INNOVATION – IS IT WORTH
DOING?
Adapted from ‘Managing Risk and Reward in an
Innovation Portfolio’
By George S. Day
Managing Risk and Reward
• Big innovations – offerings that are new to
your organization or world – are risky but
they are also fantastic drivers of growth if
successful.
• Two tools can be used to help manage the
risk and promote success:
– The risk matrix
– The R-W-W screen
The Risk Matrix
• A risk matrix enables you to estimate each
project’s probability of success or failure based
on how big a stretch it is for your organization;
• The less familiar the intended market and the
product or technology, the higher the risk.
The Risk Matrix
• Assemble a team to assess each innovation project’s
potential risk using the following criteria:
– How closely the target customers’ behavior will match the current
customers’
– How relevant the company’s brand is to the intended market
– How applicable your capabilities are to the new project
 Being sure to assess all risks it critical, therefore it is important to
involve a diverse team with varying backgrounds and
perspectives.
The Risk Matrix
• Example:
When McDonald’s started offering pizza, it assumed the
new product was closely adjacent to existing ones, so it
targeted its usual customers. Employees, however,
couldn’t make and serve pizza within 30 seconds – which
violated McDonald’s service delivery model. The project
failed.
The R-W-W Screen
• The R-W-W screen is used throughout a product’s
development cycle and helps you evaluate projects’
feasibility. To use this tool, repeatedly test each project’s
viability according to these criteria:
– Is it real?
– Can we win?
– Is it worth doing?
The R-W-W Screen
• Is it real?
A market exists for the product if:
There’s a need or desire for the
product
Customers can buy it (they have
the money)
There are enough potential
buyers
Customers will buy (they’re
willing to switch to your offering)
The product is real if:
It has precisely described
characteristics
It can be produced with available
technology and materials
It will satisfy the market in its final
form
The R-W-W Screen
• Can we win?
The product will be competitive if:
It offers clear advantages over
alternatives, such as greater safety or
social acceptability (think hybrid cars)
Those advantages can be sustained
(through patents, for example)
It can survive competitors’ responses
(such as price war)
Your company will be competitive if:
It has superior resources (such as
engineering or sales)
Managers have experience in the
market and skills appropriate for the
project’s scale and complexity
Projects have champions who can
energize development teams, sell the
vision to senior management, and
overcome adversity
It has a mastery of market research
tools and shares customer insights
with development team members
The R-W-W Screen
• Is it worth doing?
The product will be profitable at
an acceptable risk if:
Its forecasted returns are greater
than costs – considering matters
such as the timing and amount of
capital outlays, marketing
expenses, breakeven time, and
the cost of product extensions
needed to keep ahead of
competitors
The product makes strategic
sense if:
It fits with your company’s growth
strategy; for example, by
enhancing customer relationships
or creating opportunities for
follow-on business
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