Wednesday, August 09, 2006

Business Case for Innovation

There's a growing sense of urgency around innovation. According to the recent BCG Survey on innovation, over 70% of CEOs name innovation as one of their top three priorities, and say they'll spend more money on innovation this year over last year. However, almost 50% say they are dissatisfied with the return they've received from investing in innovation initiatives so far.

I think part of the problem around innovation and the "return" on innovation resides in the business case. Like most new initiatives, many firms just started an innovation "skunkworks" or team without defining a tangible result or finalizing a business plan. When the results don't quite achieve what people had hoped for - a new, disruptive technology for instance, then suddenly everyone is disappointed. Now the pendulum is swinging. Innovation is forced to justify its existence through a traditional business case development.

And boy are the innovation teams having a tough time in some places. You see, in most firms you can pull a plan off the shelf for most business initiatives. That's because in most cases there's rarely anything truly "new" in a business. More than likely its been done somewhere before, and we can call on people with experience and pull plans out and modify them. Well, that's often not the case with innovation. There are very few people in many businesses who can detail, step by step, cost by cost, what it will take to improve innovation. Add to the newness issue the real fact that innovation is messy and problematic and prone to failure, and you've just increased the difficulty in defining and building a business case for innovation.

In most firms, there is no clear definition of the business case for innovation. That's because there are a lot of options (incremental or disruptive, product focused or service focused, open innovation or internal innovation) without a clear strategy. It takes time and effort to break down the commandment - Be Innovative - to its component parts and make decisions about what that means and how to implement it on a operational and tactical level. It's also difficult to quantify the benefits of an initiative that acknowledges a significant failure rate. As your firm becomes more innovation focused, some ideas, some investments simply won't make the cut. How do you quantify success now?

This is one of those activities that on the surface seems simple. Who would be against innovation? Certainly becoming more innovative is a good thing. The difficulty lies in the defintions of innovation, the hoped for outcomes and quantifying the results in a way that demonstrates the team understands its objectives and can achieve buy in from the senior ranks.
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posted by Jeffrey Phillips at 4:49 AM

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