Tuesday, March 27, 2007

The slush fund

The real challenge for innovation in many firms isn't a lack of ideas, but the lack of an organized process to consider and evaluate ideas, and the ready funds necessary to implement an idea quickly. While I've written extensively about the necessary processes to speed innovation, I have not written about the funding issue. Most innovation teams need a small "slush" fund or R&D budget to provide some funding to try out new ideas and implement them quickly.

Speaking with a large firm recently, we tracked the process of an idea from initial capture to final implementation. Generally speaking an idea went through three gates or phases before it could be considered for funding. If it could be considered for funding, the idea then had to proceed through the annual planning process. Miss the window for the annual planning process and the idea waits till the following year unless some special funding was made available. This meant that an idea generated in February or March didn't get funded until November or December, and the funds to support the idea were not released until the first quarter, or at least a year after the idea was generated. In a market where new products and services are introduced daily, how much does your idea age before it gets funded?

If innovation is to be innovation, we should determine to implement good ideas when the time is right for the idea, not based on an existing ponderous annual planning process. I like to call these idea killing machines, since that's what they are. The time and effort required to move an idea through an annual planning process, especially given the difficulty of measuring the costs and returns of many ideas, means that too much time goes by before the funding is available. Other competitors are moving more quickly. Product lifecycles are getting smaller and smaller.

To keep innovation from getting crushed in the maw of the annual planning process, your firm is well advised to create a slush fund or innovation fund available outside of the traditional annual planning process, to provide just enough oxygen for good ideas that are out of phase with the planning process. Again, we can't expect the world to sit and wait for our great ideas to work themselves through a planning process that's based on a calendar year - good ideas need the funding necessary when the time is right. Too many times the window of opportunity closes before an idea can even be considered using a traditional planning process.

Several firms I've spoken with or worked with use an internal Venture Capital approach to solve this problem. Ideas can receive funding but have to apply to an internal VC fund to gain the money necessary to ripen the idea to the next step. This process is often much faster and more attuned to the lack of information and higher risks associated with innovative ideas.

Regardless of your innovation approach, find a way to provide some funding for ideas without having to pass the ideas through the annual plan, or you'll find the opportunities passing you by.
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posted by Jeffrey Phillips at 4:53 AM


Blogger James Todhunter said...

Hi Jeffrey,

Very well put. Organizations need to be prepared for innovation. This means preparing workers with the tools, knowledge, and insight into corporate goals to be effective in their innovation efforts. It also means, as you point out, having the disciplines to evaluate options in a timely manner so as not to loose a valuable opportunity. By the way, having the money available is not really an issue. All companies have discretionary funds. The issue is that many companies lose the ability to act with the nimbleness of an entrepreneurial organization, and in so doing become locked in to doing the same thing instead of seizing the opportunity.

-- Jim

5:34 AM  
Blogger Herman said...

New ideas are delicate. The journey towards funding can be viewed through the analogy of the lifeline of a chicken. The mating of hen and cock (observation and insight) plants the seed for the egg (idea) inside the hen. Good feeding (thinking) leads to the laying of the egg. The new egg is delicate and needs to be carefully stored or else it will be crushed (proper disclosure).

A new idea is delicate. It can be killed by a sneer or a yawn; it can be stabbed to death by a quip and worried to death by a frown on the right man's brow

If egg is stored properly, additional eggs are produced (brainstorming - ideas produce more ideas) and soon the hen is ready to brood. The warmth provided (funding) creates a biological process which soon results in new chicks (success).

That's an idea worth expanding. It can even result in a book! - "Eggs: How New Ideas Become Great Opportunities".

Have an egg-full day!

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