprived them of time that could
be better spent serving customers. The company responded by eliminating most quality
reviews, reducing the number of indicators tracked and minimizing reports and
meetings.
The second drawback is that, unlike accounting measures, non-financial data are
measured in many ways, there is no common denominator. Evaluating performance or
making trade-offs between attributes is difficult when some are denominated in time,
some in quantities or percentages and some in arbitrary ways.
Many companies attempt to overcome this by rating each performance measure in
terms of its strategic importance (from, say, not important to extremely important) and
then evaluating overall performance based on a weighted average of the measures.
Others assign arbitrary weightings to the various goals. One major car manufacturer, for
example, structures executive bonuses so: 40% based on warranty repairs per 100
vehicles sold; 20% on customer satisfaction surveys; 20% on market share; and 20%
on accounting performance (pre-tax earnings). However, like all subjective
assessments, these methods can lead to considerable error.
Lack of causal links is a third issue. Many companies adopt non-financial measures
without articulating the relations between the measures or verifying that they have a
bearing on accounting and stock price performance. Unknown or unverified causal links
create two problems when evaluating performance: incorrect measures focus attention
on the wrong objectives and improvements cannot be linked to later outcomes. Xerox,
for example, spent millions of dollars on customer surveys, under the assumption that
improvements in satisfaction translated into better financial performance. Later analysis
found no such association. As a result, Xerox shifted to a customer loyalty measure that
was found to be a leading indicator of financial performance.
The lack of an explicit casual model of the relations between measures also contributes
to difficulties in evaluating their relative importance. Without knowing the size and timing
of associations among measures, companies find it difficult to make decisions or
measure success based on them.
Fourth on the list of problems with non-financial measures is lack of statistical reliability
– whether a measure actually represents what it purports to represent, rather than
random “measurement error”. Many non-financial data such as satisfaction measures
are based on surveys with few respondents and few questions. These measures
generally exhibit poor statistical reliability, reducing their ability to discriminate superior
performance or predict future financial results.
Finally, although financial measures are unlikely to capture fully the many dimensions of
organizational performance, implementing an evaluation system with too many
measures can lead to “measurement disintegration”. This occurs when an
overabundance of measures dilutes the effect of the measurement process. Managers
chase a variety of measures simultaneously, while achieving little gain in the main
drivers of success.
Once managers have determined that the expected benefits from non-financial data
outweigh the costs, three steps can be used to select and implement appropriate
measures.
Understand Value Drivers
The starting point is understanding a company’s value drivers, the factors that create
stakeholder value. Once known, these factors determine which measures contribute to
long-term success and so how to translate corporate objectives into measures that
guide managers’ actions.
While this seems intuitive, experience indicates that companies do a poor job
determining and articulating these drivers. Managers tend to use one of three methods
to identify value drivers, the most common being intuition. However, executives’
rankings of value drivers may not reflect their true importance. For example, many
executives rate environmental performance and quality as relatively unimportant drivers
of long-term financial performance. In contrast, statistical analyses indicate these
dimensions are strongly associated with a company’s market value.
A second method is to use standard classifications such as financial, internal business
process, customer, learning and growth categories. While these may be appropriate,
other non-financial dimensions may be more important, depending on the organization’s
strategy, competitive environment and objectives. Moreover, these categories do little to
help determine weightings for each dimension.
Perhaps the most sophisticated method of determining value drivers is statistical
analysis of the leading and lagging indicators of financial performance. The resulting
“causal business model” can help determine which measures predict future financial
performance and can assist in assigning weightings to measures based on the strength
of the statistical relation. Unfortunately, relatively few companies develop such causal
business models when selecting their performance measures.
Review Consistencies
Most companies track hundreds, if not thousands, of non-financial measures in their
day-to-day operations. To avoid “reinventing the wheel”, an inventory of current
measures should be made. Once measures have been documented, their value for
performance measurement can be assessed. The issue at this stage is the extent to
which current measures are aligned with the company’s strategies and value drivers.
One method for assessing this alignment is “gap analysis”. Gap analysis requires
managers to rank performance measures on at least two dimensions: their importance
to strategic objectives and the importance currently placed on them.
Our survey of 148 US financial services companies — a joint research project
sponsored by the Cap Gemini Ernst & Young Center for Business Innovation and the
Wharton Research Program on Value Creation in Organizations – found significant
“measurement gaps” for many non-financial measures. For example, 72% of companies
said customer-related performance was an extremely important driver of long-term
success, against 31% who chose short-term financial performance. However, the
quality of short-term financial measurement is considerably better than measurement of
customer satisfaction. Similar disparities exist for non-financial measures related to
employee performance, operational results, quality, alliances, supplier relations,
innovation, community and the environment. More important, stock market and long-
term accounting performance are both higher when these measurement gaps are
smaller.
Integrate Measures
Finally, after measures are chosen, they must become an integral part of reporting and
performance evaluation if they are to affect employee behavior and organizational
performance. This is not easy. Since the choice of performance measures has a
substantial impact on employees’ careers and pay, controversy is bound to emerge no
matter how appropriate the measures. Many companies have failed to benefit from non-
financial performance measures through being reluctant to take this step.

