jueves, 8 de marzo de 2012

A Disciplined Approach to Evaluating Ideas

HBR Blog Network / 
11:37 AM Tuesday January 3, 2012 



BY SCOTT ANTHONY

Scott leads Innosight’s Asian operations. His fourth book on innovation, The Little Black Book of Innovation, will be released in early 2012. Follow him on Twitter at@ScottDAnthony.



"Make sure you ask the right questions at the right time." That's one memorable piece of advice from a leader at a global innovation powerhouse. Unfortunately, it is a piece of advice that is heeded too infrequently inside large companies.
At many companies, the idea evaluation process revolves around detailed Excel spreadsheets, comprehensive PowerPoint documents, and an orchestrated sequence of pre-meetings leading up to a decision meeting. This kind of disciplined approach works very well when companies have knowledge that lets them be precise in their analysis, and executives have the relevant domain experience to make informed decisions.
Applying this same discipline to nascent opportunities in new spaces can be disastrous. People spend days discussing Excel spreadsheets that are nothing more than mathematical relationships between made-up numbers. Managers working on ideas discover that detailed PowerPoint documents are their biggest enemy, because the details act as bait for nit-picking devil's advocates. Endless pre-meetings crowd out action-based learning.
The general way around this problem seems simple enough — have a process by which you evaluate ideas in different ways at different stages of development (most call this a "stage-gate process."). You might have a "front end" process where you rapidly iterate and evaluate lots of ideas and a more detailed "launch" process to optimize the few that make it through the early rounds. This kind of process can help successfully move an idea from a Post-It note to the market.
What does that actually mean in practice? The rest of this post will show how Innosight's venture investing arm sifts through ideas, as a kind of guide. (Next week's post will apply lessons from this approach to large corporations.)
Innosight's venture capital "team" is a two-person shop in Singapore. I sit on the Investment Committee, along with Harvard Professor Clayton Christensen, primarily getting involved when we are getting close to a big decision about a current or potential portfolio company. The core team, Pete Bonee and Piyush Chaplot, scour Singapore to find the best investment opportunities. In the past two years, they have looked at more than 200 potential investments.
The first decision is whether to have a meeting to evaluate a company. Answering this question is pretty simple. Our fund specifically looks to seed businesses that have the potential to disrupt existing markets or create new ones. So, if Pete or Piyush believes that the material they've seen to date (which can be a one-page executive summary, a 20-page pitch document, a rough website, or even an email description) fits our strategy and has some potential, they will proceed with a meeting.
Then, the bar goes up. The next decision is whether to formally investigate the company. We've developed a qualitative screen with about 20 characteristics that blend the theory of disruptive innovation with what we have learned in five years of investment and incubation activities. Based on what we've seen, we evaluate whether the idea is negative, positive, or neutral in each of those characteristics.
There's no "score" an idea has to exceed to make it to the more formal round. In fact, the process is as much educational as it is evaluative. It helps our team understand the areas to probe more deeply during further discussions or detailed due diligence. The process almost always surfaces two or three big issues that, if they can't be addressed, would stop us from consummating an investment.
Ultimately, a team discussion determines what moves forward. We won't proceed unless an individual raises his or her hand to lead the effort, because ultimately that individual will have to spend a day a week or more with the company if we make an investment. If there isn't that individual passion, we won't proceed.
Then, if we're comfortable that we've addressed the critical issues, we decide whether to invest. Along some dimensions, this decision is pretty easy because we have narrowed our focus to a couple of key issues. Data from our investigation either addresses those issues and we proceed, or not.
Because our process involves three distinct decisions — evaluate, investigate, and invest, each with specific criteria and a different level of scrutiny — the final decision ends up being straightforward. Over the past two years, we have evaluated about 60 companies, done detailed investigation of about 10, and invested in five. As you can see, decisions involve a lot of discussions and team judgment.
Distinct differences separate how a corporation and a venture capital fund approach innovation. My next post will show how Innosight Ventures' three-step evaluation process applies inside big companies.

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