Wednesday, July 05, 2006

The value of an idea

As an optimist, I believe that ideas have value, but when I put on my management hat I realize that ideas have value only once they are implemented. So to answer the question, "what's the value of an idea?" I'd have to answer: zero. Unfortunately, ideas are a dime a dozen. Ideas that are implemented and become new products and services are very valuable.

I guess ideas, like fine wines and cheeses, just get better with age. At least some of them.

This calls into question how an organization or team can justify (financially) trying to improve innovation and idea management. In fact, it's almost a catch-22. On one hand, some ideas get converted to products and services fairly well without a significant investment in processes and systems. On the other hand, can you predict the return on investment for processes and systems to improve idea generation and evaluation? Well, as we've already discussed, that's a problematic issue until the idea has been generated and evaluated. In fact, the more likely the idea is to disrupt the market and bring big rewards, the harder it will be to determine its value.

How does one justify the expense of improving innovation, idea management, brainstorming and the "fuzzy front end"? If ideas are by their very nature hard to quantify, and we know that some ideas will not come to fruition as new products and services, on what grounds do we justify any expense invested in making innovation work "better"?

There are probably many answers to this question, but here are few more likely ones:

- Build it and they will come. Since we can't quantify the value of the ideas and measure with any predictability the value they'll generate, let's focus on building the system and generating more ideas - the value will take care of itself. This argument will work well in the innovative side of the business, but will not carry the day with the financial team or accounting team.

- We can't justify it so we should not invest. I think that many people will circle around this argument, especially those who are in a more quantitative bent. There's simply no good way to "prove" the return on investment, since most ROI metrics I've seen are based on reducing cost. So far I haven't seen many strong financial rationales for innovation, but that hasn't stopped firms from moving forward with innovation initiatives.

These two arguments are at the far ends of the spectrum - build without justifying and don't build since we can't justify. Yet so far these are the predominant rationales. Another rationale is coming though. That one is the "if we don't do it, we'll be left behind" rationale. As firms focus attention on this issue, they'll find some reasonable approach to quantifying the value of the systems and processes. They are implementing idea management processes and systems. Sooner or later the result will be that other firms will begin projects simply because others in their industry have done so. There will be an idea management gap that must be filled. These firms will move the right way for probably the wrong reasons.

Two or three years from now, let's say by 2009 at the latest, we'll have a much better understanding of the value of innovation and methods to justify investment. We'll have several years of experience under our belts, and will look at these projects with the same weathered eye that now stares down ERP or CRM implementations, or Six Sigma projects. Right now, we simply don't have that base of experience, so all these projects seem to be unique, from scratch implementations.

The question you'll need to ask yourself is: what's the value of getting some of our great ideas to market more quickly, more efficiently and with more due process?
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posted by Jeffrey Phillips at 11:57 AM

14 Comments:

Blogger Bob said...

The thing is, I KNOW the worth (as opposed to the actual dollar value) of my ideas; I can even point to existing implementations out in the real world!

But how do I reach through the management morass and get the idea to the right person who can champion it?

7:36 AM  
Anonymous Sam said...

First, you have to identify that person. Second, in trying to identify that person, you may come to the conclusion that he/she doesn't exist at your company--that is valuable information. Third, once you identify the person, you have to demonstrate the worth of the idea--your hero is likely to want to see the value in dollars and cents, so "run some numbers." They don't have to be exact, just plausible. Fourth, present the idea. Depending upon the size and culture of the company, set up a 5 minute meeting or call to say you have a proposal to drop by, or suck up to the administrative assistant who controls access. But, all of this depends upon the person you are looking for actually existing, which may not be the case.

9:54 AM  
Blogger Dan said...

So, we're in 2010 now... how about an update... has there been an innovation in the world of innovating?

9:29 AM  
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