Q 2. What are the Barriers to innovation in bussiness.

Ans- Barriers to innovation in business

 
1. Politics/Turf Wars/No Alignment (55.1% of Respondents)
As a company grows, so does the complexity of its internal politics. This is why smaller
startups often have an easier time innovating than larger corporations.
Implementing a new innovation program can require sweeping internal changes,
meaning that some employee roles will change for the better, and others will change for
the worse.
Illustrate how innovation as a whole and individual innovation initiatives can
benefit the company, to pull everyone together on the same team.
As such, people begin to think politically when the idea of organized innovation efforts
come up. Those who feel threatened by the change might then actively work to
undermine it.
Avoiding these issues can be quite tricky, and sometimes impossible, but there are a
few things to keep in mind.
First, create an environment where people feel comfortable being open and honest.
Many times, people will voice objections to a change, but remain silent on what truly
drives their hesitation. In order to steer clear of rumors, hearsay and personal attacks,
make sure everyone’s cards are on the table in order to even the playing field when
advocating for innovation.
Also, be sure to illustrate how innovation as a whole and individual innovation initiatives
can benefit the company, to pull everyone together on the same team.
2. Cultural Issues (45.3% of Respondents)
Risk and innovation go hand-in-hand. As the cliche goes, you can’t make an omelet
without breaking a few eggs.
Innovation will inevitably lead to some failures, and for some businesses, any missteps
are viewed as unacceptable.
Risk and innovation go hand-in-hand.
This stigma of failure can slow down a company’s innovation processes, and in many
cases even grind them to a halt. Considering that innovation can save a company by
helping them to avoid becoming obsolete, this can be a big issue.
One great way to minimize risk aversion in an innovation program is by optimizing your
proof-of-concept process. While this will not completely eliminate risk, it can allow your
company to make informed decisions that will have a higher rate of success.
3. Inability to Act on Signals (41.6% of Respondents)
A large part of enacting an innovative new product, service or procedure is recognizing
the need for the change in the first place.
KPMG states that executives identified the inability to act on signaled market changes
as the third highest obstacle to innovation.
 
Businesses can sometimes stagnate in their past successes. They spend most of their
time optimizing their current model and their current processes that they forget to take a
step back and evaluate what is working and what is not in their industry.
This is how Uber surprised the taxi industry and AirBnB upended the vacation rental
sector. These service companies recognized how their respective industries were failing
to take advantage of the benefits of new technology and changing market demands,
and they innovated to fill that void.
Make sure that your business has a dedicated innovation program with an established
leader at the helm who has experience in the technical and/or business side of
innovation, and the knowledge to recognize relevant trends.
4. Lack of Budget (40.8% of Respondents)
As innovation is an ongoing endeavor that often has long-term goals, it can be difficult
to measure its impact. This can lead to a frustrating back-and-forth with those allocating
the company budget because if innovation takes time to deliver, funds may be cut. But if
innovation funds are cut, then it is virtually impossible to deliver.
According to the Harvard Business Review, the key to making your innovation budget a
priority is to start small and to stop thinking about innovation as a one-size-fits-all
undertaking. In the beginning, only start a few projects.
Don’t overextend your resources, but think of it as an investment. Once one of those
smaller projects begins showing results, then you can slowly expand until you have a
thriving innovation culture that cannot be stopped.
5. Lack of Strategy, Vision (35.6% of Respondents)
For many companies, the benefits of innovation are well understood. For those
companies, staying relevant is important and they encourage disruption wherever
possible.
However, that can also be part of the problem. Many innovation experts cited a lack of
vision and strategy as one of the biggest issues facing potential innovators.
 
