Wednesday, June 17, 2009

Can you afford to innovate?

Today we'll look at the affordability question of innovation from a contrary viewpoint. Usually people in my position sit hectoring business leaders about the fact that they "can't afford to not to innovate" which as we all know is poor grammar, a double negative and a lecture, all rolled into one. While saying this may make me feel righteous, and while I am probably correct, it behooves us to turn the tables around and ask ourselves - if we decide that innovation is important in our business, can we afford to do it?

Innovation has several costs associated with it as a practice. The first and most recognizable cost is financial - that is, the dollars that have to be spent in order to create new products and services. These dollars may be spent on consultants or third parties (feel free to ring us up for this kind of help) or on providing internal people and resources to an innovation team. Let's not kid ourselves. Innovation costs money - it is a form of experimentation, market research and investment.

The second cost is psychological and cultural. Can we enforce the change in thinking that is necessary to encourage the organization to think differently? This cost is actually more expensive than the fiscal cost. As a senior leader, you will need to invest your time and energy into ensuring that the cultural roadblocks and inhibitors are cleared out of the way so the innovation teams can function. It is a drain on your time and places stress on the organization and its culture. In many firms successful innovation will cost the culture something as well - which is why innovation is usually done in firms that are good at innovation from the start (already baked into the culture) or that are innovating their way out of a crisis (no other choice). Given any other option, most firms will grasp at other avenues out of a crisis - cost cutting for example, before turning to innovation.

The third cost is cannibalization. If your teams do a good job innovating, they are going to identify new products and services that overlap or make redundant existing products or services. In some instances they may create ideas that make a market or product line obsolete. Look no further than the big music stores to see what iTunes and music swapping/sharing has done to Tower Records. Would Tower Records have done this to themselves? Do they wish today that they had? Too many sacred cows in an organization will mean the cost is too high to consider innovation as a strategic tool.

The fourth cost is time. Innovation doesn't happen overnight. Well, idea generation may happen overnight, but validating an idea and bringing it to market certainly doesn't. Firms that demonstrate good innovation skills are constantly innovating, so there's not the concept of a "beginning" and "end" to innovation - it happens all the time, over time. We need a lot of time to be successful, and that time gets pulled from management, line workers and third parties. If your time is too valuable to share with an innovation team, then the innovation team ranks too low on your priorities.

So, if you look at this less than exhaustive list of cost elements, it's reasonable to ask yourself "Can we afford to innovate?". Innovation comes with exceptional benefits, but they are down the road, out a year or more, when the market is demanding return RIGHT NOW. Those returns are probable, and possibly big, but the costs are real and happening now. So the tradeoff is obvious. Many firms will argue that the possible payoffs are not worth the price in the short run, and will reach a reasonable conclusion that they can't afford to innovate. In the long run we have a name for these firms - market laggards. They have bought into the fallacy that innovation cannot "pay for itself" when strangely enough, all of the market leaders - J&J, P&G, Intel, Apple, Google, Boeing, Toyota, etc - are innovators and have found the investments necessary to innovate.

Can you afford to innovate? Of course you can. The real question is - do you have the "will" to innovate?
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posted by Jeffrey Phillips at 7:55 AM


Blogger felicity said...

It's so great to find a blog with original thoughts like this.
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