Paying for Innovation
When an organisation starts an innovation program, everything is rosy. Filled with hope, business stakeholders latch onto the innovation silver bullet that will solve all their business problems and wait for thrilling results. In the first months of an innovation team’s life, they can get away with anything.
Quite quickly, however, the innovation team will get called to account for their results or (more likely) the lack of them. All those excited stakeholders will begin to wonder if they might have gotten better returns on their money by investing in something different, such as, for example, a Lean initiative.
This will likely happen within the first 18 months, and the innovators will be asked to justify their budgets. Though everyone will agree the team has done “valuable work”, the only justification which anyone will really consider valid is the financial one.
Ultimately, if all the other available investment opportunities can justify themselves financially, and the innovators can’t, it is obvious where a rational business manager will direct future funding. This is especially true during a downturn, or any other time an organisation is under stress.
Innovators need to pay their own way if they want to continue having a mandate in the long term.
Some innovations, of course, do not have financial returns. For example, there are a whole raft of productivity improvements that innovators might advance, particularly those based on information technology. Generally, these add significant new capabilities, or make existing employees capable of doing more, but don’t result in any direct new revenue or cost savings. Obviously, there’s a lot of value in doing these things, and a sophisticated innovation programme will certainly pursue them, regardless of the likelihood of getting them to pay.
Given this, then, how does an innovation team reconcile its financial obligations with non-financial innovation activity?
The answer is the team must adopt a portfolio approach to innovation. In doing so, they will start a range or projects, some of which pay well, and others which don’t. It is a natural consequence of this that the team will spend much more time on the former, and de-prioritise the latter, at least until they have met their financial objectives.
For more information on creating an innovation portfolio read James Gardner’s free online innovation book.
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