This is yet another reason why every innovation program needs a clearly defined leader
who presides over a dedicated innovation department.
What companies need to avoid is having several different departments sinking
resources into overlapping issues. It’s a waste of money, and a sure way to prevent any
real innovation because every department will have diverging goals.
A dedicated innovation unit can streamline the innovation process and ensure that
nobody is doubling up on the work and the research.

Q 2. Write short note on business failure and its causes.

Ans- innovation failure and its causes

The Top Reasons Why Innovation Fails

Innovation and creativity often go together, and they can produce great results as a
team. However, even in the best research and development/innovation environments,
something can happen to derail the beneficial outcomes that businesses need and
expect from innovative minds. Forbes thinks that the generation of a lot of ideas does
not produce results unless  management  acts on them or puts them into practice. 
Here are a few of the things that can cause innovation to fail:
The Fear of Taking Risks
The innovative process carries no guarantees, and the consequences of fear of risk
tend to make organizations prefer the status quo. President Kennedy popularized the
concept that “success has many fathers,” while noting that  failure  remains an orphan.
The task of convincing the doubters with business case studies and deeply researched
data to prove that inventiveness makes sense may require more effort than the
innovators chose to invest. Sales and finance staff may need intense education by the
research and development group to understand that not innovating may pose more risk
than supporting the concept.
The Lack of Commitment 
An indicator of a company’s commitment to developing creative ideas may show up in
its job descriptions. The absence of any reference to tasks that relate to inventiveness
reflects a company’s lack of interest in it. Employees may interpret the absence of
assigned creativity-oriented tasks as extra work for some of them. Day-to-day business
topics can occupy an agenda with a level of priority that excludes the creativity that a
company may need to survive in the years ahead. 
Marketing Mistakes
No one wants to contribute a great idea and watch it die for lack of interest by the
decision makers. Even when management does execute an idea and put it on the
market, a concept for a product that no one wants to buy defeats the cleverest but
perhaps impractical ideas. A failure to recognize the lack of potential for success in the
market can curtail enthusiasm for thinking up innovative ideas. 
Processes Failures
The preponderance of failure in business is a potential reason for the lack of success of
innovative concepts. Citing that most products, mergers and acquisitions, startups and
projects fail, the lack of structure within an organization that guides ongoing success
creates a powerful force that makes the innovative process fail. An essential component
of guidance requires an ability to anticipate the unexpected. 
Don’t Let Your Innovation Fail 
While the experts suggest the reasons that inventiveness fails, a survey of three
different LinkedIn groups harvested  50 reasons  that participants gave for the high
failure rate. They reflect the prevailing opinions of the professionals and include the
same theories: no management support, lack of a well-balanced portfolio of ideas,
wrong people involved, cultural resistance, lack of understanding by management, fear
of job loss, improper assumptions of cost and value, the absence of customer
involvement and lack of consensus. Your idea may have as much or more merit as any
other.

Q4. Explain audit in innovation projects.

Ans- An innovation audit of your organization is the first place to start when renewing
your innovation strategy. Here's how we carry out our innovation assessment to
measure your success.
We get this question a lot from c-suites and innovation managers around the World.
They want to know how their organization is doing compared to other leading
companies to help them understand how they can level-up their game.
The question might be crucial, but such framing doesn’t necessarily help. Rather than
looking outwards at what other companies are doing, corporates should start by
looking inwards when considering how to make their renewed innovation
strategy more in-line with the evolving business environment.
You’ll get the answers to the  following key questions:

 What is an innovation audit?

 Why do an innovation audit?
 How do innovation audits work?
 Case study & next steps